Value an industrial property two ways and compare the answers. The sales comparison approach prices the building per square foot from recent sales of similar buildings nearby. The income approach divides the property's net operating income by a market capitalisation rate. Both are standard valuation methods (Wikipedia: sales comparison approach, Wikipedia: capitalization rate). When the two land close together, you have a defensible number. When they do not, the gap tells you which input to check first.
Written by the Titleman team with AI assistance (Claude). Reviewed by Titleman's SEO/GEO review desk (AI-assisted, not independent of Titleman) before it went live. Links checked and page updated 14 October 2026.
This page is about an opinion of value for an investment decision. It is not an appraisal, and where a lender or a standard requires one, only a licensed appraiser can provide it.
What makes industrial different
Two buildings with the same square footage can be very different assets. The physical facts that move an industrial price most are the ones a generic property record often leaves out:
- Clear height. Modern distribution tenants want 32 feet or more; a 20 foot building serves a narrower market.
- Loading. The number of dock-high doors and drive-in doors, and the depth of the truck court.
- Office share. A building that is 30 percent office is partly a different product from one that is 5 percent office.
- Site. Land-to-building ratio, trailer parking and any outdoor storage.
- Age and power. Construction year, roof condition, sprinklers and electrical capacity.
- The lease. Tenant credit, remaining term and the rent basis. Most industrial leases are triple net, but not all, and a market rent quoted without its basis cannot be compared.
Approach 1: comparable sales
Collect recent closed sales of similar buildings in the same submarket and express each as a price per square foot of building area. A good comparable is:
- a closed sale, not an asking price or a listing that never traded;
- in the same submarket, not just the same metro;
- in a similar size band and with similar clear height and loading;
- recent enough that the market has not moved underneath it.
Then adjust each one for the differences that matter (clear height, age, size, location, the date of sale) and state each adjustment rather than absorbing it into a final number. Some sales need to be adjusted heavily or set aside: sale-leasebacks, where the price reflects the lease the seller signed; portfolio sales, where the price per building is an allocation; and owner-user purchases, which are priced for occupation rather than income.
How many comparables are enough is a judgement, but fewer than three closed sales is thin. At Titleman a point value needs at least three comparable sales behind it; below that the answer becomes a range on purpose (see comparable sales for the general rules and how we screen a comparable set for how a count is produced).
Approach 2: income
Build net operating income from the rent roll, then divide by a cap rate.
- Rent. In-place rent from the leases, and a market rent for any vacant space, each on a stated basis (NNN or gross).
- Vacancy and credit loss. Even a fully leased building needs an allowance over a hold period.
- Expenses the landlord keeps. On a NNN lease most operating costs are recovered from the tenant, but management, reserves and any non-recoverable items stay with the owner.
- Net operating income is what is left (what NOI includes and excludes).
- Cap rate. Take it from recent sales of similar leased buildings, not from a national average. A cap rate is evidence about a market at a date, and it should come with both.
A worked example (illustrative figures)
None of these figures describes a real property or a real market. They show the arithmetic.
A 100,000 square foot warehouse is leased at 8.00 dollars per square foot NNN.
| Line | Amount |
|---|---|
| Potential rent (100,000 sq ft at 8.00 dollars) | 800,000 dollars |
| Vacancy and credit loss (5 percent) | minus 40,000 dollars |
| Effective gross income | 760,000 dollars |
| Owner's non-recoverable costs (0.30 dollars per sq ft) | minus 30,000 dollars |
| Net operating income | 730,000 dollars |
Income approach. At a 6.5 percent cap rate, 730,000 divided by 0.065 is about 11.23 million dollars, or about 112 dollars per square foot. At 6.0 percent it is about 12.17 million; at 7.0 percent about 10.43 million. Half a point higher takes off about 800,000 dollars here and half a point lower adds about 940,000, which is why the cap rate needs its own evidence.
Sales comparison. Three closed sales of similar buildings in the same submarket sold at about 109, 118 and 114 dollars per square foot. After adjustments for clear height and age, they point to roughly 110 to 118 dollars per square foot, or about 11.0 to 11.8 million dollars for this building.
Reconciled. The income approach (11.23 million) sits inside the comparable range (11.0 to 11.8 million), so an opinion of about 11.2 million is defensible. Had the income approach come out at 13 million, the first things to check would be the market rent assumption and whether the comparables were really similar.
Where the numbers usually go wrong
- Asking rent quoted as achieved rent. Market reports often publish asking rent, and on different bases: one Tampa industrial example shows four brokerages publishing four different numbers for the same quarter.
- A comparable that never traded. A listing is a seller's hope, not a price.
- The subject property in its own comparable set, listed under a different address or name.
- A cap rate borrowed from another market or another year.
- States that do not disclose sale prices. In a non-disclosure state such as Texas, recorded sale prices are not available, so comparable evidence is thinner and should be presented as such.
Which tools help
You need four things, from whichever tools you use:
- Comparable sales you can look up one by one, with the date, the price and the building size.
- Market rent and vacancy for the submarket, with the house, the period and the rent basis named.
- A model for the income approach, with the assumptions visible and editable.
- The property record for the subject: size, year built, site, zoning.
Titleman's Value Opinion assembles the property record and the comparables for an address, runs both approaches and returns an opinion of value with the workbook behind it; every figure names where it came from. Coverage differs by state, so check coverage and data before you rely on it for a particular market. It is an opinion of value, not an appraisal.
FAQ
How do you value an industrial property?
Two ways, then reconcile them. The sales comparison approach prices the building per square foot from recent sales of similar buildings in the same submarket, adjusted for clear height, age, size and location. The income approach divides the property's net operating income by a market capitalisation rate. When the two disagree, the gap usually points at a weak comparable or an optimistic rent.
What makes an industrial comparable a good one?
Same submarket, a similar size band, similar clear height and loading, a similar building age, and a recent closed sale rather than an asking price. Sale-leasebacks, portfolio sales with an allocated price and owner-user purchases are priced differently and need to be adjusted or set aside.
How much does the cap rate change the value?
A lot. On an NOI of 730,000 dollars, a 6.0 percent cap rate gives about 12.17 million dollars and a 7.0 percent cap rate gives about 10.43 million dollars. Half a point up or down moves the value by roughly 7 to 8 percent, so the cap rate needs its own evidence, not a rule of thumb.
Which tools help value an industrial property?
Comparable sales data, brokerage market reports for rent and vacancy, a spreadsheet model for the income approach, and software that assembles the property record and the comparables with their sources attached. Whatever the tool, check that each comparable is a closed sale you can look up and that the rent basis is stated.