Investors love spring in Paris

News

06 May 1989

Optimism about further rent growth is running rife, says Robert Waterland, head of JLW’s expanding European network. Prime office development opportunities are in such great demand that they are almost always sold by open tender, and entrepreneurs backed by bank money are stretching credibility to the limit by the prices they will pay.

Winning bids are geared to rents around $50 per sq ft, or almost Fr6,000 per m², compared with top levels of less than $35 (Fr4,000 per m²) being achieved today. “We usually add 10% to what we think is a fair price in a tender and it still often goes to a higher bid,” he says.

Demand for space has soared for the last three years, stimulating and absorbing a boom in office development. Top rents in the tightly protected Golden Triangle area of central Paris are averaging Fr3,700 per m² and rising. Out in the suburbs, where development controls have been eased, almost 3m m² was created between 1985 and 1989, but asking prices have still grown to Fr1,800 per m².

Relatively few new UK investors have moved into this market, partly because of the strong competition. Postel have one of the more valuable schemes under their belt at Trois Quartiers, where 27,000 m² of office and retail refurbishment worth an eventual Fr1bn is being carried out in partnership with Meiji Life. Other Japanese investors, which are being drawn by strong French economic growth, take the total floorspace under their control to more than 240,000 m², say JLW.

La Defense has proved an outlet for relocating companies looking for large, modern buildings and could offer some lessons for London’s Docklands. JLW says rents are likely to reach Fr2,500 per m² in developments like L’Arche, the spectacular landmark being created by Bouyges, and La Nef, Heron International’s 33,500 m² group of five blocks due for completion in 1990.

Some 2m m² have been built and occupied in the off-centre office complex and there are plans for almost 50% more. However, this is likely to be the limit because of the strain on infrastructure already apparent. This is despite the fact that it has taken more than 20 years to build and integrate the centre into Parisian roads and rail networks, unlike the frenetic expansion over a single decade in the Isle of Dogs.

The Government is now pressing for development east of the city, much as in London, although it has chosen a stick rather than a carrot by raising the development tax in the west. One scheme around the Gare d’Austerlitz alone is expected to create 600,000 m² of offices, say JLW.

UK investors showing reawakened interest in the French property market as 1992 and the Channel tunnel loom closer will be up against some tough opposition. The Japanese are already well installed with some $530m of Paris office developments, and local entrepreneurs are setting a hot pace, according to Jones Lang Wootton. Optimism about further rent growth is running rife, says Robert Waterland, head of JLW’s expanding European network. Prime office development opportunities are in such great demand that they are almost always sold by open tender, and entrepreneurs backed by bank money are stretching credibility to the limit by the prices they will pay. Winning bids are geared to rents around $50 per sq ft, or almost Fr6,000 per m2, compared with top levels of less than $35 (Fr4,000 per m2) being achieved today. “We usually add 10% to what we think is a fair price in a tender and it still often goes to a higher bid,” he says. Demand for space has soared for the last three years, stimulating and absorbing a boom in office development. Top rents in the tightly protected Golden Triangle area of central Paris are averaging Fr3,700 per m2 and rising. Out in the suburbs, where development controls have been eased, almost 3m m2 was created between 1985 and 1989, but asking prices have still grown to Fr1,800 per m2. Relatively few new UK investors have moved into this market, partly because of the strong competition. Postel have one of the more valuable schemes under their belt at Trois Quartiers, where 27,000 m2 of office and retail refurbishment worth an eventual Fr1bn is being carried out in partnership with Meiji Life. Other Japanese investors, which are being drawn by strong French economic growth, take the total floorspace under their control to more than 240,000 m2, say JLW. La Defense has proved an outlet for relocating companies looking for large, modern buildings and could offer some lessons for London’s Docklands. JLW says rents are likely to reach Fr2,500 per m2 in developments like L’Arche, the spectacular landmark being created by Bouyges, and La Nef, Heron International’s 33,500 m2 group of five blocks due for completion in 1990. Some 2m m2 have been built and occupied in the off-centre office complex and there are plans for almost 50% more. However, this is likely to be the limit because of the strain on infrastructure already apparent. This is despite the fact that it has taken more than 20 years to build and integrate the centre into Parisian roads and rail networks, unlike the frenetic expansion over a single decade in the Isle of Dogs. The Government is now pressing for development east of the city, much as in London, although it has chosen a stick rather than a carrot by raising the development tax in the west. One scheme around the Gare d’Austerlitz alone is expected to create 600,000 m2 of offices, say JLW.