Office property: the dawn of a new cycle
The reorganisation of the office property market, with the attractive assets on one side and the obsolete assets on the other, continues under the influence of the responses provided for these new issues. The increasing concentration of jobs and the interconnection of employment hubs will be determining factors in making commercial markets attractive. According to an ORIE (Regional Commercial Property Observatory) report the forces at work now seem to be a clear sign that the existing commercial hubs can be expected to continue to become concentrated. Accessibility will therefore contribute to the reorganisation of sectors regardless of whether the hubs are located in Central Business Districts (QCA) or peripheral zones.
Over the last ten years, property investors have for the most part opted for Core or Core+ assets that offer stable returns. The accommodating monetary policies of central banks have fed this trend by encouraging asset values to rise.
This sovereign spread lowering cycle seems to be reaching an end and we are currently moving into a low interest rate environment. This situation will have an influence on office property since a threshold seems to have been reached for “prime” property assets.
The economic and financial context seems to indicate that we are entering a property cycle transition period pushed by capital growth into a value creation oriented cycle.
This is a case of the “value investing1” approach being applied to property. It will need to lead property investors to identify the new markets where prices remain affordable and/or where there may be the benefit of a positive rental market development to create value.
Primonial REIM’s office property convictions
At Primonial REIM we feel that the location, dynamic and increasing concentration of employment hubs in relation to the improvement of transport network interconnectivity, as well as the low interest rate context are all clear signs of a cycle which will push for an adjustment in investment strategies. In this survey we took a close look at office property in the Euro Zone and the regions around Paris in particular. After analysing the investment and rental markets, we used a regional approach to overlay public transport perspectives (Grand Paris Express) and employment hubs in order to produce evaluation and selection tools for the region’s commercial markets.
1 This investment strategy was first mentioned by Benjamin Graham in ‘Security Analysis’. The strategy involves acquiring a financial asset at a price significantly below its value, producing relatively attractive long-term returns in terms of the risk involved.
The team
With a university education in local economic development, Daniel While began his career as business establishment consultant to local authorities. In 2006, he joined the Institut de l’Epargne immobilière et Foncière as analyst, and specialised in the world of unlisted real estate funds (SCPIs and OPCIs for France).
He is co-author of the book Les OPCI published by Delmas (September 2008). He joined Primonial REIM in 2017, where he held the position of Development Director, then Research & Strategy Director from 2019.
Henry-Aurélien Natter joined Primonial REIM as Research Manager in January 2018. He has the mission of developing the analyses of the Research & Strategy Department on the real estate markets, the economy and capital in France and in Europe.
Henry-Aurélien Natter began his career at Les Echos Etudes (formerly Eurostaf), then at C&W (formerly DTZ), and lastly at BNP PRE, where he acquired solid and varied experience in real estate research, strategy and finance. He is qualified with an AES degree in Business Management, a Masters Decree in management and SME management, and an International Master in commerce and marketing.
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