Pinning down value

Ascertaining the true value of a commercial property is far more difficult than people realise but some experts have given us a rundown of exactly what’s involved.

Monday, May 21st 2018, 10:00AM

by The Landlord

A building is a building whether it’s a house or a warehouse. So calculating the value of a commercial building can’t be much different to calculating that of a residential building. Right?

Wrong. Valuing commercial properties is not like comparing apples to apples. But thinking it is is a common mistake made by investors new to the sector.

While it is true to say that – bar apartments or units in the same block – no two residential properties are identical, there are, ultimately, overarching similiarities in residential property.

These allow for a more standardised approach when it comes to valuing residential properties.

Opteon Solutions valuer Mark Davidson says that residential properties tend to be valued using a comparative sales approach where you look at sales of comparative properties in the same suburb.

“You do need to think about some of the subjective things like location, schools, views and the like too.

“But it’s more straightforward than commercial where there are more factors that you have to take into account. Valuing commercial properties is more complex and the numbers are critical.”

That’s because no two commercial properties are exactly alike. Not only are there the different commercial sectors but, within those sectors, the building types, property compositions and attached features vary widely.

And then there’s the element of leases that need to be taken into account.

JLL associate research and consulting director Tom Barclay says that if you had two identical residential properties side by side you could expect they would sell for a similar price - but that’s not the case with commercial properties.

“For example, if you had two identical commercial properties (same age, quality, NBS%) side by side, each could sell for a very different value depending on the lease terms and tenant.”

That’s because it’s all about security, risk and income streams when it comes to valuing commercial properties.

To find out more about how to value commercial properties, click here to get the digital issue of NZ Property Investor magazine.

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