Fair Market Rent & Fair Market Value Factors for Industrial Real Estate Valuations & Appraisals

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Industrial Real Estate Valuation is complex as Commercial & Industrial Real Estate Appraisers that provide the most current and up to date (snapshot in time as of a specific date of value) for a subject property that is Market Level - Fair Market Rent Lease Rental Rates for Landlords & Tenants & Fair Market Value for Sale Price Value for Buyers & Sellers of industrial properties consists of many factors that have a positive or negative effect on value to obtain At Market rents and pricing for Real Property Appraisers.

Ideal Highest & Best Use: Can vary greatly, depending upon specific uses for industrial property: warehouse, distribution, manufacturing, flex/R & D – research & development, cold storage/refrigeration & freezer/food processing buildings, contractor storage yards and business parks/showroom properties. The highest rent or sale price achievable for a specific use is the highest & best use, the greatest net or overall $ amount obtainable.

Users of Distribution Buildings ideally/typically seek & prefer:

Good Location (general vs. specific): Demand is for easily accessible, pure industrial intensive areas that are distribution friendly, rather than commercial submarkets or mixed use (industrial/commercial or industrial/residential) areas due to theft safety of product and vandalism. Example is city of Commerce - pro distribution uses, located near freeways with wider streets vs. city of Vernon in Los Angeles County, California that has a $.20/SF additional warehouse tax penalty for tenants and owner users as they generate their own power – pro manufacturing with older, more functionally obsolete buildings & infrastructure. Corners are preferred with sufficient driveway cuts vs. mid block.

Maximum Clear Height & ESFR (Early Suppression Fast Response) Sprinklers: Higher is better as distributors need the best logistics with high clearance, generally 20’+ feet to maximize stacking of boxes/inventory, also ESFR Sprinklers to achieve better usability to the roofline in addition to merchandise security in case of a fire which is quickly put out.

Low % Office Build Out of Improvements: Lower is better, 5% to 10% to get product in & out quickly/efficiently.

Sufficient # of Dock High Loading Doors for Trucks & Ground Level Roll Up Doors: Distributors need a functional box or cube with maximum clearance, generally 20’+ feet to maximize stacking of boxes/inventory, also ESFR Sprinklers to achieve better usability to the roofline in addition to merchandise security in case of a fire which is quickly put out. Rule of thumb is 1 DH per 1,000 SF of building square footage. Preference is for front loading vs. rear loading for ease of ingress/egress.

Low Floor Area Ratio (FAR) & Suitable Amount of Land vs. Building Improvements for Convenient Truck Turn Around: Ideally, FAR’s less that 0.40 and 100’+ linear land footage for 40’ trucks with containers to get in/out without parking lot congestion, interfering with on site automobile spaces or delivery/pick up.

Above are major items that can greatly reduce or increase real property lease rates/rents and sale price values.