Editorial: Property valuation – Pellucidity is apparent
| Date | 11 October 2024 |
| Pages | 537-538 |
| DOI | https://doi.org/10.1108/JPIF-09-2024-238 |
| Published date | 11 October 2024 |
| Subject Matter | Property management & built environment,Real estate & property,Property valuation & finance |
| Author | Nick French |
Editorial: Property valuation –
Pellucidity is apparent
Introduction
Time is odd. And COVID has made it odder. Once upon a time, change happened slowly and
in an apparently linear manner, but since the pandemic and the lockdown and social
distancing requirements of 2020 and 2021, it feels as if time has jumped. The world has
changed so much, and the world that has been returned to us after the epidemic is very
different than the one that shut down in March 2020.
The way that we use space now is different. The places where we live, work and play have
been subtlety altered. The occupancy of offices has not returned to pre-COVID levels, and
despite protestations from some employers to limit “working from home,” we will not see the
same level of 9–5 office use again. And where people live has changed as a result of this
greater flexibility, many (who can afford it) have moved to non-urban locations, and whilst
this has abated more recently as city dwelling has re-established itself, particularly in rented
purpose-built apartments, the original shift has still impacted the price of country and
suburban properties. Retail has split into a plethora of different sub-markets. For every
successful high street (for example, Oxford Street in London), there are numerous failing
locations as the market adjusts to an oversupply of physical space in a world where online
shopping is still increasing. And logistic properties have boomed at both national and local
levels as the need to service the online market is ever increasing.
Human behaviour has changed, and property use has reacted accordingly and quickly.
These things may have happened slowly over time, but COVID acted as a catalyst, and the
speed of change accelerated, causing issues and problems with property investment and
pricing.
A world in transition
The pricing of property is based on the expected cash flows that the asset will create over
time. Historically, we have enjoyed periods of stability, so the expected cash flow of, say, an
office building was predictable, and thus, the price of the property was much easier to
determine. Valuation is the estimate of the price of the property.
However, when we are in a period of transition, the continuing cash flow of the same asset
is uncertain (and that is even before you add in the impact of worldwide ESG and energy
efficiency measures on the lettability of real estate). This makes the valuation uncertain as
the market value is based on assumptions of what will happen to the property going forward.
Will it continue as an office? Will it command the same rent as previously? Will it need to be
retrofitted or refurbished? What will be the required rate of return? Will there be growth in
the income and capital value and will that be positive or negative? All of these are
considerations that are fed into the valuation, but sometimes the assumptions remain implied
and not explicitly stated.
Assumptions and transparency
Now don’t get me wrong, all the above is within the gift of a good valuer. I have always
argued that valuers are applied economists who understand drivers and changes in their
markets better than most observers. Valuers can value in these markets, and they can value
Journal of
Property
Investment &
Finance
537
Journal of Property Investment &
Finance
Vol. 42 No. 6, 2024
pp. 537-538
© Emerald Publishing Limited
1463-578X
DOI 10.1108/JPIF-09-2024-238
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