If you’re interested in buying or selling commercial property in the UK, you need to get an accurate property valuation. But how do you go about doing it?
Many investors struggle with determining how much a certain property should be worth. This is due to the many considerations that govern the value of commercial property.
In this article, we’ll take a look at 4 ways to value commercial property in the UK you can use.
There’s no one-size-fits-all approach when it comes to commercial property valuation. You’ll need to choose the right method for each specific type of property, or perhaps even a combination of methods.
Let’s run through the main property valuation methods you need to know about.
Cost Approach
This is the simplest and most readily-available way to estimate a commercial property’s value in the UK. The estimation is a bit rough because you only need to add together the land and construction costs to get an approximate valuation.
Income Capitalisation Approach
Another way to value a property is by looking at its potential income.
This begins by looking at the capitalisation or ‘cap’ rate of the commercial property. This is the net annual rental income divided by your estimate of the current value of the commercial property. You can get this value by looking at sales of similar properties in the area.
Once you have the cap rate, or the rate of return, you can divide the net operating by this figure to get a value.
Sales comparison approach
This approach relies on the value of other similar properties going in the local area. It is possible to match your property to one with a similar square footage and facilities nearby. This will give you an estimation on how much your property could possibly sell for. It’s not the most accurate value, but it is a quick way to come up with a valuation figure.
Gross rent multiplier approach
You can use this approach if you need to calculate how long it would take to pay off the purchase of a commercial property using the rental income from tenants. Divide the estimated property value (or the total you need to borrow to pay for the property) by the gross annual rental income you expect.
These are 4 ways to value commercial property in the UK but they are not all the ways to do so.
You can also use the Value per Door method if you’re considering buying a commercial property with many units or apartments. If this is the case, then you can find the value of one unit and potentially multiply it by the total number of units in the building to get an overall value. You can do this calculation the other way round if you want to find the value per unit. Then simply divide the whole building value by the number of units.
Should you use a professional valuation service?
It can be daunting to value commercial property in the UK and get an accurate figure. This is particularly the case for commercial properties that are not standard or are in certain parts of a town that don’t have similar developments.
One way to solve this is to search for professional appraisal services. If you’re planning on investing in a commercial property or want to get a fair price when selling a property, it’s important to get an accurate valuation.
When you use a valuation service, there will be fees to pay. These can vary considerably, but you can expect to pay anywhere up to £5,000.
Working with a professional appraiser ensures thorough research and analysis of all aspects of the building. They will look at the location and proximity to other commercial properties as well. Another aspect of the valuation is the assessment of the building’s income potential. This will be partly based on location, but also on the number of tenants it could comfortably accommodate.
Using the information gathered and their professional expertise, an appraiser will produce a report. This will contain the findings of the assessment and of course, the valuation figure.
Getting a valuation for your commercial property is the best way to extract the maximum value for money. Whether buying a property or selling one, you will need to get it valued to make sure you are getting your money’s worth.
Final thoughts
Some people think that valuing a commercial property in the UK is complicated but it doesn’t have to be. You can follow the 4 ways to value commercial property in the UK in this article and do it yourself or hire professional appraisal services.
Whichever direction you choose, be sure to gather lots of information, do some research into the location where you’re buying/selling and perhaps consult an expert to get an accurate value.
Hopefully, this guide will give you a good starting point. We’ve covered the main valuation methods to help you get started as well as some things to keep in mind if you decide to work with a professional valuation service.
