The pandemic-induced crisis has opened up opportunities in value-add in Paris, experts agreed at Real Asset Media’s European Outlook 2021 – France investment briefing, which took place online this week.
“There are plenty of opportunities in the value-add segment,” said Jarek Morawski, executive director, strategy and research, Grosvenor. “In a crisis investors always flock to core, but there’s plenty of obsolete assets that can be brought up to standard, not just in the CBD but in the suburbs as well. Paris is a very attractive place to invest.”
The average life of a building is 30 years, so every year 3-4% of office stock has to be re-evaluated, which means 1.5 million to 2 million sq m of assets need to be repositioned every year.
“There’s a huge pipeline of opportunities for value-add investors as many older offices will be vacated this year,” said Raphael Tréguier, founder and managing partner, Kareg Investment Management. “Re-purposing old office stock will be one of the key themes of 2021.”
Kareg has found that around a third of value-add opportunities are postponed because of administrative delays, while a quarter are abandoned because of the costs associated with mandatory social housing requirements, which in some areas impose sales at half the market price.
“There’s a lot of risk attached to these projects, but also a strong willingness to invest,” said Tréguier. “We need more players to educate all stakeholders, including local authorities, so that we can embrace the risks and find the skills required.”
Financing is not a big hurdle, especially for improving the green credentials of good assets. Re-purposing involves bringing buildings in line with ESG regulations and sustainability criteria.
‘Greening’ buildings is a must
“We do finance value-add in the very best locations and the green aspect has become increasingly important, it’s a must have now,” said Serge Bacconnier, deputy head of Paris Office, Berlin Hyp. “We were among the first issuers of green bonds in Germany and we want to increase the share of sustainable assets in our portfolio.”
There is a strong sense that the market has both the capital and the will to rally as soon as the pandemic is brought under control.
“We are now in our third round of lockdowns but the vaccines give some hope,” said Morawski. “Our expectation is that by summer we’ll be out of the crisis and we expect a strong bounce back in the French market.”