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How to calculate the value of your occupied walls?

The value of occupied walls is largely based on the yield (see article calculating a yield), that is to say on the ratio between the rental income and the cost of the property.

Example: for a rent of € 10,000 per year, the investor expecting a gross return of 5% per year, he will be ready to pay the occupied walls € 200,000.

The first important information to know is therefore the return expected by investors for the asset in question in a given geographic area. We will then see the possible returns by geographic area.

The second piece of information to take into consideration is the rental value. This requires comparison, in order to determine whether the rent for the property studied is market rent (at the right price) or over-rent or else below the market. This allows to put into perspective the rent currently perceived for the occupied walls with its real rental value.

Other elements are taken into account such as the quality of the building (soil + construction method), comparison with other similar sales (comparative method) or even the potential for value creation.

What yields in commercial real estate?

The returns can vary from simple to fivefold (see more), these very often depending on the risk accepted.

In fact, the lower the risk (good location, low potential rental vacancy), the lower the return, and conversely the higher the risk, the higher the expected return.

We generally note, with some exceptions, between 2 and 3% on so-called “prime” pitches (N ° 1) in capitals with renowned tenants, between 4 and 7% for medium-sized cities with beautiful pitches, between 7 and 10% on assets located in smaller cities (demand will potentially be lower), finally above 10% for so-called risky assets (potential higher rental vacancy).

Should we focus on yield or surplus value at exit?

Like any investment, you probably have an exit horizon (disposal of assets), or the vagaries of life will lead you to arbitrate and you will have to sell your occupied walls. It would be wise for your investment to increase in value over the years.

You must therefore anticipate the evolution of the value of your asset according to its geographic area, its interest, its age, or even its direct environment.

Generally, the high yields are found in regions with low appreciation, and conversely the small yields during your acquisition can be found in dynamic regions. You must then choose according to your heritage objectives between the potential appreciation or the immediate yield, hence the difference between yield and profitability (see the article on how to calculate a yield).

Your occupied walls with immediate high yield can lose value and therefore lower your profitability during the sale.

In conclusion, the value of commercial walls is appraised according to different parameters and cannot be summed up in a multiplication of the surface by a price per m², different methods must be crossed and weighted, in order to allow you to make the best decision.

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