How do you determine value without similar comps?

[Stuart Humphreys]

Looking at a large office building but there's not much around that's similar. Should I just go off the CAP rate?

[Jeff Kehl]

@Stuart Humphreys if you look at commercial appraisals, there are three ways they do it. If you have no comps you still have the income and the replacement approaches. 

Replacement is pretty easy. How much does it cost to build new commercial space in your area times the square feet minus deferred maintenance/obsolescence. Say it's 1000 square feet and it costs $100 to build it new. It's worth $100k if it was built in the last few years. But if it has popcorn ceilings that need to be scraped and gold fixtures and more that need updated maybe deduct $10-20 a foot for rehab so let's say it's worth $80-90k.

For Income, it depends a ton on what's going on in your local area. What's vacancy rates on similar properties? Do you have some leads on potential tenants in your back pocket? What are current rent rates on office space per square foot in your area?  

Let's just say the market is $12 a foot or $12k/year $1k month in your market. And assume your expenses are 40% (less than the 50% for residential) so you make $7200 per year. At an 8 cap this values the property at $90k.

So our 1000 square foot office is worth $90 k but this analysis ignores a lot of things. What's the office vacancy space in the area? Are there secular trends which might be affecting this? For instance, I used to do a lot of work in an office but now I mostly work from home.

This is about office not retail but are people going to malls anymore? You get the idea.

You'd think based on this post that I'm negative on office space but just the opposite is true. I tried to buy some today at an auction and lost out on price and I will continue to pursue it.