A Sequential Value Chain
Commercial property valuation is fundamentally an income-driven exercise. The Big Five Framework identifies five core variables that determine value in income-producing real estate, disaggregating Net Operating Income into its component drivers so each can be independently tested and professionally defended.
IGU → PGI → NGI → Operating Expenses → Capitalisation Rate → Value
Value = Net Operating Income ÷ Capitalisation Rate
Watch
The Big Five, Explained
A full walkthrough of the Big Five framework, step by step.
The Five Components
STEP 1
Income Generating Units (IGU)
The measurable, legally compliant, functionally competitive spatial capacity of a property to produce sustainable rental income under its highest and best use. Not floor area — monetisable lettable capacity.
STEP 2
Potential Gross Income (PGI)
The maximum sustainable rental income achievable under full occupancy at prevailing market-related rental levels, before vacancy and expense deductions.
STEP 3
Normalised Gross Income (NGI)
Stabilised rental income after adjusting PGI for vacancy and collection losses — the first true risk-adjusted income measure in the framework.
STEP 4
Operating Expenses
Recurring, normalised costs necessary to sustain the property’s income-producing capacity, excluding financing and capital expenditure.
STEP 5
Capitalisation Rate
The market-derived rate of return required by investors to compensate for risk and growth expectations — converts stabilised NOI into an estimate of value.
Why the Framework Matters
Each variable is both a function of the one before it, and a risk input into the next — a small upstream error compounds through capitalisation. Instead of asking “what is the value?”, the disciplined question becomes: is the IGU correct, is PGI defensible, is vacancy realistic, are expenses normalised, is the cap rate justified?
This structure strengthens sensitivity modelling, professional defensibility in litigation and financial reporting, and gives clients a clear narrative rather than a black-box number.