Office property assessments
What is an office property?
Office properties are generally designed for and used by administrative, managerial, corporate, or government tenants. They are typically purchased as an investment so their ability to generate income is the most important feature when estimating their market value.
Types of office properties
|Beltline Office||Property located within the Beltline region designed for predominantly office use. The Beltline region is located directly south of the Downtown region and is bordered on the southeast end by the Elbow River, the far west end extends to the intersection of Crowchild Trail and Bow Trail SW.|
|Downtown Office||Property located within the Downtown region designed for predominantly office use. The region is bordered on the north by the Bow River, on the west by 14 Street, on the east by 6 Street and on the south by the Canadian Pacific Railway right-of-way.|
|House Conversion||Residential house which has been converted partially or fully into commercial use. Typically valued using the sales approach to value.|
|Office Condos||Condominium unit within non-residential or residential property designed for office use. Typically valued using the sales approach to value.|
|Parkade||Parking structure not associated with another property designed specifically for vehicle parking.|
|Small Office||Property located outside of the Downtown and Beltline areas designed for predominantly office use and is less than 20,000 square feet.|
|Suburban Office||Property located outside of the Downtown and Beltline areas designed for predominantly office use.|
|Suburban Office Medical/Dental||Property located outside of the Downtown and Beltline areas designed for predominantly office use with most tenants being medical and/or dental professionals.|
How are office properties assessed?
Income approach to value
- Office properties are typically assessed using the income approach to value, which estimates the value of a property based on the income it generates. Most office properties are developed and operated based on their income- generating capabilities relative to prevailing macro-economic trends and positioning within their respective geographic trade area.
Income approach involves developing typical market rents, vacancies, expenses, and capitalization rates to estimate value of the fee simple estate.
Office properties may be assessed based on their underlying land value if the value of the vacant land exceeds the income value of the existing structure. As a result, the land value more accurately represents market value. Land values are derived using the sales comparison approach.
Typically, there are three instances where income generating properties tend to be valued in this manner: low demand for the product, underutilized land, and highly depreciated improvements.
This occurs when a property contains a small improvement relative to the overall building potential of the lot. Alternatively, the land use of the site may allow for greater development potential.
Highly Depreciated Improvement:
This occurs when a structure is nearing the end of its economic life. As an asset ages, it tends to generate less income and higher operating costs over time, and thus contributes little to no value.
An office property would typically not be assessed based on land value if it was given a heritage designation by any level of government which restricts the redevelopment of the property.
The sales comparison approach, also known as the direct comparison approach, is used to determine market value by comparing the sale prices of similar properties to the subject being valued.
Office Condos, House Conversions, and Land are typically valued using the sales approach as there is usually a high percentage of sales relative to the total property inventory. Components affecting the value include unit layout, location, size, age, and quality.
Cost approach has been used to estimate assessed values of partially developed office properties. Improvement values are determined by the degree of completion of construction of the property as of the physical condition date of the assessment year. Land Values are derived from sales of comparable land properties. Data centres are also valued using this approach because they are unique, purpose-built, or have limited market data to lend comparability.
Physical and Economic characteristics that affect the value of an office property are:
- Physical condition
- Building functionality
- Year of construction
- Net rentable area
- Floor plate size
- Number of stories
- Type and quality of construction
- Space type mix
- On-site parking
- Building tenant amenities
- Space type
- Land parcel size
The following are the different space types that exist within the office inventory:
|Anchor||Large format spaces designed to house major retail anchor tenants in unit larger than 15,000sf.|
|ATM||Stand-alone automated teller machine.|
|Bank||Retail space that typically contains a vault, increased security measures, and is usually occupied by a licensed financial institution.|
|Food Court||An area in a shopping centre designed for the purchase and consumption of food.|
|Kiosk||A small open-fronted hut or cubicle located within a shopping centre.|
|Living||Residential living units in office properties.|
|Lower||Commercial space that is below main level. These units typically exhibit less utility or desirability than at-grade or above grade commercial space because of inferior access and exposure.|
|Office||Space designed primarily for administrative, managerial or professional work.|
|Parking||Parking located within the office property which has the potential to generate additional income.|
|Restaurant||Retail space constructed, designed, and improved for the preparation and distribution of food, and operates as a restaurant or fastfood business. This classification is specific to the Beltline area of Calgary.|
|Retail||Improved space designed for retail sales which is open to the public. These spaces may vary in desirability based on location within an office building as well as their relative size.|
|Storage||Space with less tenant improvements designed for storage.|
|Surface Parking||Parking located on the property without an associated structure which has the potential to generate additional income.|
|Theatre||Retail space that is built for the purpose of performance and visual entertainment.|
|Warehouse||Space with less tenant improvements within office property with bay doors and higher than usual ceiling designed for manufacturing/storage.|
|Data Centre||Property that is designed for predominant use and housing of computer systems, servers and associated components, telecommunications and storage systems.|
|Food Hall||Property located within the Beltline region which is formatted in a common and contiguous area designed for the purchase and consumption of food|
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