Overall, it is a thorough and well-thought-through analysis, which includes insights and reflections from many of the key players and commentators in the flexible workspace market.
Essentially, though, it is an advice note and falls short of the guidance paper or firm commitment to a particular valuation method that many in the market had hoped to see.
The key issue it does not address is the need for consistency and I, along with others in the market I am sure, have fallen foul of a number of valuations that have adopted either the classic property valuation or one more akin to hotels – and they are just not fit for purpose.
Whichever approach is adopted, whether the split yield, investment method or a variant of either, there are a number of key characteristics of flexible workspace operations that need to be considered when seeking to value them.
The first of these is sustainability. Any sensible evaluation surely has to factor in the ability to enjoy long-term trading as a relevant flexible workspace, not just fleeting popularity. The second is profitability, ie over and above market rents. It might sound obvious, but it clearly hasn’t been to many investors in the sector recently, given certain valuations.
Third, efficiency. Flexible offices from a valuation perspective need to be well planned, with the most effective use of space to drive efficiencies.
Fourth is operational skills.
Many landlords are forming joint venture management agreements with operators, but for those with their own operations it is vital to have a great team running the space.
Finally, transferability: if the operation can be sold with continuity of business then it is likely to have an intrinsic value.
In our experience, once all of these have been considered, along with the usual property due diligence, there is little to suggest that an operation will deviate from its ability to generate consistent returns. Indeed, these will often exceed the market rent and as such should be valued accordingly.
Douglas Green, director, GKRE
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