Accused of being overoptimistic in their valuations of retail assets, the UK’s biggest property advisers are awaiting the results of a RICS review into conflicts of interest. Concerns have been raised that valuers are not reporting the true value of shopping centres and other retail holdings for fear of losing work such as leasing, investment and planning advice from clients. Valuers have been compared to auditors at the ‘big four’, which have been accused of turning a blind eye so that the consultancy parts of their business do not lose work.
However, the RICS Red Book makes it clear that a valuer cannot act for both sides of a transaction. It is not only valuers at risk of conflict of interest. Sometimes two lawyers in the same office act on either side of a conveyance, with ‘Chinese walls’ the only thing supposedly separating the transaction. This is not the only thing that is shaking up the world of valuations. The UK’s ancient system of leasehold property could also be turned upside down. The fallout from the ground rents scandal has led the Law Commission to call for major changes to the enfranchisement process, which has huge implications for freeholders. Meanwhile, the ongoing issue of cladding is hindering flat owners from selling or remortgaging and could force a market move towards a commonhold system, which despite its name is not that common in the UK.
The emergence of sectors such as BTR is also raising questions about how to value income producing assets in the residential sector. Hotels provide a model to draw from, but there are differences around how brand, dilapidation and owner/operator expertise feed into
a building’s value.
More broadly, the blurring of asset classes throws up huge questions on how to value a building. For example, in the BTR sector, co-working spaces will increasingly form part of the ground- and even first-floor offering along with other uses. The trend towards amenity rich, service-driven housing with communal and non-residential spaces could lead to the increased adoption of sui generis uses or
multi-planning-use buildings, such as C3 and C4, as a way of getting around national space standards as permitted development
opportunities dry up. Already coliving operators like The Collective have pioneered this approach.
As residential property becomes more and more diversified in its offering, blending and borrowing from other sectors, valuers will have to work hard to keep up.
Mary-Anne Bowring is managing director at Ringley
(Weekly, fortnightly or monthly)