The prospective industrial property buyer is interested in the overall utility value of the property. When evaluating the industrial property's overall utility, the appraiser must give individual consideration to the land and to each improvement on the property.
Industrial buildings are generally designed for a special purpose or operation and usually cannot be used for other purposes. The building will maintain its value as long as the building's purpose is still a vital operation. If the operation becomes obsolete, the building will also become obsolete.
The upper limit of the industrial building's value is the building's replacement cost new. The building's present day value is a measure of the building's present day usefulness in relation to the purpose for which the building was originally designed.
The industrial appraiser must rely heavily on the cost approach to value: determining the upper limit or replacement cost new of each improvement and the subsequent loss of value resulting overall from physical, functional, and economic factors.
The industrial appraiser cannot rely on the market data approach because there is a very limited number of sales, with each sale generally reflecting different circumstances and conditions, and he cannot rely on the income approach because of the lack of comparable investments and the inability to accurately determine each unit of production's contribution to the overall income produced.