What Increases the Value of Commercial Property?
Whether you’re a developer, property manager, or building owner, increasing property value requires precise strategic decisions, made on a local level. What works to increase the value of a property in one city might not work for another. There’s no one strategy that will work for every property, but something can be done to increase every property’s value.
Adding value to a commercial real estate (CRE) property means increasing revenue, decreasing costs, making improvements to the building, or a combination of these. By employing one or some of these methods, you are able to increase a property’s worth, whether choosing to retain the building or sell it.
But what does it mean in commercial real estate to increase property value? CRE professionals know that increasing revenue or decreasing costs isn’t so easy. And achieving both at once? That’s a double win if you can seize it. Whether you’re a developer, property manager, or building owner, increasing property value requires precise strategic decisions, made on a local level. What works to increase the value of a property in one city might not work for another. There’s no one strategy that will work for every property, but something can be done to increase every property’s value.
Let’s explore some of the most common strategies, updates, and improvements that add value to commercial real estate properties. Plus, we’ll share how Canyon Data is delivering the CRE data to make these decisions easier for all stakeholders, based on what’s happening in your area.
What Makes a Commercial Property Valuable?
A commercial property is valuable because it generates income for the owners. Anything which makes the property generate more income therefore makes it more valuable. One of the things that makes CRE a great investment is that its value naturally grows over time. But there are also active steps you can take to increase the property’s value. As we mentioned before, you generate more income by improving the building to increase more revenue or lower the expenses.
- Increasing CRE Revenue: Increasing occupancy, raising lease prices, and implementing fees can all increase revenue from a commercial property. Remodeling the building, repurposing its use, and adding green improvements are more examples.
- Decreasing CRE Expenses: Switching vendors, getting the building reassessed, or insourcing management activities can all reduce the expense of property management without compromising on maintenance and other necessities. You could also implement energy efficiency products or generally stay current on maintenance.
If you’re looking for ideas about strategic investments you can make to improve the value of a commercial property, here’s a more robust list of ideas.
Factors Affecting Commercial Property Value
- Finishing Unfinished Rooms or Adding Spaces: Dividing one large retail or office space into smaller ones can increase appeal to renters who do not need a large space. Adding a garage, in-building storage, cafe, or other amenities also increases the value.
- Naming the Building: Something as simple as naming your office building, retail center, or industrial park increases public awareness and makes it memorable. You can name it something simple, or get creative!
- Updated Signage and Modernized Exteriors: For office buildings, shopping centers and industrial buildings, cosmetic improvements can make a big difference – and may enable you to increase the amount of rent you charge. Give the exterior a makeover, improve the lobby, or repave the parking lot to enhance the property.
- Increased Security Like Alarms, Gates, and Shutters: These improvements will not only increase your property value, but can lower your insurance premiums.
- Know the Neighborhood and Judge Local Demand: If your property is similar to others in the area, a lack of variety could be driving down your property value.
Canyon Data is a great resource for property owners to stay updated on the neighborhood. Our proprietary data collection process keeps stakeholders updated on all essential CRE data like building improvements, market comps, changes in ownership, and more. With our insights at your fingertips you can make the right strategic decisions to increase or maintain the value of your property in the local market!
What Are The Three Ways to Value a Commercial Real Estate Property?
There are three main approaches to valuing a commercial real estate property: sales comparison, cost, and income capitalization. Let’s review each.
- Sales Comparison Approach: The most common way to judge the value of a commercial property is by comparing it to other similar properties in the area (comps). While other properties may be similar to yours, they will not be identical! Different assessors and appraisers can come up with significantly different valuations based on the comps used.
- Cost Approach: When properties are unique in their area, they may be valued using the cost approach. This means an assessment of the cost of the land and how much it would be to construct the building in today’s market. Then, the cost is depreciated based on the state of the property compared to a brand new structure to get an estimate of the value.
- Income Capitalization Approach: There are two ways to value a commercial property based on its income. Using a direct capitalization approach, the expenses to run the building are subtracted from its revenue. The difference is compared to other, similar properties to judge if yours is more or less valuable. Alternatively, small multifamily properties may be valued using gross capitalization, which compares the rents being charged to local housing prices to determine how valuable the property is.
What unites all these approaches? The need for accurate and current data about the surrounding real estate market. Without updated insights into the comps being used, your own property could be valued too low. Under the cost approach, you need accurate understanding of the value of land and the current costs of development. Using income capitalization requires insight into how much revenue other properties are making and their expenses–this also requires up-to-date data.
If you don’t have a complete understanding of your building’s value, it will be challenging to increase the value! Imagine the disappointment and frustration of making improvements, only to receive a similar valuation because other records have been updated. Canyon Data exists to spare you this headache.
What Adds Most Value to a Property in Your Area? Find Out With Canyon Data!
Canyon Data is on a mission to empower innovation and confident decision-making through the best, most accurate CRE data in the industry. Our proprietary data collection and verification process is rooted in a boots-on-the-ground approach that sources local data within a matter of days, not weeks or months. The result is a reliable database where any stakeholder can access unparalleled insights.
Subscribe today to get access to all our CRE data about the Boise, Idaho market, with insights about Portland, Seattle, and Salt Lake City coming soon. Canyon Data can help you identify exactly the improvements and changes that will add the most value to your property in your local market.