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New ESG rules to drive sales of office buildings in Paris market

There will be a wave of opportunities in the Paris office market as many buildings will be put on sale, experts agreed at Real Asset Media’s European Outlook 2022: Focus on France briefing, which took place online recently.

Guillaume Turcas, Managing Partner, Faro Capital Partners

 “Most commercial real estate is owned by large institutions and around 60% of that is offices,” said Guillaume Turcas, managing partner, Faro Capital Partners. “Now they seem willing to reshuffle their portfolios and a lot of office buildings will come to the market.”

Most of those portfolios have secondary offices that can be repurposed into residential or refurbished and made ESG-compliant.

The new “green” requirements are driving the sales, as the new energy efficiency regulations are difficult to price in and institutions do not want to be stuck with stranded assets.

“We have been looking at our portfolio to include more green assets and that is going to continue,” said Serge Bacconnier, deputy head Paris office, Berlin Hyp. “In La Défense in particular there are many assets that need to be refurbished and a lot of capital needs to be deployed there.”

It will not be smooth sailing because local authorities have considerable power in France and getting the necessary permits can be difficult and time-consuming.

“Conversions are never easy and municipalities hold as much power as Louis XIV the Sun King did,” said Turcas. “Even if the zoning plan authorises you, the head of the municipality can still say no and block everything. That needs to change.”

If sales are set to take off, the lettings market is still slow.

Pandemic forces a rethink in property strategies

“Big occupiers are hesitant and it’s been a struggle to get them to take substantial leases for large offices,” said Tania Concejo-Bontemps, president, Union Investment Real Estate France. “The pandemic has had an impact and companies have been rethinking their real estate strategies, so there have been very few big transactions in the lettings market.”

In future companies are likely to demand shorter leases and more flexibility as the market adapts to the new post-pandemic hybrid model.

“We don’t expect a great difference in office take-up, as meeting and conference rooms will still be needed,” said Daniel While, head of research, strategy & sustainable development, Primonial REIM. “It is likely to fall by 10-15%, from the current annual take-up to 2 million sq m to 1.8-1.9 million sq m. It will be an adaptation rather than a massive disruption.”

Another factor that works in favour of offices is that remote working has not taken off in the French capital to the same extent that it has in London or Frankfurt.

“There’s been much less work from home in France than in the UK or Germany,” said While. “It’s partly for cultural reasons and partly because people live in smaller flats in Paris and there is less incentive to work from home.”

At the top end of the market shiny prime HQs in the CBD will continue to be in demand for company image and culture purposes and to hold meetings, while other companies will opt for secondary offices and more peripheral areas to avoid paying the €900-plus per sq m rent in central Paris.

“Offices are still seen as a necessity and a more productive environment to work in,” said Edward Bates, president & CEO, Stam Europe. “For investors it will continue to be a key market, because there’s a limit to how much money you can deploy in resi and logistics.”