In order to keep running in the premier league, entrepreneurs are increasingly concentrating on strengthening their economic performance and competitive position. Every day, the proof is provided of how much their accommodation can contribute to this. Commercial real estate must therefore be seen as a policy instrument of owners and users. In all its financial, organisational, functional and qualitative aspects.
Fitness for use
At first view, buildings may look the same. They can even have the same price. Yet, there are differences that make one building less efficient and more costly to refurbish for the intended work processes than the other. The purchase price is the same, but the value for the entrepreneur differs.
Comparing two buildings is to compare apples with oranges: it is easy to find the differences at first view, but difficult to decide which buildings would best fit a specific user or target group.
Usually, the question of whether the user is satisfied with a building is asked afterwards, instead of simulating the consequences of certain accommodation decisions in advance. People evaluating a building often are re-inventing the wheel. They drown in technical details. An accommodation evaluation is useable only when it is related to a description of the needs of the user on the basis of the primary process.
“Fitness for use is about the needs and requirements of a company as a whole and the individual user requirements of the employees in particular.” (René Stevens)
Fitness for use is about the needs and requirements of a company as a whole and the individual user requirements of the employees in particular, within the framework of the social preconditions such as legislation, standards and economic criteria like time and money.
Therefore, the accommodation consequences must be filtered out of the policy plan or business plan. What kind of work processes is taking place inside the building? What are the requirements for the effective and efficient realisation of these processes? What kind of changes are to be expected in the future? Once the functional accommodation requirements have been determined in this way, they serve as a reference for the accommodation evaluation.
Distinction between price and worth
Does the price of real estate equal the subjective worth attributed to it, or is the worth of the object the same as the (market) value? In ordinary language: is the worth of real estate similar to whatever you can get for it?
- Valuating – Process of determining the market price.
- Market price (value) – An estimate of the price the property can fetch on the market at this point in time.
- Price – Actual trade price in the market.
- Valuation -The best estimate of the actual market price by an expert.
- Appraisal – Process of estimating the intrinsic value for an individual or a group of individuals.
- Intrinsic value (worth) – Personal (subjective) estimate of the intrinsic value by the party/parties concerned.
- Added value (value for money) – The independent simulation of the weighing process of the real estate players in determining their intrinsic value.
The price is the only thing that really exists, for it is the amount mentioned in the tender brochure or in the lease or sale contract. The value of real estate does not exist, for it is an individual and therefore a subjective estimate.
Read more in the Dutch article “Wat is de Waarde en de Prijs van Bedrijfsmatig Onroerend Goed” published in the Real Estate Magazine. (19980701 Real Estate Magazine – René P.M. Stevens MSc Arch/MBA). For an English translation “Value and price of corporate real estate” send us an email.