Estimated Rental Value (ERV)
Estimated Rental Value (ERV) is the open-market rent a commercial property could reasonably achieve, which surveyors use to calculate the property's capital value.
When a commercial surveyor values a property, they don't just look at the rent the current tenant is paying; they look at the Estimated Rental Value (ERV). This is the surveyor's opinion of the true, open-market rent the building could achieve if it were empty and re-let today.
If a commercial property is currently let to a tenant on an old lease paying £20,000 a year, but the ERV of the area has risen to £30,000, the building is considered 'under-rented'.
The Reversionary Yield Play
Savvy commercial investors seek out under-rented buildings. They buy the building based on its current low yield, wait for the tenant's lease to expire, and then increase the rent up to the true ERV. Because commercial capital values are tied to rent, this single action drastically forces up the value of the building, creating massive instant equity.