Valuing flexible workspace

The property sector has experienced a lot of disruption in recent years, particularly regarding commercial assets. The way properties are used is altering. Expectations of what spaces should be are becoming more focused on things like health and well-being, data-centredness and flexibility.

With more populations engaging with hybrid working, there is higher demand for flexible workspaces as suggested by RICS Global Property Monitor. While this generates new opportunities, it also brings a decrease in the use of traditional business spaces and creates a need to repurpose or adapt them. As such, there is greater interest than ever before in appropriate ways to conduct valuations of properties in this area.

What has changed?

Traditionally, places of work have been fixed centre points to commute to and from, with work-life balance linking more to physical presence. Living routines have been compartmentalised by activity. With COVID-19 causing restrictions on behaviour and access – such as limiting the number of people in a building, increased safety awareness and a need, rather than a desire, to work remotely – there is a shift to more blended, task-based ways of working. The longstanding 9-5pm working day is no longer considered a norm.

The impact on valuing

When the way people interact with the built environment changes, this affects perceptions of worth and the work of valuers. Instead of designated spaces for specific things, almost any area can be used for a variety of purposes. A retail building may work well for hot-desking. Restaurants may consider operating as takeaways from places they'd never previously considered. Offices may be used for events. The purpose of a space now has greater flexibility.

This widening of use means there is also more flexibility around the duration, extent and type of occupation from occupiers. Landlords are now offering more options to tenants when leasing buildings and organising business spaces, supported by findings from Savills landlord flex survey:

• landlords are becoming more open to flexible components within lease agreements
  
• landlords have a growing awareness that start-ups can be reliable tenants as well as established corporates
  
• allowing for short-term use in leases can be the difference between a property being empty or occupied.
  

A challenge for valuers is the flexible workspace market appears to blur the lines between the freehold valuation of real estate, the valuation of an interest in real estate, such as a lease, and the valuation of an ongoing or proposed business. It is crucial that valuers establish a clear use and terms for the asset they are valuing as it is being sold, as the current purpose of a property doesn't necessarily have to pass with the transaction.

In this respect, buildings are considered more as facilitators of purpose rather than the place for a specific purpose. RICS Valuation – Global Standards makes a clear difference between market value and value based on a calculation of worth to a particular occupier or owner.

Towards a flexible future

While there is still a place for traditional models of commercial real-estate use, the pandemic era has disrupted the markets, accelerating a culture change in the way spaces are used.

The flexible future puts the role of valuers centre stage and is demanding a greater depth of knowledge than ever before, leaving a lot to be discussed in this area. RICS UK Valuation Conference 2022 offers:

• Breakout streams covering dedicated content for all valuation specialisms
  
• Sessions focus on commercial property, residential property, machinery and business assets, arts and antiques, business valuations and intangible assets and, trade related property
  
• A leading exchange of valuation knowledge, experience, and professional insight