Market Rent Studies: Three Ways Appraisers Determine Market Rent

San-Diego-Market-Rent-Study-Commercial-AppraiserOne of the many services Integra San Diego provide are market rent studies, working with a tenant or landlord (and sometimes both in the same study) to provide an opinion of market rent for their property.  There are three methods commercial appraisers use when determining market rent for a property.

Lease Comparables

One of the best methods to estimate market rent for a property is researching recently leased space that has similar characteristics as the subject. In a perfect world, if a commercial appraiser was estimating market rent for a suite in an office property, then a suite down the hall that leased two weeks ago would be a great comparable to use. However, solid data like this may not be available, so an appraiser would expand their search to find other comparable properties, and then make adjustments similar to adjustments made in the sales comparison approach.

Lease Listings

Another source used to determine market rent are lease listings. Similar to lease comparables (where a lease is actually signed) active lease listings are also useful because they provide an indication of what rent landlords are typically looking for in a particular submarket.  Most times, active listings set the upper limit of the rental range because contract rents are usually less than asking rents. Similar to lease comparables, lease listings can also be adjusted to the subject; however, depending on the market, an additional downward adjustment would need to be made for the active listing status.

Market Participant Interviews

Another method used in market rent studies is interviewing local market participants such as commercial real estate brokers, property managers, and property owners. Not only can these individuals provide information on recently leased space or space currently on the market, but they can also identify specific characteristics about properties that make it more or less desirable (such as superior access, low parking fees, etc.). This can be especially helpful if there have not been many lease transactions or active listings in the area. A knowledgeable broker or property manager who is active in a particular submarket will have a general indication or range of market rent. This combined with lease comparables and lease listings helps the appraiser provide a more accurate opinion of market rent.

Summary

There are several methods used by commercial appraisers to determine market rent, and ideally all of these methods would be used to arrive at the most accurate estimate. Whether you are a tenant looking to renew or your lease, or a landlord looking to establish an asking rate, it is best to utilize an appraisal firm that are experts in determining market rent for commercial property.

If you have any questions about market rent studies or are in need of commercial valuation services, please contact us today.

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