At a glance
- A no-obligation appraisal is not a valuation report; a formal valuation is required for financing.
- Use net initial yield, not just gross initial yield: ownership costs are substantial.
- For complex cash flows, the DCF method is more accurate than direct capitalisation.
Appraisal versus formal valuation
An appraisal by a commercial real estate agent is an indication based on comparable transactions and market knowledge, usually provided free of charge or for a small fee. A formal valuation is a validated report prepared by a certified valuer, required for financing, annual accounts or disputes.
Method 1: rental value capitalisation
The market rent is capitalised at a market-level yield (gross initial yield or net initial yield) to determine the value. This is the most commonly used method for fully let, marketable property with a stable rental income stream.
Method 2: DCF (discounted cash flow)
Where rental income fluctuates, there is vacancy or a lease is approaching expiry, the DCF method provides a more accurate picture: future cash flows and the terminal value are discounted to their present value using a discount rate.
Indicative yields (gross initial yield) by segment
- Logistics/distribution centre in a marketable location: indicative gross initial yield of 5.0%–6.5%.
- Office with good accessibility and an A/B energy rating: indicative gross initial yield of 6.0%–7.5%.
- Marketable industrial premises/industrial unit: indicative gross initial yield of 6.5%–8.0%.
- Retail space outside a prime location: indicative gross initial yield of 7.0%–9.0%.
What influences value most
- Remaining lease term (WALT) and tenant quality.
- Location, accessibility and availability of parking or loading and unloading facilities.
- Energy rating and progress on sustainability improvements, particularly for offices due to the requirement for an energy rating of C.
- Indexation clauses and the rent level relative to market rent.
Frequently asked questions
How much does a commercial property valuation cost?
Depending on size and complexity, the indicative cost is between €1,500 and €5,000 excluding VAT, with higher fees for portfolios or DCF valuations.
How often should I have my commercial property valued?
For financing, usually on purchase and refinancing; for investment purposes, valuations are often carried out annually or every two years to update the book value.