Three ways commonly used to value a property - comparable sales approach, income approach, and cost approach. Comparable sales approach looks at recent sales of similar properties, makes adjustments for differences, and arrives at a common metric (e.g. price per square foot.) The income approach uses capitalization of the annual net operating income to calculate a value (Income=Rate*Value). The appropriate Capitalization Rate (Rate) to use will depend on your area and the quality of your leases. Finally, the cost approach looks at the expense to reproduce or replace your property, minus applicable depreciation. The cost approach is used less often and is more appropriate in the absence of comparables and operating income.
So you answer should be a blend of the comparable sales approach and income approach, with more weight given to the method that has the stronger data behind it.
Mar 2, 2010