Property types
Valuing commercial property when part of it is taken
Commercial value depends on access, visibility, parking and circulation. A taking that touches any of them affects the property far more than the area acquired suggests, and the effect is usually measurable in income.
Method
Two approaches, reconciled
Commercial property is normally valued through both sales comparison and income capitalisation, with the weight depending on whether the market for this kind of property is driven by owner occupiers or by investors. Where the property is let, the income approach usually leads. Where it is owner occupied and sales of similar premises exist, sales comparison does.
In a partial taking both approaches are applied twice. The income approach is often the more revealing, because the effect of a taking on a commercial property tends to appear in rent and vacancy before it appears in sale prices, and a tenant who renegotiates after an access change produces evidence that is hard to argue with.
Effects
How common commercial takings translate into value
| What is taken | Typical consequence |
|---|---|
| Frontage strip with parking | Space count falls below the ordinance requirement; the use becomes non conforming |
| Access point or driveway | Reduced customer convenience; for fuel and convenience retail the effect can be severe |
| Corner of a corner site | Loss of the dual frontage that made the location valuable |
| Area used for deliveries or turning | Larger vehicles can no longer service the premises, limiting the tenant mix |
| Signage location | Reduced visibility to passing traffic, with a direct effect on trade |
| Land beside the building | Removes the ability to expand, which some buyers price explicitly |
Questions from business and property owners
My tenants will suffer during construction. Is that compensable
Construction period disruption is generally not compensable, though the temporary construction easement itself is paid for. A small number of states compensate business damages by statute.
Parking will drop below the required ratio. What follows
The use becomes legally non conforming, which restricts expansion and rebuilding and reduces what buyers will pay. It is a real loss and it belongs in the after value.
Is my business worth anything in the claim
The real estate is valued, not the business. Goodwill is excluded in most states and compensated by statute in a few. The property\u2019s earning capacity as premises is what the income approach measures.
Should the appraisal use my actual rents
It should consider them and generally values on market rent, since a buyer would price the property on its market earning capacity rather than on a particular lease.
Get a valuation question answered
If an offer has arrived and the number does not match what you believe the property is worth, the appraisal behind it is the place to look. Start with the pages below.