How to value a commercial property in the UK: The complete guide

An accurate valuation is the bedrock of any commercial property deal - but how do you do it accurately?

We've put this guide together to help answer this crucial questoin. We’ve explained the various valuation methods you can use to make the right decision and which factors to consider before making a purchase.

And if you’re up for expanding your portfolio to include properties outside of the UK’s borders, we've detailed why a Wise Business account is the perfect way to make payments at the mid-market exchange rate (the one you see on Google) with no hidden fees.

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Table of contents

What are the main methods to value commercial property? The net income approach What is the net income approach? When is the net income approach most suitable? The pros and cons of the income approach The cost and reinstatement approach What is the cost and reinstatement approach? When is the cost and reinstatement approach most suitable? The pros and cons of the cost and reinstatement approach The sales comparison approach What is the sales comparison approach? When is the sales comparison approach most suitable? The pros and cons of the sales comparison approach The Gross Rent Multiplier (GRM) approach What is the Gross Rent Multiplier approach? When is the Gross Rent Multiplier approach most suitable? The pros and cons of the Gross Rent Multiplier approach The Discounted Cash Flow method What is the discounted cash flow method? When is the discounted cash flow method most suitable to use? The pros and cons of the discounted cash flow method What factors influence a commercial property's value? Location Property size and condition Rental income Lease type Lease length Renovation history Local regulations Economics Manage property finances seamlessly with Wise Business FAQs Should I use a professional valuation service? What does a property appraiser do?

What are the main methods to value commercial property?

The most common methods to value commercial property are the net income approach, the cost and reinstatement approach, the sales comparison approach, the Gross Rent Multiplier approach, and the discounted cash flow method.

Approach/method	Quick summary
💰 Net Income Approach	Values the property based on its estimated profitability. This method is also known as the income capitalisation approach.
🏗️ Cost and Reinstatement Approach	Values the property based on the sum of land and equivalent construction costs.
⚖️ Comparative Method	Values the property by comparing it to the sale prices of similar properties.
🔢 Gross Rent Multiplier (GRM) Approach	Values the property based on how long it would take for the gross rental income generated by the property to pay off its purchase price.
⏳ Discounted Cash Flow Method	Values a property by forecasting its future income and expenses, then discounting them to determine their value in today's money.

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💡 Note: The net income approach, GRM approach and discounted cash flow method are often grouped together and referred to as ‘investment methods’, as they all focus on the income-generating potential of the commercial property in question¹.

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The net income approach

What is the net income approach?

The net income approach (also known as the income capitalisation approach) is when you value a property based on how much net income it is expected to generate, after accounting for expenses.

According to the net income approach, property value = net operating income / capitalisation rate.

• Net operating income is the property's annual income after deducting operating expenses.
• Capitalisation rate is the rate of return an investor expects to receive on the property.

When is the net income approach most suitable?

This approach is best for tenanted properties or those with clear rental potential, such as office buildings.

The pros and cons of the income approach

Pros ✅	Cons ❌
It directly links the property's value to its ability to generate a profit, which is the primary concern for most investors.	It relies heavily on forecasts for future rental income, occupancy rates, and market conditions, which can be highly uncertain.
It considers the future potential income stream, making it useful for properties with development or rental growth potential.	The calculations can be complex. Sometimes they require subjective assumptions about discount rates and capitalisation rates, which can make them inaccurate.

The cost and reinstatement approach

What is the cost and reinstatement approach?

The cost and reinstatement approach values a property based on the cost to build a similar property from scratch. 

It is also known as the ‘contractor’s method’¹ and is often used when a comparable property is not available to analyse.

According to the cost and reinstatement approach, property value = (cost to replace - depreciation) + land value.

• Cost to replace is the current cost of all materials and labour to construct a similar building.
• Depreciation is the reduction in the property’s value due to age and/or wear and tear.
• Land value is the value of the land on which the property has been built.

When is the cost and reinstatement approach most suitable?

This approach is best for unique properties without comparable sales data, such as schools, churches, or government buildings, and for insurance purposes.

The pros and cons of the cost and reinstatement approach

Pros ✅	Cons ❌
It provides a clear minimum value based on the tangible costs of land and construction.	The cost and reinstatement approach completely disregards market demand and the property's income-generating potential.
It is the most reliable method for valuing unique properties that have no comparables or income streams.	With the cost and reinstatement approach, accurately estimating the depreciation of older buildings is a very difficult and subjective task.

The sales comparison approach

What is the sales comparison approach?

The sales comparison approach determines a property's value by comparing it to similar (comparable) properties².

According to the sales comparison approach, property value = the average of the sale prices of comparable properties.

Adjustments are then made to the prices of the comparables to account for differences between them and the subject property.

For example, an adjustment might be made for differences in size, condition, location, or the date of sale.

When is the sales comparison approach most suitable?

This approach is most effective when there is a good supply of recent, comparable sales data available.

The pros and cons of the sales comparison approach

Pros ✅	Cons ❌
It grounds its valuation in what actual buyers have recently been willing to pay for similar properties.	It is only reliable when there is a good supply of recent and truly comparable sales data.
It is a straightforward and intuitive method that is easily understood by most people.	Whoever is doing the appraisal must make subjective adjustments for differences between properties, which can lead to inaccuracies.

The Gross Rent Multiplier (GRM) approach

What is the Gross Rent Multiplier approach?

The Gross Rent Multiplier (GRM) approach bases the value of the property on its gross rental income, without accounting for expenses.

According to this approach, the estimated market value of a commercial property = the gross annual rental income from the property × a multiplier.

• Gross annual rent is the total rental income the property generates in one year before any expenses are deducted.
• A multiplier is calculated by dividing the sale price of a comparable property by its gross annual rental income³.

When is the Gross Rent Multiplier approach most suitable?

This method is suitable for use in very early discussions on valuation. It’s a back-of-the-envelope valuation you can use to open talks, before using other, more comprehensive valuation methods based on more detailed analysis.

The pros and cons of the Gross Rent Multiplier approach

Pros ✅	Cons ❌
It’s fast and easy. You can use it to immediately screen opportunities and compare the asking prices of different investment properties.	It ignores all operating expenses like taxes and maintenance, which can differ dramatically between properties.
It can be used by experienced and inexperienced investors alike to rapidly identify properties that may be over- or underpriced relative to their gross income.	It’s very simplistic, as it doesn't account for important factors like vacancy rates or lease lengths.

The Discounted Cash Flow method

What is the discounted cash flow method?

The discounted cash flow (DCF) method determines what the future income and sale proceeds from a commercial property would be worth today, after accounting for the time value of money and investment risk.

According to the DCF method, the value of a commercial property = the sum of the present values of its future cash flows (including rental income and the final resale price), discounted at a rate that reflects the investment's risk.

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💡 Tip: The actual formula is quite complex, so we recommend using an online calculator for this method (or a financial calculator if you know the math).

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When is the discounted cash flow method most suitable to use?

This method is suitable to use when a property has irregular or non-standard income streams, such as varying lease lengths, planned vacancies, or significant future capital expenditures.

The pros and cons of the discounted cash flow method

Pros ✅	Cons ❌
It calculates a property's value based purely on the future cash it is expected to generate from things like rent, rather than short-term or present-day metrics	It depends on future property market conditions, which are considerably difficult to predict in the UK..
It allows you to create a detailed financial model of the property's life, including specific events like lease renewals, rent reviews, and planned major repairs.	It relies on predictions of future rental income from the property, which could change drastically (e.g. if the property is repurposed).

What factors influence a commercial property's value?

According to commercial surveyors, the following factors affect commercial property values the most^4,5,6,7,8:

• Location
• Size and condition
• Rental income
• Lease type
• Lease length
• Renovation history
• Local regulations
• Economics

Location

Location is crucial to the value of commercial properties, particularly in relation to accessibility and visibility. 

For example, is the property near other commercial facilities and transport links? Does it have high visibility, so that it can attract customers? 

You’ll also want to look at whether commercial property values and land prices are high in the area.

Properties in this kind of ‘prime location’ can be more attractive to tenants, as it could mean high footfall, lots of customers and close proximity to suppliers, services and employees.

Other factors to consider are security, the demographics of the area, and any future development plans in the pipeline. 

Property size and condition

Unsurprisingly, the size of the property will affect its valuation price. The bigger the property, the more space it may have for tenants and the higher its rental income potential. 

The property’s condition is also important. If the property has modern amenities such as efficient heating, lighting and telecommunications connections, it may be more appealing to potential buyers and tenants.

On the other hand, if a property is outdated and in need of repairs, it can affect its market value unless issues are rectified. 

Rental income

The property’s potential for income will make a significant difference to its valuation, particularly if you’re using an income-based method, such as the net income approach, to do the valuation.

If a property is already tenanted, the terms and cost of current and previous leases can be used to estimate future income. 

Commercial properties with a history of consistent occupancy in a high-demand area will inevitably have a higher valuation figure.

Lease type

Commercial properties are either leasehold or freehold in the UK. 

Freehold means the owner of the commercial property owns both the property and the land under it. This offers greater control and long-term value, which is why freehold commercial properties are worth more than leasehold ones.

Leasehold commercial properties are owned by parties that have a lease on them for a fixed term. The owner pays ground rent on the land under the property (which they don’t own - it’s owned by another party). 

Therefore, the value of a leasehold commercial property is heavily dictated by the lease length and its clauses.

Lease length

Commercial properties with long leases tend to have a higher valuation, as long leases provide greater security and are more attractive to investors and mortgage lenders.

The opposite is also true - short leases are riskier, harder to finance, and decline in value more rapidly as their expiry date approaches.

Renovation history

When assessing a property, it’s a good idea to consider whether there are any renovations or improvements that could be made to increase its value. 

For example, is there potential to extend, adding extra usable space and potentially bringing in extra income? 

Even a simple upgrade to decoration or basic facilities can make the property more appealing to future buyers and tenants. 

It’s important to weigh up the cost of these improvements in comparison with potential returns, ensuring they are a sound investment. 

Local regulations

Planning regulations play a massive role in determining a property's value in the UK.

If you can get planning to permit greater flexibility in how a commercial property can be used (such as mixed residential and commercial activities), then the property would be worth more by virtue of attracting a larger pool of buyers.

The opposite is also true, where restrictive zoning can limit a building's use, making it less attractive to a broad range of investors and lowering its market value.

Economics

When the economy is strong, there’s more demand for commercial spaces, which causes the average price of commercial properties to rise. 

In comparison, during economic downturns, higher vacancies and lower rents reflect poor sentiment, causing a downturn in the value of commercial properties.

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FAQs

Should I use a professional valuation service?

Valuing property can be complicated, and it’s difficult to get an accurate figure. 

This is particularly the case for unusual or non-traditionally built properties, where there aren’t any similar properties to compare it to. 

This is why property owners make use of professional appraisal services. 

If you’re planning to make a significant investment in a property purchase or want to get a fair price when selling a property, it’s crucial to get an accurate valuation.

What does a property appraiser do?

A professional appraiser will look at all aspects of the building in detail, while also taking into account the location and proximity to other commercial properties. 

Crucially, they’ll also make an assessment of the building’s income potential. 

This will be partly based on location, but also on the number of tenants it could comfortably accommodate.

Using the information gathered and their professional expertise, an appraiser will produce a report. This will contain the findings of the assessment and, of course, the valuation figure.

Sources:

1. John D Wood and Co., The different types of property valuations explained
2. Royal Institution of Chartered Surveyors (RICS), Comparable evidence in real estate valuation
3. Phoenix and Partners Chartered Surveyors, Understanding the Gross Rent Multiplier in Commercial Real Estate
4. ASL Chartered Surveyors and Valuers, Factors That Impact Commercial Property Value
5. Ives and Co., Unlocking the Value: A Comprehensive Guide to Commercial Property Valuation
6. Jacobs Steel, How Economic Indicators Impact Commercial Property: A Simple Guide
7. JSR Property Advisors, Factors Influencing Commercial Value

Sources last checked on October 17th, 2025