Valuing space as a service; our view
This article originally featured in Active Capital 2019.The continuing trend of space as a service in the office sector presents unique considerations in terms of valuation.
The principal challenge with the valuation of operating serviced offices is the lack of direct evidence. While operators such as Regus have been around for years, the sector in its present form, has only relatively recently burst into life. Additionally, in terms of sales, it is generally businesses rather than individual centres that are bought and sold.
In valuing serviced offices, it is important to reflect the capital investment and business built up, despite the shorter-term leases/licences. Operating serviced offices has more value than just a vacant office building.
The first task for the valuer is to establish the stabilised net cashflow. This is easier if the centre has been running for a number of years and there are three years of accounts to work with. However, if it is a new centre, then it is up to the valuer to use their experience of other centres to derive a likely net stabilised cashflow.
Turning to capitalisation, a triangulated approach comparing differing methodologies is essential. Methods including, but not limited to, capital value per square foot, the all risks yield and discounted cashflow analysis will help support and verify conclusions.
