The challenges of valuing commercial property

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A recent survey by Bridging& found that 58% of respondents thought that commercial property valuations were unfair, and some property is overpriced.

Surveyors often base a key part of their valuation on the rents being charged to tenants of the property. Many landlords offer incentives to attract tenants. This can be in the form of rent-free periods at the beginning of the tenancy, step rental agreements or help with the cost of fitting the building.

Surveyors often only consider the current rent. The incentives mean that the current headline rents are not a true guide to the total income from the property. It is argued that only taking current rents into account leads to overvaluing the property.

If the property is empty, then expected rents are part of the valuation. Sometimes the new owner cannot find any tenants willing to pay this expected rent.

A commercial mortgage lender will also need a valuation, which could differ from the price that the borrower has agreed to pay.

Valuers base valuations on an opinion informed by commercial data, local knowledge and financial information about the property, but sometimes this opinion is not accurate. This can lead to undervaluing as well as overvaluing property.

Valuation of both commercial and residential property is not a precise science, but valuers try to make the process as robust and fair as possible. Some valuers use a peer review system where two surveyors are required to agree on a valuation.

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