Tips for quickly valuing UK commercial / hotel real estate?

August 31, 2024

by a searcher from University College London, University of London in London, UK

Can anyone recommend either a good online calculator or (more likely) a repeatable process to quickly estimate the value of commercial real estate:
1) Warehouses
2) Countryside hotels (with land)
in the UK?
To be repeated several times to assess funding/structure options for various deals where the business owns its real estate. So not with an expensive on-site valuer.
The idea being that in the UK, you can get a 70% mortgage on commercial property. To assess how that fits into the overall financing/structure, I need to have an estimate of '70% of how much'. To get to LOI. And then post LOI, do a more thorough valuation exercise.
Multiple of rent is often mentioned, but establishing an arms-length level of rent is tough when the real estate and business belong to the same owner.
Any tips much appreciated!

Reply by a searcher
from Imperial College London in London, UK

Hi Alexi - on warehouses they’re valued on a comparable basis - and it’s quite an objective process. your best bet is to find nearby comparably sized / aged industrial estates and call the local commercial real estate agent who will give you a comparable view of rents per sq ft. That should give you a baseline for rental level - eg £7.50 per sq ft

commercial real estate is valued on Net Initial Yield - the national agents like CBRE all publish their yield sheets quarterly which are as good a source as any for this info - depending on standard of the warehouse you are looking at - eg good secondary this will give you your comparable yield - say 12%. To turn that into a multiple it’s 100/15% = 8.33x. Purchasers costs are then removed (6.8% is a rule of thumb) to account for SDLT and transaction costs) to deliver you a reasonable estimate of value.

Hi Alexi - Hotels are not a sector I’m close to but they’re generally valued on a profit multiple as a going concern (reasonably competent operator) - that doesn’t help with the freehold value question which requires a “rent” and NIY -your approach makes sense. Another would be to use the Valuation Office rateable value which should be a reasonable estimate of the market rent for a hotel and then apply a real estate NIY - https://valuationoffice.blog.gov.uk/2024/04/24/how-we-value-hotels-2/

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