Editor: As a chartered surveyor, I am encouraged to see RICS’ plan to evaluate its practices to ensure public trust in surveyors.
However, it would be great to see the professional body take this review one step further – namely to update its valuation methods in line with the new property subsectors that have emerged or gained significant traction in the past decade.
In particular, the emergence of sharing economy models such as flexible workspaces, co-living and mixed-use schemes adds a new complexity to valuation. For example, new income streams in the form of new services and facilities can produce significant uplift in rental rates.
These subsectors continue to grow fast. JLL’s recent index reveals that there are now 23,150 co-living units in Europe, with London holding more than 20% of the market. Meanwhile, flexible workspace is on track to occupy a volume of 30m sq ft by 2024, or 8.5% of total stock in the UK alone.
But the lack of valuation methods for these property subsectors will hinder their growth. In flexible workspace in particular, we have already seen numerous deals disrupted because surveyors have been unable to reach agreement on a market valuation. For instance, in 2019 a deal on the sale of a regional flexible workspace experienced difficulty because the surveyor was using a model typically reserved for valuing hotels. But this model did not take into account operational income, instead estimating (and discounting) the property’s trading potential. Ignoring years of trading evidence, this method was entirely unsuitable.
There are number of proposed alternative methods to resolve this, and RICS has hinted at reviewing its methodology in line with some of these in its recent paper The Valuation of Flexible Workspace. From our experience, there must be a consensus as to whether one is valuing the business within a valuable freehold asset or if one is valuing the asset with a very profitable business running from it.
From our perspective, we need to look at both – but RICS needs to provide a clear guide for valuers to increase liquidity within the sector.
Will Kinnear, director, GKRE