Valuing Industrial Properties for Different Purposes – Lessons from Field Experience
Mr. Lakshman S.
Mr. Lakshman S. is a Civil Engineering professional with 35+ years of experience, including 14 years overseas in construction, contracts, and project management. Since 2016, he has been working in property valuation and is a Registered Valuer with both IBBI and the Income Tax Department. He is currently based in Namma Bengaluru and brings deep expertise in Land & Building valuations.
Valuing industrial properties is never a one-size-fits-all exercise. While a set of principles and standards guides the process, the purpose of valuation often determines the methodology, the assumptions, and even the level of conservatism or optimism in the figures. From lending institutions assessing collateral strength to insolvency professionals gauging realizable value, every stakeholder approaches the same property through a different lens. Drawing from field experiences, this article highlights the nuances of industrial property valuation and the lessons they teach us.
The Multi-Faceted Nature of Industrial Property Valuation
Industrial assets are complex—large parcels of land, factory sheds, utility installations, specialized machinery enclosures, warehouses, and sometimes even integrated townships for workers. Unlike residential or commercial real estate, these properties are tied closely to operational use and location-specific viability.
A valuation done for:
- Bank lending must reassure lenders about liquidation potential,
- Taxation requires compliance with statutory rules,
- Insurance focuses on reinstatement or replacement cost,
- Mergers, acquisitions, or insolvency demand a more market-driven, often distressed perspective.
This diversity makes it vital for valuers to balance standards with pragmatism and recognize that it is in the field where theory meets reality.
Lesson 1: The “Purpose” Defines the Value
A steel fabrication unit once valued for mortgage purposes carried a higher figure, as it factored the optimistic “fair market” potential of the site. Months later, when the same plant was under insolvency proceedings, the valuation was starkly different—reflecting realizable value under distress.
Takeaway: The purpose of valuation dictates whether one considers replacement cost, fair market benchmarks, or distress discounts. Misalignment can create disputes between lenders, promoters, and resolution professionals.
Lesson 2: Land Dominates, but Buildings and Utilities Matter
Based on field experience, land often contributes between 55% and 90% of the land-and-building value across industries—from breweries to rice mills to machinery manufacturing units. On average, land contributes more than 70%, especially near transport corridors or within notified industrial parks. However, ignoring specialized buildings—such as climate-controlled warehouses, effluent treatment plants, or heavy-duty flooring—can severely undervalue the asset.
Takeaway: Always assess whether the property is “generic” land with sheds or a purpose-built facility. In the latter, reproduction or replacement cost adjustments become critical.
Lesson 3: Market Evidence is Often Thin
Unlike residential apartments, industrial property transactions lack transparency. Deals often happen through private negotiations, sometimes involving leasebacks or infrastructure commitments. For instance, valuing a rice mill in a semi-rural location was difficult due to scarce comparable data. In such cases, discussions with local brokers, industrial development corporations, and nearby units proved far more useful than database records.
Takeaway: Field intelligence and local market interactions often substitute for standard comparable data in industrial property valuation.
Lesson 4: Obsolescence is Not Just Physical
Physical depreciation in sheds or equipment is obvious, but functional and locational obsolescence are subtler. A factory designed for textile weaving may not be re-purposable for electronics assembly. Likewise, a congested urban location may deter buyers despite infrastructure strength.
Takeaway: Valuers must capture both functional and locational obsolescence to avoid overstating realizable value.
Lesson 5: Legal and Compliance Filters Impact Value
valuations are often challenged due to compliance gaps, such as missing environmental clearances, disputed titles, or pending conversion charges. In one case, despite robust infrastructure, a unit’s valuation had to be reduced because approvals were pending, limiting marketability.
Takeaway: Industrial property value rests as much on clean documentation and regulatory readiness as on physical assets.
Lesson 6: Insurance and Tax Valuations Demand Different Lenses
For insurance, reinstatement cost is key—what it would cost to rebuild today, not what the market would pay. For taxation, authorities often insist on guideline values, which may differ sharply from market realities. Switching between these assignments requires recalibrating assumptions.
Takeaway: Stakeholder-specific objectives (protection vs. revenue vs. liquidity) create different “versions” of the same property’s value.
Lesson 7: Insolvency and Distress Cases Demand Hard Realism
In insolvency assignments, valuers often learn the hardest truth: a property’s theoretical worth rarely survives market testing under time pressure. A sprawling factory on the outskirts may look impressive on paper, but if buyers are few and auctions are delayed, realizable value declines sharply.
Takeaway: Distress valuation is as much about market psychology and investor appetite as it is about replacement cost or land rates.
The Human Side of Valuation
What textbooks rarely highlight is the negotiation of expectations—between promoters who feel their life’s work is undervalued, lenders who want maximum recovery, and regulators who demand compliance. Field practice teaches that clear documentation, transparent assumptions, and consistent communication are as important as technical accuracy.
Conclusion: Valuation as a Bridge Between Asset and Stakeholder
Industrial property valuation is not merely a calculation—it is a balancing act shaped by purpose, context, and ground realities. While standards set the framework, field experience provides the credibility that stakeholders trust.
The core lesson is this: value is never absolute—it is always relative to purpose and circumstance. A valuer’s true role goes beyond measuring land and buildings; it is about interpreting industrial assets as economic opportunities shaped by compliance, usability, and market psychology.
Ultimately, good valuation lies in bridging theory with practice and expectation with evidence—so that all stakeholders, from lenders to promoters, find decisions rooted in both numbers and reality.
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