What is market value and market rent?

In this month’s article, we provide our professional opinion on “What is market value and market rent?”  

We discuss factors affecting market rent and market value and provide our professional opinion. We also include RICS (Royal Institute of Chartered Surveyors) definitions. If you are a landlord or tenant of commercial property this article is for you. 

Market value refers to the current price at which an asset, security, or service can be bought or sold in the marketplace. It is essentially, the price that a willing buyer would pay and a willing seller would accept, in an open and unrestricted market.

In valuation or surveying terms the RICS definition of market value is: 

“The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion” 

The above definition is the same for commercial property such as offices, shops, industrial warehouses, public houses and restaurants. It means that the valuer must look at the most recent and comparable sales that have occurred in the local area. The valuer must then calculate the comparative value of the property they are valuing.  

Factors affecting Market value include:

• supply and demand dynamics
• investor sentiment
• economic conditions
• the intrinsic characteristics of the asset itself

In financial markets, market value is often used to assess the worth of stocks, bonds, and other securities. It is an important metric for investors, as it reflects the perceived value of an asset at a given point in time. 

Market rent refers to the price that a property would command in the open market, based on factors such as location, size, condition, and demand. It is the amount of rent that a landlord could reasonably expect to receive for a property.

Rent can fluctuate based on various economic and real estate  factors, including:

• supply and demand
• location trends
• the overall economy of a region

The market rent is typically determined by comparing similar properties in the same area. In order to assess current rental rates. This is carried out by a chartered surveyor who has  access to large data bases that provide comparable evidence. Along with their knowledge, experience and expertise they are able to provide robust valuation reports.

Landlords often set their rental prices close to the market rent. Landlords do this to attract tenants and also to remain competitive in the rental market. 

The RICS definition of market rent is: 

“The estimated amount for which an interest in real property should be leased on the valuation date between a willing lessor and willing lessee on appropriate lease terms in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion”

Often the lease or contract between the landlord and the tenant has specific points to be disregarded in accordance with the definition. Therefore, the valuer must use the definition in accordance with the disregards and definitions within the lease.  

In view of the above discussion on market value and market rent, if you are trying to sell, purchase, value or plan in your business, we would recommend having a clear view of what your property is worth. In many cases it isn’t what you might imagine.  

At JS Reakes we tailor our services to your requirements. Our expertise comes with over 30 years of experience in commercial property. We are based in Bristol and cover Wales and the Southwest. 

 

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