Commercial Valuation
Value a commercial investment property using the investment method, including its reversionary position.
Introduction
Who this is for: Investors, brokers and analysts appraising income-producing commercial property.
Why it matters: Commercial property is valued on income, not comparable sale prices. A building let at £80,000 on a 6% yield is worth roughly £1.33m — change the yield by half a point and the value moves by more than £100,000. Understanding that sensitivity is the core of commercial investment.
Typical scenario: A multi-let office is producing £85,000 passing rent against an estimated rental value of £110,000, with 4 years unexpired. The investor needs to understand both today’s value and the reversionary value once leases are re-geared.
- Valuing on passing rent while ignoring that the lease is under-rented and reverts to a higher market rent.
- Applying a prime yield to a secondary asset — covenant strength and lease length drive the yield, not the sector alone.
- Forgetting that purchaser’s costs (typically around 6.8%) sit between gross and net value.
Inputs
Income
Yield
Costs & Lease
years
Analysis
On a passing rent of £85,000 less £8,000 of non-recoverable costs, net income is £77,000. Capitalised at 6.5%, that gives a gross value of £1,184,615.
After purchaser's costs of £102,000, the net value is approximately £1,082,615.
Once let at ERV, the reversionary value rises to roughly £1,608,333 — an uplift of £423,718. That gap is the value-add case for this asset.
This analysis provides context, not financial advice. Consult a qualified adviser before making investment decisions.
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Sensitivity
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Export
Live Results
Gross Value
£1,184,615
Net Value (after costs)
£1,082,615
Reversionary Value
£1,608,333
Reversionary Uplift
£423,718