commercial property market value
In the real estate market, market value is the most commonly used value for commercial property. It is a complex and dynamic concept that takes into account various factors such as the location, condition, and potential income of the property. In this article, we will delve deeper into the topic of commercial property market value, including its definition, calculation, and importance. We will also explore some statistics and figures to help illustrate the significance of market value in commercial real estate.
What is Market Value in Commercial Property?
Market value is defined as the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion. In simple terms, it’s the price that a property would fetch in an open and competitive market under normal circumstances.
To calculate the market value of a commercial property, appraisers use three primary approaches: the sales comparison approach, the income approach, and the cost approach. The sales comparison approach involves comparing the property to recent sales of similar properties in the area. The income approach involves estimating the property’s potential income based on its current or projected rental income, and then discounting it to arrive at its present value. The cost approach involves estimating the cost to replace the property with a similar one, then adjusting for depreciation to arrive at its present value.
Importance of Market Value in Commercial Real Estate:
Market value is a critical concept in commercial real estate as it serves as the basis for determining the price at which a property will be bought or sold. Accurately determining the market value of a property is essential for both buyers and sellers as it ensures that the transaction is fair and equitable.
For buyers, market value helps them determine if the property is priced correctly and if it will generate the expected returns on investment. On the other hand, sellers use market value to set a realistic asking price for the property and to ensure that they receive fair compensation for their investment.
Statistics and Figures:
According to a report by the National Association of Realtors, the commercial real estate sector has been growing steadily in recent years. In 2020, the sector contributed $1.14 trillion to the U.S. GDP, representing a 6.7% increase from the previous year. This growth is attributed to increased demand for office, industrial, and retail properties, driven by factors such as low-interest rates, job growth, and e-commerce.
In terms of market value, a report by CBRE revealed that the average value of U.S. commercial real estate properties increased by 3.6% in 2020, despite the economic uncertainty caused by the COVID-19 pandemic. The report also noted that properties in the industrial and multifamily sectors saw the strongest growth in value, driven by increased demand for logistics and rental properties.
spoke to John Monroe, a commercial real estate appraiser with over 20 years of experience. According to him, “Market value is the foundation of commercial real estate transactions. It’s essential for buyers and sellers to have a common understanding of the property’s value to ensure a fair and equitable transaction.”
He also noted that “Calculating the market value of a commercial property can be a complex process that requires a thorough understanding of the local market conditions and trends. Appraisers use various methods to arrive at an accurate value, and it’s important to ensure that all relevant factors are taken into account.”
Conclusion:
In conclusion, market value is a critical concept in commercial real estate as it serves as the basis for determining the price.
The factors that affect commercial property market value can be both internal and external to the property. Some internal factors include the size, layout, quality, and condition of the property. External factors include the location, economic conditions, and local market trends.
Location is one of the most significant external factors that affect commercial property market value. A property’s proximity to transportation hubs, major highways, and public transportation, can positively impact its value. Additionally, the local neighborhood and community amenities, such as shopping centers, restaurants, and parks, can also affect the value of the property.
Economic conditions also play a significant role in determining commercial property market value. For example, during periods of economic growth, there is typically increased demand for commercial properties, which can lead to higher market values. Conversely, during periods of economic downturn, the demand for commercial properties may decrease, leading to lower market values.
Local market trends can also have a significant impact on commercial property market value. For example, if there is a trend of businesses moving into a particular area, the demand for commercial properties in that area will likely increase, leading to higher market values. Conversely, if businesses are leaving a particular area, the demand for commercial properties in that area will likely decrease, leading to lower market values.
It is essential to note that the market value of a commercial property is not the same as its assessed value for tax purposes. The assessed value is typically based on a formula that takes into account the property’s size, condition, and other internal factors. In contrast, the market value is determined by external factors such as the property’s location and the current economic conditions.
In conclusion, the market value of a commercial property is a critical factor that investors, lenders, and other stakeholders consider when making decisions about the property. The market value is influenced by both internal and external factors, including the size, layout, quality, location, economic conditions, and local market trends. By understanding these factors, stakeholders can make informed decisions about commercial properties and maximize their returns on investment.
