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Square foot in a round hole? Why office space may need a new valuation model

Sponsored by The Office Group
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It is widely accepted that the pandemic will forever change the way we think about work and what people expect of their employer.

 

Much is made of hybrid working but there are already signs that the future will be more than a binary choice between two desks. We believe that businesses will increasingly need to adopt a dynamic model – one that rewards people with the freedom and choice to operate at their best and be at their happiest.

 

Team meetings, creative problem solving, client presentations, one-to-ones, quality thinking time, content generation, relaxing and unwinding… each of these may be best performed in a different setting and in a different location depending on the personal and professional needs of the employee, the client or the team.

 

Traditionally, the cost of office space has been more or less calculated on the basis of price per square foot for conventional space, or per person per desk in the world of flexible offices. But in this evolving world of work, putting a price tag on physical office space will become more complex than just dividing x by y.

 

“While the conventional pricing model has served the real estate industry well, the pandemic has accelerated a shift in power – with the needs of employees becoming the primary focus,” says Charlie Green, co-founder and co-CEO of flexible workspace provider TOG (The Office Group). “We believe this demands a new value-based pricing model that incorporates a multitude of previously hard to measure factors.”

 

The increasing popularity of flexible office space has caused many to question the status quo because the cost-per-square-foot model that has underpinned conventional leases for decades does not translate well to the flexible office space market.

 

An occupier transitioning from a conventional to a flexible lease will typically see what appears to be a higher price for the same space, but this doesn’t capture the benefits of what the flex sector has to offer. It’s only when they factor in access to shared space and amenities and the costs associated with service charges and legal fees that the real value becomes apparent. And, of course, given the rapid changes in market conditions we’ve seen recently, not being locked into a five- or 10-year lease has a value in itself.

 

It could be said that buying space by the square foot or by the desk is like buying art by the yard – you know how much you’re getting but not a lot about the value. So the question is, what would a new value-based pricing model look like, what factors should be considered and how should they be weighted? Is there a new formula that captures the true value of office space?

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