The durability of short-term sublease offices have come into question as uncertainties grow about this business model.
According to Lucas Rotter, CEO of appraisal software firm Valcre, this plays into the valuation model.
“They [appraisers] would view that space as owner-user, which they would apply market rent to,” said Rotter.
However, if a building has a reliable coworking tenant, appraisers view the occupant like any other tenant.
Rotter added that if there is uncertainty of the durability of the income stream, an appraiser could apply different risk characteristics.
With major changes occurring in the office industry at the moment, Rotter believes that there will be a big shift in how coworking companies are appraised too.
“Most of the time, it [coworking space] is being rented at a pretty high price per square foot, but you’ve got a higher vacancy and credit loss that you’re dealing with as well,” said Rotter.
The main factor to look at is whether a coworking tenant can pay rent or not.
“This is the hotelification of office space,” said Rotter. “With hotels, you’ve got a higher cap rate range than you typically do with office space. Specifically, it’s because the one-night leases are causing a higher risk tolerance.”