Commercial Property Valuation

What is a Commercial Property Valuation?

A commercial property valuation is undertaken by a valuation surveyor and is intended to provide an impartial evaluation of the market value of a commercial building. A commercial property valuation is typically undertaken by a registered/chartered valuation surveyor as they have the experience and knowhow to complete these to a high standard, by assessing comparable/similar properties and using their market knowledge.

A commercial property valuation can be undertaken on a variety of different commercial properties including office, industrial premises, retail units, surgeries, restaurants etc. There are numerous reasons why a commercial property valuation may be required, including:

Building Acquisitions or Disposals: Whether a commercial property is being sold or purchased it is necessary to undertake a commercial property valuation. This will ensure that the sale value of the building accurately reflects the market conditions and will enable the prospective purchaser to understand what they will likely secure for the premises. A commercial property valuation undertaken on behalf of a prospective purchaser will also provide comfort that they are not paying over the odds for the building.

Business Appraisals: A commercial property valuation may also be undertaken in relation to a business appraisal. This type of commercial property valuation often utilises the profits method of valuation as the commercial property will often be being used for a specific purchase which relates to the business function. The valuation makes an assessment based upon three years of the business’s financial accounts in order to calculate the likely trading prospects. This commercial property valuation is usually undertaken when valuing restaurants, cinemas, care facilities, hotels etc.

Charities Act Valuations: An independent commercial property valuation by a RICS accredited surveyor is required in order to advise a Charity on the best next steps when a trustee is disposing of a commercial building. The commercial property valuation will need to include reference to any repairs required before sale of the property and also advice on whether the approach will provide the best market value. This type of commercial property valuation will need to be undertaken by an experienced valuation surveyor owing to these extra requirements.

SIPPS and SSAS: A commercial property valuation is required in order to assess the viability of an investment of funds into a commercial building where this is being made under a pension scheme. The property will be in the ownership of the pension scheme or third party who leases it. Any rent will be paid back into the pension fund. A valuation surveyor will undertake the commercial property valuation to determine whether the proposed investment is viable.

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What is included in a commercial property valuation?

The level of detail included within a commercial property valuation will be dependent upon why the commercial property valuation is required and the type of instruction which was agreed with the appointed valuation surveyor.

Typically a commercial property valuation report will include the following information:

Instructions – this will confirm the scope/brief of the appointment, who the appointing party is and for whose benefit the commercial property valuation is for;
Basis of Valuation – this will on what basis the valuation has been prepared and which commercial property valuation method has been used;
Property Description – this will provide an overview of the property including its location, the site, building arrangement, construction, services, use etc.
Condition – an overview of the condition of the premises and the standard of repair;

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Statutory Compliance – this will provide an overview of any statutory issues including asbestos, planning, building regulations etc.
Valuation Considerations – this will provide some general remarks on the property, outline the comparable evidence, and summarise the limitation of the liability;
Appendices – these will likely include the terms and conditions, photographs, floor plans etc.

What are the benefits of obtaining a commercial property valuation?

Firstly by engaging a valuation surveyor to complete a commercial property valuation you will ensure that the property is marketed at the correct value and therefore will obtain interest from prospective purchasers. if you are looking to purchase a building, then the commercial property valuation will ensure you are not paying too much for the asset. It will also ensure that the returns on the investment are accurately analysed meaning that the investment will be viable.

Should the purchaser be borrowing money from a lender as part of the property purchaser, then the commercial property valuation will ensure the lender has suitable collateral within the property.