How to Value a Commercial Property

A commercial property's value is not a single number — it's a reconciliation of three approaches, each telling you something different about what a willing buyer and a willing seller would agree to on a given day. Whether you're pricing a sale, refinancing, or settling a partnership, understanding the three approaches is the difference between a defensible value and a guess.

1. The income approach — value from cash flow

For income-producing property, this is usually the most reliable indicator. The income approach capitalizes the property's net operating income (NOI) at a market cap rate: Value = NOI ÷ Cap Rate. A building generating $400,000 in NOI at a 6.5% cap rate is worth roughly $6.15M. The work is in the NOI — verify the rent roll, normalize operating expenses, and deduct a vacancy and capital-reserve allowance — and in the cap rate, which varies by asset class, submarket, tenancy, and lease structure.

“The income approach is only as good as the NOI behind it. Underwrite the rent roll and the expenses before you trust the cap rate.”

— Hiren Patoliya

2. The sales comparison approach — value from the market

This approach values a property by reference to recent, comparable sales — adjusted for differences in size, location, condition, tenancy, and date of sale. It's most reliable in active markets with good comparable data, like GTA industrial and multifamily, and weakest for unique or thinly-traded assets. I pull comparable sales from the Toronto Regional Real Estate Board and the brokerage network, then adjust for the differences that actually drive price.

3. The cost approach — value from replacement

The cost approach estimates value as the cost to replace the improvements, less depreciation, plus the land value. It's most relevant for new construction, special-purpose buildings, and properties where the income and sales approaches give little signal. For most GTA investment property, it's a secondary check rather than the primary indicator.

Reconciliation — and when to trust which

• Income-producing property: weight the income approach, cross-check with sales comparison.
• Actively-traded asset class (industrial, multifamily): weight sales comparison heavily.
• New or special-purpose: weight the cost approach.
• Land and development sites: highest-and-best-use and residual land value.

A defensible valuation doesn't pick one number — it reconciles the three, explains the weighting, and shows the assumptions. If you need a written valuation for financing, estate, or a partnership matter, I prepare one grounded in current GTA market data. Reach out and I'll scope it with you.