US property group Tishman Speyer calls the bottom in Paris

US property investor Tishman Speyer has ploughed more than €750m into Paris office buildings in recent weeks, betting that the French capital will still be a magnet for companies after the pandemic.

The investment by the group, whose almost $100bn portfolio includes New York’s Rockefeller Center, comes as Covid-19 cases continue to climb in France and the government urges people to avoid commuting into offices.

Many property investors have held back this year amid concern the practice of working from home, ushered in by coronavirus, will permanently reduce the value of city office buildings.

But Rob Speyer, Tishman’s chief executive, said he was confident that employees would return to offices at the nearest opportunity.

“It’s a consistent theme among CEOs that people want to come back . . . As it gets colder, people are feeling lonely. They’re feeling isolated,” he said.

Tishman began scouting the three office buildings in August, but only completed the deals in the last six weeks.

“In August, in Paris, there was not much competition,” said Mr Speyer. “It requires a team on the ground . . . You can’t invest €750m in real estate over Zoom.”

Two of the buildings are in central Paris: one a high-rise on the banks of the Seine in the 15th Arrondissement; the other a mixed-use property on Boulevard Saint-Germain, sold by AXA IM. The third is in Boulogne to the south-west of Paris and for many years headquarters of media group Canal+.

However, Tishman anticipates having to weather a few difficult years, forecasting vacancy rates in Paris will climb to 4.6 per cent by 2021, from 2.2 per cent last year. 

“To tell you the truth, we’re not expecting any rental growth in Paris over the next two years. And in some cases we’ve even anticipated . . . rents moving down,” said Bernard Pernaud, who heads Tishman’s European business. “The properties we bought do not have any kind of real leasing exposure before three to four years.”

The Paris office market has been in the doldrums this year. Office transactions in the capital slumped by 46 per cent in the first nine months, according to real estate group Colliers, which said the “property market is being hit hard by the wait-and-see attitude of companies.”

Tishman estimates that the discount on the building in Boulogne was as steep as 25 per cent from prices prevailing before the pandemic.

Mr Pernaud said Tishman was considering investing in other cities where prices had fallen, but that London was not yet on its radar. “We didn’t buy in London because the discount is not there yet”, he said. 

The company looks for returns of between 7 and 13 per cent, depending on which fund is buying. “That equation is working in Paris, it’s a little too high in London, said Mr Pernaud. “That’s not magic. It’s really financial analysis . . . But I think London is adjusting little by little.” 

Although Tishman recognises that there might be more remote working in the future, it argues that fast-expanding sectors such as tech, which care more about location than price, will offer support for prime rents in big cities.

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