How commercial property is valued in BC

Owners wondering what their building would sell for, buyers testing an asking price, and anyone who just got an offer in the mail and can't tell if it's fair.

• Most income properties are valued on income: Net operating income (NOI) and a capitalisation rate (cap rate).
• Comparable sale (comp)s test that answer against what buyers actually paid.
• For longer or uneven cash flows, a Discounted cash flow (DCF) shows the whole picture.
• In much of Metro Vancouver, land and future density can be worth more than today's rent. Check Highest and best use.
• BC Assessment's value is for taxes. It's a useful reference point, not a sale price. See BC Assessment.

The income approach

Start with what the building actually earns. NOI is rental income minus operating expenses, before mortgage payments and income tax. Then divide NOI by a cap rate drawn from similar sales to estimate value.

The trap is in the inputs. Use actual rents from the Rent roll, not hopeful ones, and a realistic allowance for vacancy and repairs. Small changes in the cap rate swing the value a lot, so test a range rather than picking one number.

The comparable sales approach

Look at recent sales of similar properties: same area, use, size, age and tenancy. Adjust for the differences. A fully leased building and a vacant one down the street aren't the same product, even if they look like twins.

Be careful with sales that had special terms, such as a Vendor take-back (VTB), a leaseback or a share sale. Those can make the price look higher or lower than the building alone.

Discounted cash flow

A DCF lays out each year's income and costs, plus a sale at the end, and discounts them back to today. It's useful when leases roll over, rents step up or big repairs are coming. It's only as good as its assumptions, so keep them modest and write them down.

Land and redevelopment value

On many Metro Vancouver sites, the land under a tired building is the real asset. Zoning, area plans like the Broadway Plan and provincial Transit-Oriented Area rules can open up density near transit.

See Broadway Plan (City of Vancouver) and Transit-oriented areas (Government of BC).

Value from redevelopment has to account for time, approvals, Development Cost Charge (DCC)s, Amenity Cost Charge (ACC)s and construction risk.

See Development cost charges (Government of BC) and Amenity cost charges (Government of BC). A buyer may pay for potential, but they'll subtract every cost and delay they can think of.

Owner-user value

A business looking for its own space may pay more than an investor would, because it's buying a home for its operation rather than a stream of rent. If your building suits an Owner-user, that buyer pool matters.

Putting it together

1. Gather the rent roll, leases, operating costs and building reports.
2. Calculate NOI from actual numbers.
3. Apply a range of cap rates from recent comparable sales.
4. Check the answer against comparable sales on a per-square-foot or per-unit basis.
5. Run a DCF if leases or costs are uneven.
6. Test land value if the site has redevelopment potential.
7. Look at where the methods agree and explain where they don't.

BC specifics to know

• BC Assessment values property for tax as of a set date each year; owners can appeal. See BC Assessment.
• Tax names used here: Harmonized Sales Tax (HST). The Canada Revenue Agency (CRA) handles federal tax. Property Transfer Tax and Goods and Services Tax (GST) affect what a buyer can pay. See Property transfer tax (Government of BC) and CRA GST/HST Memorandum 19.4.1.
• An appraisal by a qualified appraiser is what most lenders rely on.

Method first, evidence second

Income capitalisation, discounted cash flow, and comparables answer different questions. Pick the method a likely buyer or lender will use, then gather the evidence that method needs.

A discounted cash flow without a capital expenditure (CapEx) plan is theatre. Comparables without lease-quality adjustments mislead. Say which lens you are using when you talk price.

Appraisers formalise; I help you stay consistent in negotiations.