Before you buy, sell, or invest in commercial real estate, the first question you have in mind is how to find out the precise value of the commercial property. An accurate valuation helps you assess potential returns, evaluate risks, know your borrowing power and make confident financial decisions. Although there is no single method that applies to every situation, several proven ways are commonly used to estimate the value of a commercial property.

In this article, we will explain three of the most widely used valuation methods for commercial property. We also included some real-world examples to help you understand how each method works in practice.

1. Comparable Sales Approach

This is the simplest way to estimate the value of a commercial property. All you need to do is compare some of the sale prices of similar properties that have recently changed hands in the same or nearby area.

How it works:

• Find some recently sold properties with similar characteristics, such as size, location, use, and condition. If you need a hand, let us know as we have access to recent sold data in most areas in Brisbane, Queensland.
• Divide the sales price by the total area to calculate the average price per square metre.
• Make reasonable adjustments for differences in features, lease conditions, or advantages such as on-site parking or a superior location.

Example:
You are valuing a 1,200 square metre office building. You found a $6,500,000 office building that is close to the building you are valuing. It has similar characteristics and tenant mixes. First, you can work out the price per square metre which is $6,500 in this case, then work out the estimated value:

1,200 m² × $6,500 = $7,800,000

Advantages:

• Based on actual market transactions which can be proven.
• Simple to understand and widely accepted.

Limitations:

• Less reliable if there are not many recent sales to compare with.
• It may not reflect a property's full potential, especially if it generates strong rental income or has unique features.
• There is never an exact match of the property you are valuing against.
• In different Tenant mixes, the annual income is never the same, and this information could be confidential.

2. Income Capitalisation Approach (Capitalisation Rate Method)

The Income Capitalisation Approach is often used for properties that generate regular rental income, such as offices, warehouses, and shopping centres. It values a property based on how much income it produces.

How it works:

This method uses the following formula:

Estimated Value = Net Operating Income divided by Capitalisation Rate

• Net Operating Income is the total rental income after subtracting expenses like maintenance, insurance, and property management.
• The Capitalisation Rate is a market-driven percentage that reflects the return investors expect for similar properties in the same area.

Example:
A shopping centre earns $300,000 in net operating income per year. If similar properties are trading at a six percent capitalisation rate, the estimated value would be:

$300,000 ÷ 0.06 = $5,000,000

Advantages:

• Focuses on the income potential of the property.
• Commonly used by investors, banks, and financial analysts.

Limitations:

• Requires accurate and current income and expense figures.
• Sensitive to changes in interest rates, rental markets, and investor confidence.

3. Cost Approach

The Cost Approach estimates how much it would cost to build the same property today, then subtracts depreciation and adds the land value. This method is often used for newer buildings or properties with unique features that make direct comparisons difficult.

How it works:

• Determine the market value of the land.
• Calculate the construction cost of a replacement building based on current prices.
• Subtract depreciation for age, wear and tear, and outdated features.

Example:
Land value: $800,000
Construction cost for 1,000 square metres at $2,500 per square metre = $2,500,000
Depreciation (for a 30-year-old building): $600,000

Estimated value = $800,000 + ($2,500,000 - $600,000) = $2,700,000

Advantages:

• Useful for newer or custom-built properties.
• Provides a logical baseline for valuation.

Limitations:

• Less accurate for older buildings due to higher depreciation.
• It might not reflect what a buyer is willing to pay in the current market.

Which Valuation Method Should You Use?

Each method suits different property types and situations:

• Comparable Sales Approach – Best for standard commercial properties in areas with recent, relevant sales data.
• Income Capitalisation Approach – Ideal for properties with consistent rental income.
• Cost Approach – Most useful for newer or highly specialised buildings.

In most cases, professional valuers use a combination of these methods to reach a balanced and well-supported valuation.

Why You Should Engage a Professional Valuer

Although these methods can help you get a rough idea of value, a qualified valuer brings far more to the table. A licensed commercial property valuer has access to up-to-date sales data, deep knowledge of local market trends, and the experience to assess risks and property-specific factors that might not be obvious.

The key benefits of a professional valuation include:

• Current Market Data – Access to real-time sales, leasing, and construction costs.
• Comprehensive Risk Review – Includes legal, structural, zoning, and environmental considerations.
• Regulatory Requirements – Valuations that meet standards for banks, financial reporting, and government compliance.
• Independent Advice – An objective assessment based on facts and professional standards.

Trust McGees Property for Commercial Property Valuations

At McGees Property, we provide expert commercial property valuations across a wide range of sectors, including office buildings, retail tenancies, warehouses, and development sites. Whether you are preparing for a sale, managing your portfolio, refinancing, or planning a new project, we offer trusted advice that supports informed decisions.

Our services include:

• Market research and analysis
• Independent rental assessments
• Detailed written valuation reports
• Support for transactions, audits, refinancing, and litigation

With decades of experience in Queensland’s commercial real estate market, McGees Property gives you the confidence to move forward with clarity and assurance.

Get in touch with us today to arrange your professional commercial valuation and take the next step with certainty.
Email: valuations@bne.mcgees.com.au