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Changing the way an undervalued serviced offices sector is viewed

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For many, a new year is a new start and brings a host of new challenges – as well as opportunities. For Office Space in Town, ours is no different. As I look ahead to the coming year, I am newly resolved to change the way my sector, serviced offices, is viewed.

Currently, there is no consistent view of how serviced offices should be valued. However, for the sector to reach its full potential, serviced offices need a dedicated valuation model – something for which I have advocated for a long time.

I am determined that 2017 will be the year that the need for a new valuation model is accepted across the industry.

Serviced offices is a sector which has benefitted from a prolonged period of growth. Just last year, we commissioned a report to examine the growth and the potential of the sector – the findings suggested that the value of the sector could rise to a significant £126bn in under ten years. This is not a fact that should be ignored and the growing popularity amongst both tenants and investors should not be under estimated, as it breaks through to become an asset class in its own right.

Serviced offices set sail and first arrived on our shores in the 1970s from the US and have provided a dependable alternative for mobile and changing businesses. Today, the UK is the largest and most mature serviced office market globally, having grown by 31 per cent since 2008.

The beauty of the offering lies in the unique ability to mould and adapt, offering flexibility and low costs which can’t be matched by conventional offices due to traditionally longer lease periods.

It’s unsurprising, therefore, that serviced offices have experienced increasing popularity and the strong growth has resulted in its emergence as an attractive sub sector within the commercial real estate market and as a distinct asset class for investors.

Serviced offices are strong contenders to compete within the commercial real estate market, but there has been a systematic failure to recognise the sector’s intrinsic worth. Many consider serviced offices as no different to conventional space, but this is a mistake that must be rectified. The sector certainly has the scale and prospects to be considered as a property class in its own right but without a definitive framework for valuation it will consistently be undervalued.

Indeed, the findings of our report suggested that, using the current valuation model, the sector is undervalued by close to 20 per cent – or £3bn. Together with leading industry academics, we developed a unique, dedicated valuation model, that we hope will serve as the framework for a new valuation method for the sector. It is time that there is not only a change in the way that serviced offices are valued but a debate is opened on the way that serviced offices are seen within the wider sector, bringing it the consistency and the reputation it deserves.

By recognising that serviced offices fall between two standard valuations approaches – trade related valuations and the investment method – the sector will become aware of its distinct position. Whilst, the RICs Red book is the definitive guide for valuers, it does not yet provide specific advice for serviced offices. The time has arrived to introduce a framework to help serviced offices fully embrace the opportunities that the market offers.

Serviced offices will continue to be an attractive option for many businesses and for a rapidly growing number of investors, but real growth can only be strengthened if these assets are treated as serious investments. A failure to recognise serviced offices for their true value are really worth, risks seriously underestimating a sector that is a true British success story. As we think ahead to our ambitions for 2017, I hope, with our best efforts, to see this change.

This article is part of a wider campaign called Founders Diaries, a section of Real Business that brings together 20 inspiring business builders to share their stories. Bringing together companies from a wide variety of sectors and geographies, each columnist produces a diary entry each month. Visit the Founders Diaries section to find out more.

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