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What is a Commercial Real Estate Valuation

By John Carter

Commercial Real Estate Valuation

A commercial property is one that is used to generate income. This includes retail stores, rental offices, manufacturing businesses, and all sorts of other organisations.

A key part of owning a commercial property is always understanding its true market value. To understand the value of commercial real estate, you’ll need the assistance of a qualified professional. This is where independent commercial property valuations come in handy.

Commercial real estate valuations in Perth are reports written by Certified Practising Valuers (CPV) who are registered with the Australian Property Institute (API). These highly qualified property specialists have undergone extensive training that allows them to prepare accurate valuation reports.

Precision is key when it comes to determining the worth of commercial property. Valuers have to be meticulous in their calculations to get exact figures. For the best results, you’ll want to hire a professional with specialised experience assessing commercial real estate.

What valuation approach is used for commercial real estate?

A valuation of commercial property requires a more in-depth analysis than that of residential real estate. The yearly income that the property produces forms a key part of the valuer’s calculation.

When it comes to how to perform a valuation of commercial property, the most commonly applied valuation method in this regard is the income capitalisation approach.

What is the income capitalisation approach?

To understand the income approach, we must review some key terms.

First, the net operating income. This is income generated by the property minus expenses but before capital expenditure, taxes, and debt service. Essentially, it is the effective gross income minus the operating expenses.

Next, the capitalisation rate comes into play. This is the ratio of net operating income to the property’s value; used to predict an owner’s anticipated return on investment over the course of the year before considering debt and taxes.

Now, to reach the true market value of the property, the capitalisation rate is divided by the net operating income.

Valuers will also consider internal and external factors such as the size and space of the property, location, parking availability, surrounding stores, and market conditions when preparing reports.

What approach is used in the valuation of industrial property?

An industrial property is one used for manufacturing, processing, warehousing, or retail purposes. These include structures such as factories, office parks, workshops, warehouses, breweries, storage facilities, production buildings, and more.

The same approach is used for industrial property valuations, but a few additional factors are considered. These include:

  • Plans for the surrounding area
  • Zoning laws
  • Accessibility for staff and distribution
  • Security and safety standards
  • Planned upgrades.

Valuers take all these factors into account while using the income capitalisation approach.

How accurate are commercial real estate valuations?

The reason commercial property valuations are sought after is the standard of accuracy and attached legitimacy. Each report is tailor-made to suit the circumstances of the client and every single contributing factor is considered.

As only highly qualified property specialists have the authority to prepare valuation reports, a consistently high standard of accuracy is maintained.

There is no other existing property service that can assess your property’s worth with the same standard of precision. Online tools and appraisals unfortunately only serve as estimates.

As a legally-recognised report, you need not worry about other parties claiming the figures are inaccurate. These certified documents are accepted as proof of the true market value in the eyes of the law.

Valuers also operate under the key principles of honesty, integrity, and transparency. They will explain every step of the process and ensure you understand how they reached the final figure.

All in all, a commercial property valuation is the only way to get your property’s exact true market value.

Why should I get a commercial real estate valuation?

The reasons to get a commercial valuation are plenty. Owners, investors, sellers, and anyone who has a vested stake in the property can stand to benefit.

Some of the main reasons people purchase valuations are:

  • Succession/estate planning: When a shareholder dies or retires, the interest they held will need to pass to the remaining shareholders in accordance with the set terms. To properly do this, shareholders will need to understand the exact value of the property at all times.
  • Maintenance and renovations: Part of investing in your property is making sure that you keep its value high. This involves regular maintenance and occasionally the addition of more structures or features. A valuation can help identify areas in need of improvement or repair.
  • Taxation: In today’s world, tax is unavoidable. A valuation can prove a useful tool to outline the exact amount of tax that you need to pay in cases where you sell or buy a property. Any other additional taxes associated with the property will also be defined.
  • Pre-sale guidance: At some point, you may decide to sell your property (or at least the part you own). This is not a decision you want to rush, and a valuation can help you make an informed choice. Knowing the true market value of the real estate can give you clarity on your potential earnings.

In conclusion

A commercial real estate valuation is the most reliable way to find the exact worth of an income-producing property. Qualified professionals with years of experience and extensive training prepare these reports.

Known as Certified Practising Valuers, they are registered with the API and committed to exceptional standards of service.

Valuers follow an income capitalisation approach when reviewing a commercial property. The net operating income is divided by the capitalisation rate to determine the existing market value.

While other real estate assessment services exist, none are as accurate or legitimate as independent commercial property valuations from registered professionals.

Valuations can be a useful tool for succession planning, taxation, maintenance, and pre-sale guidance, among many more. All in all, it leads to better decision-making regarding your commercial property.

If you’d like to learn more about commercial real estate valuations in Perth, don’t hesitate to reach out. As industry leaders, we can effectively answer all of your valuation questions or concerns.