Investing in commercial property is much more complicated than residential property. In particular, New Zealand council-issued capital values (CVs) can be confusing for inexperienced commercial property investors. If you have previous experience in residential property investment- where CVs are indicative of the property’s market value – you may assume that commercial property follows suit. But this is not a safe assumption.

In this week’s blog, our guest expert in commercial property valuation, Louie Lim, discusses the factors which affect commercial property value. Louie is an Auckland-based property valuation specialist. Previously, he had a successful five-year stint with Bayleys, specialising in residential property valuations. He now focuses primarily on industrial properties including market valuations for mortgage security and financial reporting, rent reviews and insurance purposes.

Before finding out the factors affecting commercial property value, you might wonder if commercial property is now a more attractive investment than residential property. Last month, Michael, a commercial real estate agent, discussed the pros and cons of investing in commercial property. If you are interested, click here to learn more.

Why capital valuation (CV) of commercial property might be different from real market value?

Video Timeline

1. Lease Income - 02:38
2. Quality of tenant - 05:16
3. Lease period - 05:33
4. Occupancy - 06:12
5. High- or low-value property - 06:38

How to value commercial property?

- Factors Influencing Commercial Property Valuation

Whether you are thinking about investing in a commercial office building, warehouse space, retail shop or another type of commercial property, this article will help you understand which factors affect commercial property valuation. After reading this article, not only will you know what makes a good commercial property, but you will also understand the fair market value of commercial property. We’ve put together these tips to help you make an informed decision when it comes to commercial property investment. 

1. Lease Income

The lease income from commercial property is one of the main factors affecting commercial property value. In Auckland, commercial property lease rates are usually calculated on a per square metre basis. The larger the commercial property, the higher the lease fees your tenants pay. This will help increase the market value of the commercial property.

2. Quality of tenant

A well-located commercial property with a good tenant often sells for a better price than a property which has a lower quality tenant. If the existing tenants in an office building have strong and stable financial resources to meet their financial obligations under the lease, then the value of this commercial property will be high. You might get some ideas on the quality of the tenant by asking for their business plan and checking their previous lease experience.

3. Lease period

The lease period for a New Zealand commercial property typically starts from two or three years. Some popular commercial properties have a lease period of ten years. From the perspective of lease durability, if the tenants lock into a longer lease period, then this would help to raise the value of the commercial property.

4. Occupancy

The market value of a vacant property is lower than a commercial property which has occupied tenants. This is because a commercial property, an office building for example, could be untenanted for a very long time, from several months to years, with no guarantee of finding proper tenants. Long untenanted periods could negatively impact New Zealand’s commercial property investors, as they must cover the ongoing expenses until they find another tenant.

5. High- or low-value property

As there are many low-value commercial properties listed, investing in these kinds of properties becomes very competitive. As a result, you will find that there is little difference in the value of vacant or tenanted properties. However, in the high-value commercial property market, it’s often hard to find a good tenant for a long lease period. So, whether having existing tenants in commercial property will affect its real market value.

Interested in commercial property investment? 

Here’s why you should engage a Registered Valuer like Louie

When buying or selling commercial property, it’s crucial to check the property value to ensure you know what the property is worth.

Engaging a registered valuer in the early stages of commercial property investment will provide you with an up-to-date and fair market value of the commercial property, which is valuable when going into negotiations.

You need to talk to a registered commercial valuer, like Louie, if you are interested in commercial property investment. As well as offering you his local knowledge and insights on the property, he is fast and efficient, which could save you lots of time.

Most importantly, Louie is a bank accredited valuer. For commercial property, some major New Zealand banks require you, or your mortgage broker, to order a valuation only through their panel.

For all these reasons, we highly recommend you choose Louie to value your next commercial property. You can contact Louie via: louie.lim@darroch.co.nz or by calling: 021 626 098, 09 374 6636

Disclaimer: The content in this article are provided for general situation purpose only. To the extent that any such information, opinions, views and recommendations constitute advice, they do not take into account any person’s particular financial situation or goals and, accordingly, do not constitute personalised financial advice. We therefore recommend that you seek advice from your adviser before taking any action.

Prosperity Finance – here to help

Prosperity Finance looks at property investment strategically, and we want to empower you to make the best long-term, informed decisions. We are professional mortgage brokers and are here to help. Give us a call today on 09 930 8999.

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