Office Valuation: What will Matter?

Woman Holding a Balance, c. 1664 Johannes Vermeer - National Gallery of Art - Washington DC

I had a rant about the current way we value commercial real estate yesterday. So today I thought I’d look at what emerging trends and metrics are likely to shape the industry in the coming years. 

How many of these are likely to become part and parcel of future valuations? Could we get industry agreement on metrics covering all of these factors?

Does any of this really matter? Ultimately isn’t an asset simply worth a figure based on the revenue it can generate? Do we need to bring in consideration of all this other stuff? Can we really quantify it? Isn’t it all a bit too qualitative?

Here’s 8 groups of data points to consider:

1. Flexibility and adaptability: With evolving work styles and demands, commercial spaces will need to be designed to accommodate flexible working arrangements and be adaptable to changing needs over time. Will spaces that can be easily reconfigured or repurposed become increasingly valuable?

2. Health and well-being: As awareness of the importance of mental and physical health in the workplace grows, will features promoting employee well-being become more important in commercial office design. Will metrics such as air quality, natural lighting, and access to green spaces play a larger role in valuations?

3. Technological infrastructure: The increasing reliance on technology and remote work means that commercial spaces must be equipped with robust digital infrastructure. Will connectivity, bandwidth capacity, and smart building systems be critical in determining the value of a property?

4. Sustainability: Will sustainable design and energy efficiency become more important as businesses and investors prioritise environmental responsibility? Will metrics like energy use intensity, water efficiency, and carbon emissions be increasingly relevant in determining the value of a property?

5. Location and accessibility: Proximity to public transportation, amenities, and urban centers will continue to be important factors driving commercial real estate valuations. However, will the rise of remote and hybrid work shift the focus to locations with strong community-based amenities and high quality of life?

6. Collaboration and social spaces: As companies recognise the value of in-person collaboration, will shared spaces designed to encourage interaction and teamwork become increasingly important? Should these spaces also be adaptable to serve multiple functions, such as meetings, training, and events? Does that get factored into the valuation?

7. Security and safety: The future of commercial real estate will require a heightened focus on safety and security, both in terms of physical safety (e.g., secure entrances, surveillance) and digital security (e.g., data protection, cybersecurity). How do we value this?

8. Tenant experience: Will metrics focusing on tenant satisfaction and experience play a larger role in valuations, as companies increasingly recognise the importance of creating an attractive, engaging workplace environment to retain top talent?

In conclusion, will the future of commercial office real estate valuations likely be driven by a combination of factors that emphasise flexibility, health, sustainability, and technology? I’ve not separated out productivity, because that could be considered a by-product of delivering all the other factors. Put somebody in an environment that focusses on all the above and they’ll be as productive as they are capable of being. The space itself will maximise their abilities, or at least not impede them in any way.

Will we end up anywhere near here?