Commercial Property valuation through the rent payable.....

[oi_oi_savaloy]

Guys

If I had a commercial building (A1 use) of approximately 5,500sq ft (nia) and I was to receive £75,000 for one year's rent what is the value of that building?

(The background to the question is - I'm putting a tender together for a mixed use development and one of the sweetners the vendors have offered is 75k for the commercial/retail unit on the ground floor. They've said they will pay 75k for one year only.

The trouble is I can't tap 75k into my viability as it needs a value for the unit rather than the rent payable).

Help!

Happy to answer any questions if that helps.

[chrisgr31]

Well the capital value of it is effectively a multiple of the rent. The only problem is that the multiple used will depend on location, covenant strength of tenant and various other factors.

In this case the real question has to be what is the real value of the rented part? Presumably if the vendor is only committing to £75,000pa for a year then its less than that!

You need to speak to a qualified valuation surveyor for your area. Try www.rics.org

[The Londoner]

Not too clear what you mean, but are you saying that the vendors will guarantee the rent for the unit for a year after completion? As Chris says above though, you need to talk to someone local; the qualified that walk amongst us are not going to be able to give out free valuation advice with potential liability issues.

[oi_oi_savaloy]

The Londoner said:

Not too clear what you mean, but are you saying that the vendors will guarantee the rent for the unit for a year after completion? As Chris says above though, you need to talk to someone local; the qualified that walk amongst us are not going to be able to give out free valuation advice with potential liability issues.

That's what I'm saying - they'll quarantee 75k for the first year after completion; the trouble is that the firm I work for a v reluctant to get involved with commercial - we're primarily resi developers. We'd look to sell the commercial element anyway but for the purposes of my viability i was just looking for a value to tap into. I understand the liability issues - perhaps I shouldn't have asked. I was just trying to get a feel for a rough approximate idea of what it might be worth.

Don't worry - thanks for your help guys.

[chrisgr31]

Incidentially the way to work out the capital value is to take the interest rate on capital invested divide it into 100, multiply the answer by the annual rent to give capital value.

The skill is determining the interest rate and the annual rent!