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If the vacancy is really high due to poor management for example, cap rates will not make sense. per square foot/per unit will make some sense
Couldn’t you still use cap rate there? Look at market rents then make assumptions on how you could release the building. Then slap a cap rate on your normalized rent rolls. Adding in a margin of safety and compensation for doing the work of releasing.
Psf I’d assume is mostly for your home.
Are you talking about underwriting the exit of a potential deal? Then sure, I would go with a market capitalization rate for a stabilized property and then adjust as necessary for other factors. You can then cross reference the implied capital value, i.e. price per area, and see if it is within market norms. It is always good to have a comparable table regardless to ensure you're not underwriting to new market highs.
We always look closely at both. It's just another sanity check to confirm you are not missing anything. For example, if you are underwriting to a market cap (***and assuming all other things equal i.e. use, build quality, vintage, etc) but the per unit or SF value you are arriving at for your PP is wildly divergent from other trades or sales comps that you have, you might be missing something (or maybe your just getting a great/shitty deal). There could also be something that justifies the difference in value. For instance, two adjacent apartment buildings might be identical aside from one having ground floor retail, which skews its value per unit higher. Or two newly built industrial buildings with one having a much higher value PSF due to it being leased to FedEx for 20 years vs the other having multiple non-credit tenants on shorter leases. Remember, real estate finance is as much of an art as it is a science.
TL:DR - Both are important metrics to always look at.
Vacant building or an owner-user would use PSF. Cap rate is tricky because it depends on the credit of the tenants, lease type, lease term remaining, etc.
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