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Commercial property valuation: the importance of flexibility

Offices are constantly changing assets. The design of workspaces and ways of collaborating are evolving. Occupiers are more sensitive to the mix, flexibility and degree of technology of the spaces and services they associate with daily. At the same time, investors are more and more interest in the green value of their offices because of its impact on charges and rents. From now on, location, proximity to transport or surface area are no longer the only criteria for the valuation of an office building.

An versatile and liquid product, offices are often the preferred asset of investors: they represent more than 60% of the amount invested in all real estate. With a growing demand for more offices with an average of 5,000 sq m of office space, the commercial real estate market is growing steadily.

  • 4.8 billion euros

    Average of quarterly investments over the last 5 years

  • 20%

    increase in the amount invested in office space over 1 year, between 2017 and 2018

  • 69 %

    Share of offices in the total amount invested in Real Estate in 2018

2018 - Research - BNP Paribas Real Estate

Office valuations: assets in full transformation

Interview with Isabelle Denis, General Director of BNP Paribas Real Estate - Valuation. Discover our expertise in valuing this essential asset.

Commercial Property Valuation: Our expert weighs in

Isabelle Denis

General Director

What are the characteristics of office assets?

Location, proximity to transport, size, adaptability and level of equipment are basic criteria in the valuation of an office building. But new problems have arisen. Changes in the design of workspaces and modes of collaboration must change experts' approach to the valuation.

The flexibility and mixity of spaces, their attractiveness, their potential for well-being or the presence of collaborative spaces are, for example, increasingly significant data points. These criteria have real economic value. Indeed, their impact on employee efficiency is proven, and they play a key role in the image of the company occupying the premises. It is therefore essential to take this into account when carrying out a real estate valuation.

 

What trends are we seeing on the market?

Occupier demand remains strong, particularly in the new economy sectors. In some regions, the market is in a situation of undersupply. This is the case in certain sectors of Île-de-France, the leading office market in continental Europe. Offices are regarded as a "king" product by investors for whom they are the preferred asset type. With 4.2 billion euros of quarterly investments on average over the last 5 years in commercial real estate, the office asset drives the real estate market. Primary investors are funds, with nearly 50% of investments, followed by real estate, SCPIs and insurers/mutualists. Foreign investors are increasingly present in France.

 

What are investors' expectations?

Investors' interest in office space is based on traditional financial criteria for real estate assets: rents, deductibles, rental arrangements, rates of return and the amount of charges or projected work budgets. These elements are closely linked to criteria such as location, legal status, services or surface area of the premises.

But beyond these elements, investors attach particular importance to the green value of offices and the introduction of energy labels, given their impact on the level of charges and rents on a property.

What are the main criteria for valuing offices?

In addition to the usual elements for the valuation of real estate assets (location, quality of the building, duration of leases, etc.), what makes the office asset unique is essentially the increasing attention paid to the adaptability and flexibility of the premises. This quality corresponds to a high expectation of occupiers and has a strong impact on the valuations.

Adaptability of premises

Flexibility and mixity of spaces, division possibilities

Response to new ways of working

Modern equipment, collaborative spaces, horizontal circulation

Localisation

Business district, urban environment, proximity to transportation

Building quality

Date of construction, architectural quality, rationality of distribution, equipment and associated services (auditorium, RIE, fitness, etc.)

Energy labels and accessibility PMR

Green value of the building, compliance with accessibility standards for the disabled

To value office assets, our experts use the income capitalisation, DCF methods, and the direct comparison method. They are based on an exceptional transaction history thanks to the leadership of BNP Paribas Real Estate - Valuation in this market. They analyse and retrieve data and studies provided by the Group's Research and Analysis departments in France and abroad. Each estimate is carried out as close as possible to the client's needs and our experts in commercial real estate provide tailor-made advisory services.

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