How Do You Determine the Value of a Commercial Property?

If you work in real estate, you work with data. It doesn’t matter if you are a broker, developer, contractor, agent, investor, appraiser, property manager, or involved in real estate in some other way, your job revolves (at least in some sense) around data. Although analyzing commercial real estate (CRE) data can be time consuming, it’s a crucial part of the process. 

CRE data helps real estate professionals make informed decisions. This can look like project cost and due diligence fees for developers. Or, it might make it easier for appraisers to compare one property to another. For some, it might be a way of determining what areas to invest in. Oftentimes, it’s as straightforward as gaining clarity on a competitive price for a property. 

If you are looking for help determining the value of a commercial property, you’ve come to the right place. Instead of guessing what a commercial property is worth, it is better to interpret a full set of data to find your answer. In this blog, we are going to look at the factors that go into commercial real estate values and what you need to know to accurately assess a property.

How Much is My Commercial Building Worth?

Of course, we can’t give you a perfect answer for “How much is my building worth?” because every real estate opportunity is unique. Plus, real estate doesn’t really have a fixed price, but is instead dictated by the overall market or what people are willing to pay considering a whole range of variables.

 
What we can tell you however, is that when it comes to the valuation of a property, there are many important factors. According to Forbes in 2021, some of the more important ones currently include:

• Demand for commercial properties is currently higher than average. 
• Office building vacancies are increasing due to the COVID-19 pandemic and continued push for remote work. 
• Federal aid changes can dictate how aggressive or cautious potential CRE investors want to be. 
• Increased adoption of technology, data, and market intelligence means that buyers and sellers can more transparently establish a price and value they are comfortable with.
• Higher demand than supply tends to increase property values as they become more and more scarce. 
• Reimagined office space needs is trending, whether that means a completely remote workforce, or some hybrid version. Office space that accommodates every single employee is no longer the norm. 
• Surging interest from investors means that when someone finds a property at a price they like, they have to act quickly as the market is competitive.
• Increases in capital for things like industrial, multi-family, mixed-use, self-storage and other specific real estate spaces ultimately impact the value of certain commercial properties. 
• Real valuation essentially boils down to the notion that a property is worth whatever a central bank says its worth.
• Inflation can have a different effect for different audiences. For some, it might make sense to buy ASAP if the prospect of inflated prices in the future worries them about CRE costs down the road. Conversely, if a party thinks inflated prices aren’t here to stay, then they might wait around to buy until values come back down.     
• Shifting tenant and resident expectations will dictate some portion of the value of a property, but more so in how it is operated and less so due to the property itself. Still, if you intend to rent out a commercial property, these will be important considerations when determining overall value.
• In-Person retail is suffering, which has been compounded by the pandemic and all-online experiences. This may have commercial real estate repercussions as storefronts and brick and mortar businesses pivot to a post-COVID approach.

What Is the Market Value of a Commercial Property?

Based on all of those variables, it can be tough to determine the exact market value of a property. Fortunately, there are a few indicators that can help inform a market valuation.

• Cost- Looks at the cost of the building materials, labor, and property 
• Income- Accounts for the forecasted net rental income divided by the costs of the building
• Sales comparisons- Examines recently sold properties with comparable features in similar market conditions
• Gross Rent Multiplier- Looks at the gross rental income divided by the the costs of the building
• CRE property-level data- information that is unique to each property in the local market such as lot size, type of asset, square footage, etc.
• CRE transaction data- information that is also unique to each property, specifically its ownership history and value
• CRE demographic data- commercial real estate market data including local supply, average rents, etc

Do Commercial Properties Go Up in Value?

The short answer is yes, but they can also go down. Real estate values fluctuate based on a myriad of factors. So if you are wondering how much do commercial properties appreciate per year, there is really no way of knowing exactly. The best thing to do is look for accurate, exhaustive data for the area the commercial property is in. That’s where we at Canyon Data can help. 

Canyon Data…Data That Makes a Difference

We’ve made it pretty clear that data is a major component in commercial real estate. What we haven’t articulated yet is that accurate data can be hard to come by. Some data can be incomplete, outdated, or nonexistent. In fact 40-50% of data is inaccurate. 

That’s why we are on a mission to provide accurate, high-quality data you can trust. No matter what role you play in the commercial real estate industry, we give you the data you need to be the best in your field. 
Are you ready to get started? Contact us today!