Valuation in an evolving market

Author: Pete Rose


The old office model is gone for good. Is it time to jettison outdated valuation assumptions with it?


Since the advent of large-scale clerical work in the 1800’s, the role of the office as a workplace has remained largely unchallenged for the best part of two centuries. Hierarchical Victorian workplaces have given way to more open-plan and collaborative spaces, while the dawn of the internet has changed the way we work and communicate irrevocably. But, at its very core, the concept of the office remained largely unchanged until the global home-working experiment forced by the Covid-19 pandemic.

As we begin to gather both anecdotal and empirical evidence, a consensus is beginning to emerge: for the most part, the role of the office has changed for good. Gone is the “white collar factory” of the past, where process and presenteeism were the order of the day. Instead, we have centres for collaboration, which are less task-driven and more geared towards fostering culture and engagement.

The most progressive employers have worked this out and responded accordingly. The most talented workforces are acutely aware of their value and are responding accordingly. And the most innovative investors are following the trends and delivering new buildings that respond accordingly.

Despite this major step-change in the dynamics of the office market, when it comes to valuing assets, very little has changed. A recent report by Oxford University (Beyond Location: Value Drivers of Real Estate) noted: “the pricing of space in the London office sector does not seem to take employee wellbeing, satisfaction or productivity into account”. This would seem to be a rather significant oversight in a world in which there needs to be an objective distinction between “best” and “worst” workplaces, especially when it comes to the recruitment and retention of staff. Instinctively, we all know that a workplace that contributes to employee happiness should be more valuable, but how often are these metrics being factored into financial modelling?

Forbury’s modelling software has been built to accommodate such metrics and allows users to plan on the basis of a number of given scenarios. This flexibility means that it’s now possible to run appraisals based on traditional assumptions (local comparables of take-up and rental data) alongside more sophisticated assumptions such as office occupancy, employee satisfaction and ESG performance.

As the data on how workplaces are used improves, so to will the valuation methodologies for the office market.


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