Commercial valuation

How to value: Vacant office

An empty office earns no rent now, so you cannot simply use income divided by the cap rate. Instead, estimate the value once it is fully leased, then subtract the time and cost of getting there.

A bright, open office space with large windows, a long meeting table with black chairs and two gray sofas, with no people. — Photo: Breather, Wikimedia Commons (CC0)

Main method
Value once leased, minus the cost to fill
Check first
Nearby vacancy and rent trends
Watch out for
Underestimating the time and cost to fill

Timing and the market The value of this type changes with the time and the market mood. Every number below is a made-up example, not a real market number.

How this type is valued

Step 1: look at the rent similar offices get and at vacancy, and estimate the net operating income (NOI) once the building is steadily leased. Apply a cap rate to get a “stabilized value”.

Step 2: subtract the cost of filling it. This usually includes a tenant improvement allowance (TI: money the landlord gives so the tenant can build out the space), leasing commissions, free-rent months, and property tax, insurance and upkeep while the space is empty.

Step 3: consider other uses. If demand for offices is weak, check whether the building could be changed to another use (residential, medical, storage and so on). A change of use needs the right zoning and building permits, and costs a lot of time and money. The most valuable legal use is called the “highest and best use”.

If you will use the office yourself (owner-user) or it is an office condo unit, comparing recent sales of similar units (direct comparison) is the main method.

What drives the value

Vacancy and rent trends for nearby offices: the mood of the whole area matters, not only one building.
The condition of the building, floor area, elevators, parking and access to transit.
The cost of filling it (TI, commissions, free rent) and how long it takes.
Whether zoning allows uses other than offices.
Whether the building needs major repairs (heating and cooling, elevators, roof).
Demand from owner-users, which depends on loan rates and business outlook.

Documents and numbers to check

Why and how long it has been empty, and the last tenant and last rent.
The property tax bill and the last 2 to 3 years of operating costs (the costs that continue while it is empty).
Building plans, rentable area and a building condition report.
Rent and vacancy data for nearby offices (from an agent or a market report).
Whether zoning and the Official Plan allow other uses.
An environmental review (Phase I): past uses and any older building materials.
For an office condo: condo fees, the reserve fund study and the rules (the kind of information in a status certificate).

What to watch out for

Believing “it will lease soon” and underestimating the empty time and cost.
Tenant improvement allowances and commissions that turn out larger than expected.
New office supply nearby that pushes rents down.
A plan to change the use that the zoning or permits do not allow.
Big repair costs for an older building that are not reflected in the price.

A made-up example: value once leased, minus the cost to get there

These numbers are made up to show the arithmetic. They are not real market cap rates or costs. The example assumes the net operating income (NOI) once steadily leased is $200,000 a year, and the cost of filling the building (tenant allowances, commissions, free rent, and costs while empty) totals $400,000.

A made-up example: value once leased, minus the cost to get there
Cap rate	Stabilized value	Cost to fill	Value while empty (rough)
6.0%	$3,333,333	$400,000	$2,933,333
7.0%	$2,857,143	$400,000	$2,457,143
8.0%	$2,500,000	$400,000	$2,100,000

What changes with timing and the market

When remote work and office demand are shifting, vacancy and rents can differ a lot by area. Look at recent data for the area and building class.
When rates rise, cap rates tend to rise and the value of the same NOI falls. As the example shows, a 1-point difference in the cap rate changes the value a lot. (A general principle, not a rule.)
When many offices are empty, tenants can get more free rent and allowances more easily, so the cost to fill rises.
When more or fewer people want to convert offices to other uses, the number of buyers and the price they will pay change.
So do not treat the price of a similar building sold a few months ago as today’s value.

Where to check the market →

Official sources

What the official sources say 4

MPAC, Three Approaches to ValueThree Approaches to Value

The valuation approach we use depends on a number of factors including property type, and the number of recent comparable sales of similar properties in the area.

In plain wordsWhich method is used (direct comparison, income, or cost) depends on the kind of property and how many recent comparable sales there are. This page says MPAC uses the income approach for income-producing buildings. This is the property tax assessment method. It is similar to, but not the same as, how a market price is set.

Source: mpac.ca/en/UnderstandingYourAssessment/ThreeApproachesValue · checked Oct 30, 2026

Planning Act — Power to pass zoning by-lawsPlanning Act, R.S.O. 1990, c. P.13, s. 34 (1), paras. 1 and 4

Zoning by-laws may be passed by the councils of local municipalities: … For prohibiting the use of land, for or except for such purposes as may be set out in the by-law within the municipality or within any defined area or areas … For regulating the type of construction and the height, bulk, location, size, floor area, spacing, character and use of buildings or structures to be erected or located within the municipality or within any defined area or areas …

In plain wordsA city council can use a zoning by-law to limit what land is used for and to regulate the type, height, bulk, location, size, floor area and spacing of buildings. So the same land allows different things depending on its zoning.

Source: ontario.ca/laws/statute/90p13 · checked Oct 30, 2026

Land Transfer Tax Act (Ontario)R.S.O. 1990, c. L.6, s. 2 (1)

(iv) 2 per cent of the value of the consideration that exceeds $400,000; and

In plain wordsOntario land transfer tax is paid when the transfer of land is registered, and the part of the price above $400,000 is taxed at 2%. The extra 0.5% in the same section applies only to land with one or two single family residences, so for commercial and industrial land this 2% is the highest bracket. Toronto also has its own municipal land transfer tax, so ask a lawyer.

Source: ontario.ca/laws/statute/90l06 · checked Oct 30, 2026

Excise Tax Act, Schedule V, Part I — exempt supplies of real propertyExcise Tax Act, Sched. V, Part I, s. 2

A particular supply by way of sale of a residential complex or an interest in a residential complex made by a particular person who is not a builder of the complex or, if the complex is a multiple unit residential complex, an addition to the complex, unless

In plain wordsThe exempt list includes the sale of a residential complex by someone who is not its builder. A sale of a commercial or industrial building or land does not fall under this item, so HST often applies. It depends on whether the seller is an HST registrant and how the buyer reports it, so check with an accountant.

Source: laws-lois.justice.gc.ca/eng/acts/E-15/page-120.html · checked Oct 30, 2026

FAQ

Is an empty building very cheap?

Not necessarily. No income now is a reason for a lower value, but you must also look at the value once leased, the chance of changing the use, and the value of the land. What matters is calculating realistically what it costs and how long it takes to fill.

Can an office be changed to another use?

It depends on the zoning, the Official Plan and the building permit conditions, and it differs by city. Check with the city planning department or a lawyer before you buy.

How do I value an office I will use myself?

Look at recent sales of similar office units (direct comparison). Price per square foot changes with condo fees, parking and the condition of the building. For an office condo, review the documents like a status certificate.

Shall we look at the building you are considering?

Tell me about the property or business you are looking at and I will explain how it is valued and what to check first. A formal appraisal is done by a qualified appraiser.

Book a consultation (647) 778-2860

This page was made from official sources checked on Nov 2, 2026. It is not legal, tax or financial advice.

Main sources for this page

MPAC, Three Approaches to Value · Oct 30, 2026
Planning Act — Power to pass zoning by-laws · Oct 30, 2026
Land Transfer Tax Act (Ontario) · Oct 30, 2026
Excise Tax Act, Schedule V, Part I — exempt supplies of real property · Oct 30, 2026