In today’s landscape, commercial property investments come with their share of uncertainties. Recent concerns have emerged regarding Metro Bank, and it’s crucial not to let anxiety take over. Instead, let’s focus on staying well-informed. In this blog, we’re introducing a valuable tool: a commercial property valuation calculator. This calculator follows the term reversion valuation method discussed by John Mansfield in a previous podcast.
Before delving into the details, please remember that this calculator is a simplified version of the comprehensive deal analysis spreadsheet available in our members’ club. Members have access to in-depth analysis, but this calculator will serve as an excellent starting point for anyone interested in commercial property valuation.
How to Use the Commercial Property Calculator:
- Current Rental Income (Cell B5): Enter the current rental income generated by the property. If it’s zero, input zero. If it’s £50,000, enter £50,000. Concentrate on the yellow boxes only; the rest is automatically calculated.
- Years Guaranteed (Cell B6): Indicate how long the rental income is guaranteed. This depends on lease durations or the time until the next lease break. For properties with multiple tenants, calculate the average duration across all leases.
- Market Yield (Cell B7): Determine the market yield appropriate for the property. Look at comparable evidence and consider local market conditions. You can refer to Prime Yield Guides, Dozo EIG auctions, Costar, or contact local agents for insight. Adding a percentage for risk is advisable.
- Market Rent (Cell B23): Estimate the rent that the property can command after the current leases expire. Once again, use comparable evidence to make an educated guess.
- Months to Relet (Cell D25): Ask local agents how long it might take to find new tenants for the property after leases end.
- Rent-Free Months (Cell D26): Specify the number of rent-free months you would offer as an incentive to tenants. Typically, three months is standard, but local market conditions may vary.
- Appropriate Yield (Cell B39): Add 0.5% to the figure in Cell B7 to account for market risk. If the market is exceptionally risky, consider adding 1%.
- Capital Expenditure (Cell B33): Enter any anticipated capital expenses required for the property, such as redevelopment or upgrades to meet standards like EPC (Energy Performance Certificate).
- Estimated Capital Value (Cell B39): After inputting the necessary data, Cell B39 will provide you with an estimated capital value for the commercial property. This is a rough estimate, so consider consulting local agents for confirmation.
Please note that this calculator is designed for commercial property valuation only, not residential property. For residential property valuation tools and more in-depth analysis, consider joining our members’ club.
This calculator offers a valuable starting point for assessing the value of a commercial property. It aligns with the methods employed by surveyors in their valuations. While there may be adjustments made for specific factors, it provides a solid baseline for your property assessment.
To access the calculator and start honing your commercial property valuation skills, simply click this link, provide your name and email, and download the spreadsheet. Happy valuing!
