In commercial real estate you are asked to price a property for sale almost every day. Price analysis and setting is different than valuation and is done for a different reason.
Pricing a property is usually done as part of taking the property to the market for sale. In this market the pricing of a property is quite hard given that the property market and the economy is changing week by week in some locations. The prices that properties sold at 2 or 3 years ago are not the prices of today; things have changed and property owners need to accept that. Prices have fallen across the board in most types of commercial, industrial, and retail property.
If you cannot price a property then it pays to let the market decide what the price should be. You can do that by using the following methods of sale:
- Expressions of Interest
These methods of sale will let the market set the level of enquiry and the price. When you really do not have any idea about today’s property prices for a particular property then one of the 3 methods of sale is the best way to go.
If on the other hand you are to price a property today there are a number of factors that should really be considered in the process. Here are some of the main ones:
- Levels of enquiry currently for that type of property
- Quality of property improvements and age
- Upkeep of the property and structural integrity
- Environmental and heritage matters that can impact property upgrades or operation
- Tenant volatility or stability. Add to that the elements of anchor tenant occupancy.
- Current property usage and opportunity to change or redevelop
- Tenant mix and length of leases and how they impact the sale
- Existing lease incentives that are not discharged and that may impact the property cash flow at sale time
- Current building outgoings and relevance to the expenditure budget
- Vacancy factors in the property and the region
- Supply and demand for space in the area and for that property type
- Income performance from the property now and in the future, including rent review profiles and lease options expected
- Levels of current passing rent from the tenancies and if they are in line with market rent
- Comparable properties in the area
- History of the sales and rentals in the area
- History of the property and the ownership
- Zoning for the property and the current building codes that apply to the property usage
All of these things can impact the price that a property will achieve in the current market. It is easy to see why pricing a property today is a difficult task. Total property research is part of the price estimation process.