Property Valuation for Businesses: How to Determine Whether Your Assets Still Reflect Market Reality

For many businesses, real estate is among the most significant assets on their balance sheet. Production facilities, warehouses, offices, retail premises, land and specialised properties can account for a substantial share of a company’s assets. Yet when a property was last valued several years ago, a reasonable question arises: does the value reported on the balance sheet still reflect current market conditions?

The real estate market shifts with economic cycles, financing conditions, construction costs, rental rates, investor activity and demand in a particular market segment. The value of the property itself may also change as a result of redevelopment, reconstruction, capital investment, a change of use, development potential or changes in the surrounding infrastructure.

For this reason, real estate valuation is not simply a matter of determining a potential sale price. A professional valuation may be required for financial reporting, the revaluation of fixed assets, raising finance, business or asset transactions, reorganisations and other strategic business decisions.

Grant Thornton Baltic’s real estate valuation team helps businesses and public sector organisations assess the need to value fixed assets and real estate, and prepares professional valuations to support financial reporting, transactions, financing, asset management and other organisational needs.

When might a business need an updated real estate valuation?

There is no universal answer to how often a particular property should be valued. The need for an updated valuation depends on the type of property, the purpose of the valuation, market dynamics and changes to the asset itself.

The following may indicate that the value of a property or another material fixed asset should be reviewed:

• several years have passed since the last professional valuation;
• transaction prices in the relevant real estate segment have changed materially;
• rental rates, vacancy levels or the property’s income-generating capacity have changed;
• construction and replacement costs have changed materially;
• the property has undergone reconstruction, redevelopment or other significant investment;
• the property’s use or development potential has changed;
• the surrounding infrastructure has changed;
• the company is planning to raise financing;
• the sale of the business or individual assets is being prepared;
• a reorganisation or another significant transaction is taking place;
• the financial reporting or audit process requires the carrying amount of an asset to be substantiated.

In such circumstances, a professional valuation enables a business to base its decisions on market data and appropriate valuation methodologies rather than assumptions.