Offices with services or serviced offices? Exploring the valuation issues

AuthorPatrick McAllister
DOIhttps://doi.org/10.1108/EUM0000000005793
Pages412-426
Publication Date01 Aug 2001
JPIF
19,4
412
Journal of Property Investment &
Finance, Vol. 19 No. 4, 2001,
pp. 412-426. #MCB University
Press, 1463-578X
PRACTICE BRIEFING
Offices with services or
serviced offices? Exploring the
valuation issues
Patrick McAllister
Department of Land Management and Development, Faculty of Urban
and Regional Studies, The University of Reading, Reading, UK
Keywords Intangible assets, Property valuation, Service
Abstract This paper explores the conceptual and methodological issues relating to the valuation
and appraisal of commercial properties where revenue generated by the provision of additional
services constitutes a significant proportion of the total income flow. The paper focuses on two
main areas. First, the valuation and development of the serviced office model is discussed. Second,
the implications of the growing interest of landlords in acting as access managers and suppliers to
their tenants are considered. The US debate on business enterprise value and hotel appraisal is
reviewed. It is concluded serviced offices owner occupiers have two main assets ± the tangible
property asset and intangible business asset(s) ± which are symbiotically linked but separable. In
order to appraise these interests valuers need to be able to value businesses and property since the
income flows derived from service provision will have different drivers and risk profiles than pure
property-derived income flows.
Introduction
The last decade has seen substantial evolution of the landlord and tenant
relationship in the UK. The rising market prevalence of shorter leases, serviced
office operators and private finance initiative (PFI) models has increased the
diversity of occupational solutions available to business tenants. Moreover, more
entrepreneurial landlords increasingly recognise that their tenants constitute a
conveniently situated pool of potential clients with whom they have pre-existing
business relationships and to whom they have the capacity to market a range of
services. This is most developed in the serviced office sector where operators
typically supply accommodation, property services and business support services
to their clients. This paper explores the conceptual and methodological issues
relating to the valuation and appraisal of commercial properties where payments
for service provision to the ``landlord'' constitute a significant proportion of the
income flow. It is suggested that concepts and techniques for estimating market
values, worth and going concern values begin to overlap and blur when appraisal
of business-property amalgams is undertaken. The valuation of the business
component in particular can be problematic since a significant proportion of the
assets will be intangible.
It would be myopic to believe that only the property sector is beginning to
consider the difficulties in appraising financial assets where pricing methods
based upon replacement costs of fixed assets, such as Tobin's Q, are becoming
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