Commercial Buildings Can Be Very Sensitive to Obsolescence So Update to Increase Value
Obsolescence is something that should concern all of us. Almost everything has it; machines, buildings and even humans (some more than others). Things can quite quickly become unfit-for-purpose through advances in technology, wear and tear, cultural and legislative changes, and so forth.
Property valuers consider obsolescence regularly, because they are paid to. Often most do so subconsciously, when they consider the market evidence of buildings let or sold, which have similar features to that which they value. Others will do so deliberately, where a valuation can only be derived from the cost of replacing a particularly unusual property and then allowing specifically for obsolescence.
How does it work? Well, your house, for instance, at this very minute could be on the road to the economic scrap heap.
'Rubbish!' I hear you say, it's now worth 2-3% more than it was last year and will probably be worth more again next year. Yes, you are probably right, but consider how much has been spent improving it and keeping it in good condition over the last ten years. And how much do you think it might need over the next ten years?
You should still be well up on the value versus expenditure game, but the balance shifts continuously. When a building gets old enough, it becomes the fabled indestructible broom - 'still going strong after 50 years and it's only had five new handles and ten new heads'. That's the cost of keeping obsolescence at bay.
Commercial buildings can be highly sensitive to obsolescence. Because many are financial instruments, every penny coming in by way of rent and every penny going out in costs are crucial to the investment return. A shift one way or the other is potentially very significant, making obsolescence a key consideration.
Different types of buildings also have different degrees of susceptibility. Industrials/warehouses are relatively simple structures, where there is usually little sophistication, so they are relatively less exposed. …