How do I value a commercial property with low occupancy?

Value a low-occupancy commercial property in two steps: what it would be worth stabilized, using market rents, a market vacancy rate and a market cap rate, and then what it costs and how long it takes to get there. Subtract the lease-up cost, the lost income during lease-up and a profit for the risk. The in-place cap rate alone will undervalue it. The lease-up method 1. Stabilized NOI: market rent for the vacant space, current rents for leased space, market vacancy and typical expenses. 2. Stabilized value: stabilized NOI divided by a cap rate from comparable stabilized sales. 3. Cost to stabilize: tenant improvements, leasing commissions, free rent and any capital work the space needs. 4. Carry: the income you do not collect while leasing up, plus operating costs on the empty space. 5. Risk: a discount or profit margin for the chance that lease-up takes longer than planned. Value today is roughly the stabilized value minus steps 3, 4 and 5. Inputs to check carefully - How long similar space has taken to lease in the submarket. - Whether the market rent you use is supported by recent leases, not asking rents. - Whether the building needs work before tenants will sign. A cross-check Look for sales of similar assets that traded vacant or partly vacant. Few exist, but one or two can tell you whether your lease-up discount is realistic. How Titleman helps Titleman builds the value read from comps and market rents it pulls itself, keeps your figures apart from its assumptions and shows the lease-up math line by line. It is not an appraisal. See how Deal Review works: https://titleman.ai/products/deal-review