Valuing Large and Multi-Let Commercial Buildings: What Drives the Figure
- Large and multi-let buildings are valued mainly by the investment method: the income, capitalised at a yield.
- The tenancy schedule drives the figure. Lease length, break clauses, tenant strength and rent against market level all feed the yield.
- Small changes in yield produce large changes in value, so sector experience in the valuer matters most on big assets.
- Future spend counts. Capital works, voids and bringing EPC ratings up to standard are all deducted from value.
A small owner-occupied unit is valued largely on bricks, location and what the one next door sold for. A large multi-let building is a different exercise. The value sits in the income: who pays it, for how long, on what terms and how secure it is. Two physically identical buildings on the same street can be millions of pounds apart because of what their leases say. If you own, manage or are buying a larger asset, this is what the valuer will be looking at.
The income is the asset
An investor buying a large let building is buying a stream of rent. The valuer’s job is to work out what that stream is worth today, using the investment method. They start with the tenancy schedule: every tenant, the space each occupies, the rent, the lease start and end dates, review dates, break options and who pays for repairs and insurance.
From that they build a picture of how secure the income is and what happens to it over time. A common summary measure is the weighted average unexpired lease term, which tells you how long, on average, the income is contractually committed, weighted by rent. A longer figure generally supports a higher value.
Who the tenants are
A lease is only as good as the tenant’s ability to pay. Valuers assess the financial strength of each occupier, known as covenant strength. A ten-year lease to a well-capitalised national business is worth more than the same lease to a start-up. Concentration matters too. If one tenant pays 60% of the rent, the building’s value hangs on that tenant’s plans.
Break clauses are treated cautiously. A ten-year lease with a tenant break at year three is, for valuation purposes, closer to a three-year income unless there is good reason to think the break will not be used.
Passing rent against market rent
The valuer compares what each tenant pays with what the space would let for today. Where the rent is below market level, the building is reversionary: income should rise at review or renewal, and the valuation reflects that growth. Where the rent is above market level, the building is over-rented: the income is likely to fall when leases end, and the excess is valued as temporary.
Vacant space is valued on the rent it should achieve, less the time and cost of letting it: a void period, a rent-free incentive, agents’ and legal fees, and the empty rates and service charge the owner carries in the meantime.
Why the yield matters so much
The yield converts the income into a capital value, and it is where the valuer’s market knowledge counts most. It reflects the location, the quality of the building, the lease and tenant profile, and what investors are currently paying for comparable assets.
The arithmetic is unforgiving. On a building producing £1.2 million a year, the difference between a 6% and a 6.5% yield is about £1.5 million of value. That is why a valuer who works in your sector and size bracket every week is worth more than one who does not. They know what has actually traded and at what price. On the largest assets valuers usually run a discounted cash flow alongside, modelling the income lease by lease.
Valuers for larger assets
Match with RICS Registered Valuers experienced in large, multi-let and portfolio property. No-obligation quotes.
Money that will have to be spent
Buyers price in future costs, so valuers do too. The main ones are:
- Capital works. A roof, plant or lifts nearing the end of their life. A PPM survey or building survey turns guesswork into costed figures, and shows which costs can be recovered from tenants.
- Energy performance. Space that falls below the minimum EPC rating cannot lawfully be let until it is improved, under the minimum energy efficiency standard. Valuers deduct the cost of the works and may adjust the yield for the risk. See our guide to the MEES rules.
- Compliance gaps. Missing fire, electrical or asbestos records raise questions in a buyer’s due diligence and slow a sale.
- Service charge shortfalls. Costs the owner cannot recover from tenants reduce the net income.
Portfolios and accounts
When several buildings are valued together, each is normally valued individually and the figures are added. Whether the portfolio would fetch more or less sold as a single lot is a separate question, and the report should say which has been assumed.
For company accounts, investment property is generally carried at fair value under FRS 102 or, for groups reporting under international standards, IFRS 13. Auditors expect a Red Book valuation behind any material figure, and regular revaluation of the same assets by the same firm raises rotation questions that your valuer should address.
What to give the valuer
The quality of the valuation follows the quality of the information. Have these ready:
- A current tenancy schedule and copies of every lease, licence and side letter
- Rent payment history and any arrears
- Measured floor plans with areas
- Service charge budgets and accounts
- EPCs, the asbestos register, the fire risk assessment and electrical reports
- Planning history and any recent or proposed works
- Title documents and details of any rights or restrictions
Where information is missing the valuer has to make an assumption and state it, and cautious assumptions cost value. Our guide to valuation costs explains how a good pack also reduces the fee.
Finding the right valuer
ComSurv matches owners, investors and asset managers with RICS Registered Valuers who have experience in large, multi-let and portfolio property. Tell us about the asset and what the commercial valuation is for, and compare no-obligation quotes.
Sources & further reading
- RICS Valuation Global Standards (Red Book) — valuation of investment property and portfolios
- RICS Red Book UK national supplement — UK requirements, including financial reporting
- IFRS 13 Fair Value Measurement — the fair value basis used in company accounts
- FRS 102 — UK accounting standard covering investment property
- GOV.UK: non-domestic minimum energy efficiency standard — the EPC rules that affect lettability
External links open in a new tab. ComSurv is a matching service, not a firm of surveyors, and is not affiliated with these organisations. This article is general information, not legal, surveying or valuation advice; take advice on your specific situation.
