Business and the chartered surveyor
Business and the chartered surveyor
Welcome to the third issue of the new Journal of Property Investment &Finance. In this issue, we bring you three academic papers of the highest calibre, which have direct relevance to practice, plus a practice briefing that reviews perceptions towards environmental quality in commercial buildings. All these papers are taking the profession forward and to a lesser or greater extent should impact upon the work of valuers and surveyors. However, if history repeats, there will be a long transition period between academic work coming into the public domain and professional practice adopting the new techniques. There seems to be a general belief that academics don't understand business and vice versa. Yet time and time again, particularly in valuation, the academic community has proffered solutions and techniques that the profession has eventually adopted. For instance the use of DCF for both short leaseholds investments and over-rented property was originally castigated as non-market, yet now the standard appraisal method used in practice is the explicit based model. As a profession, surveyors are inherently conservative and resist change at every turn.
This I find strange and obtuse. In the business community, change is accepted as the catalyst to growth. Indeed,the business world is going through a period of rapid and constant change. In a recent forum, I was privileged to meet and work with Joe Sabatino, Senior Vice President in charge of Real Estate at the Mobil Corporation. He works to the adage that ''The only constant is change; everything else is a variable'' and develops his real estate strategies accordingly. As with all businesses today,he requires core space with security for the ''hub'' activities of his corporation, yet he also requires very flexible space that allows him to react to immediate and short-term expansion and contraction in particular areas of his business.
From the point of view of the valuer and surveyor this requires a change in the way that leases are granted and valued. Flexibility is something which tenants will be willing to price. They expect to pay more for flexible space. Yet the standard response when an agent is asked to consider letting a property on non-''normal'' terms (for instance a ten-year lease with upward and downward reviews; break clauses at years three and five and expansion and contraction rights at the same point) is to say ''no''! Part of the reason to say no is a reluctance to accept the change, but equally it is because conventional methods of appraising, which rely upon comparisons of like to like, don't adapt easily to the plethora of different contracts that will develop. Comparables will become non-comparable. In a recent report (''Right space, right price?'', RICS, 1997), it was noted that the market is still dominated by traditional all risk yield approaches. Non-standard leases and greater diversity in lease terms place greater pressure on models based on comparable evidence, yet there was a reluctance in the profession to adopt pricing models which deal explicitly with risk assessment and uncertainty, such as option pricing models. In short there is an inertia in the market driven by barriers of acceptance, not of the leases themselves, but the profession's inability to price them. We now seem to have the odd new adage of ''if you can't price the new lease, don't grant it''.
Property is simply a factor of production. Price is a function of use. Investment value is a function of price. Unless the surveying profession starts to adapt and change in line with the business world, the outcome will be simple and direct -- surveying will not be part of the business world. Accountants, lawyers and other professions are already seizing the opportunity and will provide the customer with the service they require, if surveyors do not.
Nick French
