What will define the value of office property in 2020?

Before being able to concretely define the value of an office building, it's important to define what value in real estate is today. This was a subject that some of the most influential investors, developers and bankers active in French real estate discussed during the first GRI Club France meeting of the year.

 

How do we assess the value of the market today?

In introduction to this exchange, participants first looked at the financial value of the office market in France. What makes it possible to appreciate the value of a property is, above all, the balance of supply and demand. The methodology for valuing a building remains the same, requiring the assessment of the location, the price of the rent and the risk from the tenant. The first observation made was the falling prices within this market. Even if the rise of new competitors impacts the prices, it would not entirely explain the reason for problems in valuation. So what else is there?

 

Location first 

Participants considered location one of the most important parameters in modern time with regard to the valuation of offices. The group looked back at the history of prime office across Paris - its evolution over the years, trends and political efforts. A strong influential factor being employees, and therefore tenants in the Paris prime office sector, had a strong preference towards offices near public transport links, food and retail. According to a banker in attendance, people today would like to work next to where they live. He even notes a “gentrification phenomenon of offices similar to the one experienced by the residential sector, but with a ten-year lag”. 

 

Attractiveness of talents and user expectations

For developers, attractiveness is also important. Added value for the end user and therefore asset can be found not only in the connectivity and quality of life, but also CSR and moves to benefit the community. The way in which this helps to attract the young workforce can also justify a higher rent price, as they are looking for these kinds of things. 

According to one developer, the rise of coworking has meant an increasing number of workers now seek a modern office with the comfort of their home - reinforced by the growing phenomenon of home-office. This creates confusion in the boundaries between assets, making their valuation more and more complex.

Beyond the conventional valuation where competition in the market has a strong influence, the current value of offices therefore also seems to depend on other more intangible factors. This will only become truer as the asset classes continue to bleed and merge into each other. 


More information and upcoming debates on the offices subject are expected during the France GRI 2020, April 22nd and 23rd in Paris.

Article by Oceane Deslandes and Matt Harris