Isn’t it time to rethink office space valuation metrics?
As hybrid working changes the fundamental purpose of the office, a new report from Australian developer Mirvac challenges the standard efficiency-led measures that currently determine office rents
As hybrid working is introduced by organisations around the world, this massive shift in working practice is not just raising questions about the future purpose of the office but also whether current metrics for how office space is valued are still fit for purpose.
The formula of renting space on the basis of headcount – how many people can be fitted into how many square metres – is deeply entrenched in the global real estate industry. But according to a new report from Australian developer Mirvac, in partnership with WORKTECH Academy, such an efficiency-driven approach to office valuation is becoming outdated in the age of workplace experience.
Unlocking true value
The Mirvac discussion paper, entitled ‘From space-centric to human-centric: Exploring new valuation metrics for the new workplace’, proposes that the new world of hybrid working will require a new set of metrics for the property sector in order to unlock the true value of the office.
Launched at the WORKTECH Sydney conference on 24 March 2022, the report argues that the current set of metrics might reflect who is present in the workplace but fails ‘to capture what people actually do at work and how they perform – there is no standard measure of how office space contributes to company culture, innovation and productivity’.
‘The days of cramming employees into office spaces like sardines are long gone’ – Paul Edwards, Mirvac
Paul Edwards, Mirvac’s General Manager of Strategy & Customer, commissioned the paper. He explains: ‘The story of the office is currently built on outdated measures. The days of cramming employees into office spaces like sardines are long gone, so metrics need to reflect the new types of work and new uses of the office. The question we’re considering is how do we measure the intangible value – like learning, brainstorms, collaboration, connection, culture and innovation – that a next-generation workplace facilitates for an organisation.’
How other sectors measure value
The discussion paper is based on interviews with 25 international academics and experts from the fields of research, consulting, design practice, real estate development and management. It explores how sectors like retail, hospitality, exhibitions and airlines have moved away from traditional space valuation models towards a more rounded understanding of value based on customer experience and service. Paul Edwards comments: ‘The positive implications of this approach are readily apparent and offer a template for what the office industry requires to move to a more value-based pricing model.’
Alternative metrics to consider
The report considers a range of alternative or additional metrics for office space valuation that academics and experts have recommended. These includes popular measures related to employee wellness and to the ESG (Environmental, Social and Governance) agenda – such the reduction of energy costs and carbon emissions. There is also discussion of metrics related to innovation, learning, team performance and social interaction.
The Mirvac paper also looks at how an array of new digital technologies – from workplace apps and sensors to virtual reality – are helping companies to capture and analyse different types of data. More pervasive and sophisticated measurement is described as laying the groundwork for a more encompassing valuation framework for offices.
Challenging real-estate industry
In advocating a shift from efficiency metrics to experience metrics to reflect the new office as a destination of choice in an era of hybrid and remote working, the report effectively throws down the gauntlet for the global real estate industry to develop a more occupier-centric mentality, develop new skillsets and invest more in new technologies.
Paul Edwards argues that ‘developing a new framework to represent the true value of the office will require the real estate industry to reimagine the future, focusing on partnerships and shared value with our customers’. However, he adds that the intention of the discussion paper is to start a debate and develop the existing system rather than dismantle it – ‘we are not proposing starting from scratch, rather enhancing the existing channels’.
Download the full version of the report here.