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Industrial property value: How to calculate the market value of an industrial building?

Thomas Miller
31.01.2023
4 min

We discuss industrial buildings at length and present how to calculate the market value of an industrial building in this article.

What is an industrial building?

Industrial buildings are factories or manufacturing units for the production of goods and services for economic gains. The term is also used to classify large buildings purposely for the storage of raw materials or work in progress. Industrial buildings or properties are also termed industrial architecture.

Why do we conduct industrial building valuations?

Industrial building valuation is an assessment of the worth of industrial property like factories. These are some of the reasons for conducting an industrial building valuation:

  • When one wants to sell an industrial building
  • When a potential rental tenant or buyer wants to know if he or she is given a fair price
  • For mortgage purposes 
  • If the government decides to buy the property for public use 
  • In terms of liquidation or merger with other companies, start a renovation or investigate damage over time 
  • For insurance purposes.       

What determines the value of industrial property?

Like all other properties, location, property specification and current market are the factors that determine the industrial property value.

How to calculate the market value of an industrial building 

Conducting an industrial building valuation is likely to be a difficult task compared to a residential building. Industrial building appraisal needs the import of experts to arrive at the accurate value of a factory-like building. 

You may not be able to use the sale comparison approach by yourself to undertake an industrial building valuation. This is because industrial buildings are not as scattered as residential buildings. There may be no similar industrial building with a similar purpose for comparison to ascertain the industrial property value in the area of purchase.

Some methods used in undertaking an industrial building valuation are discussed below. Note that some of these methods are best for other commercial buildings and may not be fully beneficial when calculating the industrial property value. 

Cost Approach

This approach is very simple and non-professional appraisers can use this method to conduct an industrial property valuation. It involves the combination of the cost of land and construction cost to arrive at the industrial property value. 

This approach is generally applicable to all other forms of property. The cost of land here is the appreciated cost and that of the structure is the cost of reproducing the same structure now.  

Income approach

This method uses the potential income the property can generate. It starts by obtaining the capitalization thus the cap rate. The cap rate is achieved by dividing the net yearly rent income by the estimate of the present value of the property. Divide the net operating by the cap rate to arrive at a value.   

Sales comparison approach

The method compares the values of similar industrial property within a comparable geographical area. As a layperson, you may be able to use this approach on other commercial and residential buildings but might be difficult in industrial building valuation. There may be no similar structure within your reach to compare hence the need for a professional surveyor.   

Other methods are the value per door approach for apartments where a unit's value is multiplied by some apartments and the gross rent multiplier approach which calculates the duration it will take to pay off a property using future rents. These are more applicable in other forms of properties. 

Cost of industrial building valuation

It is very important to use the services of a professional when it comes to industrial building valuations. In the UK, having an industrial property appraisal can cost you up to £5000 depending on the nature of the valuation thus the property's worth and expertise needed for the valuation. The cost or fee charged can be more than this if the value exceeds £5,000,000.

Industrial property valuation is quite different from residential buildings and other commercial building valuations. Some industrial buildings come with more unique technology and design that only professionals may be able to conduct an accurate industrial building valuation.

Contact us at RealAdvisor for more information on industrial property valuation and for all your property valuation needs.   

In the nutshell, these are key points that explain industrial property value and some processes to calculate the market value of an industrial building

  1. Industrial buildings are characterised by simple design, a large building, wide floor area, high ceilings, use of rough material and lacking ornaments on the building.
  2. You cannot stay in an industrial building in the UK unless you change your building status with the authorities.
  3. Due to the nature of industrial buildings it is best for professionals to undertake the valuation.  

FAQ

How long is a valuation figure valid?

Generally, a valuation is valid for a maximum period of three months. However, this is subject to change in a fast-moving market. A real estate market with continuous commerce and the introduction of internal and external strengths, weaknesses, threats and opportunities will need a shorter valuation of properties. In such a market, a day or a week can cause a drastic change in prices.

Can I convert a property into an industrial building?

Yes, it is possible to convert a property for a different use, say office or residential, by informing the local council. An assessment of the property will be conducted if it fits that industrial work. If yes, the local council will permit the purpose of the structure. Note that you cannot undergo the conversion yourself. It is illegal to do so.

Thomas Miller
Thomas Miller has been a real estate agent for over 4 years now, when he is not in the field, he is dedicated to his second passion, writing, especially in the real estate market.
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