For owners

Selling a commercial property: value, strategy and process

Commercial property prices are determined by the figures: rental income, lease term, required yield and whether your buyer is an occupier or an investor. Here is how to get these in order before going to market.

At a glance

First identify your target buyers: owner-occupiers or investors. This determines the price and presentation.
Accurate property documentation (measurement report, energy rating, permits, leases) prevents price reductions during due diligence.
Factor the buyer's 10.4% property transfer tax into your price expectations.

Step 1: substantiate the value

For a tenanted property, start with the market rent per m² per year. Divide the annual rent by the yield investors require for this property type and location: with €120.000 in rent and a gross initial yield of 7,0%, this gives approximately €1.715.000. A longer lease with a creditworthy tenant reduces the required yield and therefore increases the value. For an owner-occupied property, use comparable transactions per m², adjusted for clear height, office proportion, condition of the building services and energy rating.

Step 2: bring it to market vacant or tenanted

Tenanted: the buyer is an investor and the value reflects the lease; vacancy risk and tenant quality determine the yield.
Vacant: the buyer is an owner-occupier, often paying a higher price per m², but with a longer transaction period due to financing and permits.
Sale and leaseback: you sell and lease the property back, releasing capital from it while retaining the location.
Subdivision into units: higher rent per m² and more buyers, but investment in partitions and meters is required.

Step 3: get the documentation in order

NEN 2580 measurement report showing lettable floor area (VVO) per unit and per floor.
Energy rating; office space over 100 m² requires at least a C rating.
Leases, addenda, bank guarantees and tenants' payment histories.
Service charge breakdown and reconciliations for the last three years.
Soil and environmental report, and an asbestos survey for properties built before 1994.
Permits, environmental category and permitted use under the environmental plan.
Maintenance history and a multi-year maintenance plan for the roof, floor and building services.

Step 4: marketing and bidding process

Commercial property does not sell through an advertisement alone. A commercial real estate agent targets investors, property funds and occupiers in the same segment, lists the property on Funda in Business and provides an information memorandum with a tenancy schedule and yield calculation. Where several parties express interest, a structured bidding process with a deadline works better than negotiating with one party at a time.

Step 5: from LOI to completion

A letter of intent (LOI) is followed by legal, technical and tax due diligence. This is where most price reductions arise, usually because of a missing report or a planning designation that does not cover the actual use. Next come the sale agreement with warranties and the notarial transfer, with rent, service charges and security deposits apportioned as at the transfer date.

Common pitfalls

Basing the asking price on the book value or the purchase price from years ago rather than on market rent and yield.
Starting environmental and asbestos investigations too late, causing the LOI deadline to expire.
Selling without tax advice on VAT, transfer tax and the reinvestment reserve.
Failing to keep an existing tenant adequately informed, causing them to leave just when the buyer wants certainty.

Frequently asked questions

How do you determine the value of a commercial property?

For a tenanted property, through rental value capitalisation (market rent divided by the gross initial yield) or a DCF calculation. For an owner-occupied property, through comparable transactions per m² in the same area and category, adjusted for height, condition, energy rating and designated use.

How long does it take to sell commercial premises?

Allow four to nine months: preparation and compilation of the property documentation, three to six months of marketing, followed by six to twelve weeks for due diligence and transfer of title before a civil-law notary.

Should I sell vacant or tenanted?

Selling tenanted targets investors and delivers a value based on the lease; the quality of the tenant and the remaining term determine the price. Selling vacant targets owner-occupiers, who often pay more per m² but have to deal with financing and permits.

How much property transfer tax does the buyer pay?

Non-residential properties are subject to a rate of 10.4% of the purchase price. This cost puts downward pressure on the offer, so factor it into your price expectations. Different rules apply to a share transaction or a transfer subject to VAT: have a tax adviser review this.

What does a buyer request during due diligence?

Leases and addenda, tenants' payment histories, service charge reconciliations, NEN 2580 measurement report, energy rating, environmental and soil reports, asbestos survey, maintenance history, permits and the designated use under the local environment plan.

What is your commercial property worth?

Request a no-obligation value assessment from up to three commercial real estate agents in your town or city.

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