Why serviced offices are still mispriced and why that’s starting to change
As offices shift toward hospitality and operational value, a familiar tension is emerging in capital markets:
how do you value a building when the income looks more like a business than a lease?
For many investors, serviced and flexible offices still sit in an uncomfortable grey area. They don’t fit neatly into traditional valuation models, and as a result, buildings with serviced office providers are often priced at a discount. Not because they perform poorly, but because they are harder to underwrite.
At the heart of the issue is familiarity.
Conventional office valuation relies on long, predictable leases. Income is fixed, risk is framed around covenant strength, and value is expressed through yield. Serviced offices break that logic. Income is shorter-term, multi-line and operational. Occupiers are customers, not tenants. Costs sit closer to revenue. The asset behaves less like property and more like a platform.
For capital used to clean, bond-like cashflows, that complexity has historically meant caution, and caution translates into higher yields and lower values.
But that doesn’t mean the discount is always justified.
In many cases, serviced offices deliver stronger net income, faster leasing velocity and materially higher utilisation than traditional models. They also de-risk voids by spreading income across dozens or hundreds of occupiers rather than a single tenant. What they lack in lease length, they often make up for in resilience and adaptability.
The problem is that traditional valuation frameworks struggle to capture this.
Short income visibility is often penalised without sufficient credit given to operational upside, pricing power or retention. The operator is treated as a risk rather than a value driver. And service-led revenue is discounted because it doesn’t resemble rent, even when it behaves more predictably in practice.
So why does this persist?
Partly because many investors are not set up to underwrite operating businesses. Partly because lender frameworks still lag behind reality. And partly because the market spent years associating serviced offices with growth-at-all-costs models rather than disciplined, cash-generative operations.
That perception is now changing.
The sector has matured. Operators are more institutional. Reporting is more transparent. Unit economics are better understood. And, crucially, the performance gap between high-quality serviced offices and secondary leased space has widened.
We’re already seeing capital respond.
Investors are increasingly differentiating between operators, not dismissing the model outright. Income is being assessed on sustainability, not lease label. Valuers are beginning to look through headline lease length and focus on cashflow quality, occupancy stability and operating margin.
In parallel, ownership structures are evolving. Management agreements, hybrid lease models and income participation structures are bridging the gap between real estate and operations. These allow investors to retain control of the asset while benefiting from operational upside, and they align incentives far more effectively than old-style leases.
Importantly, this shift aligns with occupier reality.
Demand is moving toward flexibility, service and experience. Buildings that ignore this may offer longer leases, but they risk obsolescence. Buildings that embrace it may look operationally complex, but they are often more relevant, more liquid and more defensible over time.
It’s why operators like Halkin Offices continue to attract occupiers who prioritise service quality and adaptability, characteristics that increasingly underpin real, rather than theoretical, value.
The key question, then, is not whether serviced offices deserve a valuation discount.
It’s whether the market is correctly pricing the risk, or simply defaulting to outdated assumptions.
As the office market resets, valuation frameworks will need to follow. The next cycle will reward assets that perform operationally, not just contractually. Investors who can underwrite that nuance will find opportunity where others still see friction.
Serviced offices aren’t undervalued because they’re weaker. They’re undervalued because they don’t fit old models. That gap is closing.