Europe’s largest financial district La Défense has launched a major offensive to win over banks and businesses from post-Brexit London.
The battle for banks and businesses in the run-up to Brexit is in full swing. Executives from Paris’ La Défense financial and business district drove their tanks onto London’s lawn last month in a bid to attract occupiers away from the UK amid continuing uncertainty over Britain’s departure from the European Union, scheduled for March 2019.
Europe’s largest financial district launched a full-scale offensive, targeting the City’s big banks and institutions and promoting La Défense as the only place outside of London that has the size, the buildings and the infrastructure to accommodate large banks or companies seeking to relocate to an EU country because of Brexit. La Défense’s strongest point is the availability of state-of-the-art offices, said Marie-Célie Guillaume, the Parisian district’s CEO, at the presentation in London. ‘We have 200,000 m2 available today and more coming soon. No other city in Europe, apart from London, has the capacity to welcome large numbers of occupiers right now,’ she said.
Total office space in La Défense is now at 3.6 million m2 and by 2022 there will be a further 275,000 m2. The area is home to 500 companies, a third of which in the financial sector, and 180,000 employees, but it is expanding fast: real estate investment in the first half of this year totalled €288 mln.
The number of cranes dotting the horizon is testament to the ongoing development activity in the area. La Défense is the only district in Paris that allows high-rise construction. There are 70 existing skyscrapers and 34 new large-scale projects being built, like Amundi’s Hekla, Unibail-Rodamco’s Trinity and the Two Sisters, La Salle Investment Management’s Alto and Generali’s Saint Gobain, all between 50,000 and 80,000 m2 in size. Groupama Immobilier’s The Link, set to be completed in 2022, has a surface area of 120,000 m2. Icade’s Origine, which will be ready in 2020, is a mixed-use building that includes office, retail, residential and a crèche.
EBA booty
Earlier this year the district scored a significant victory when the European Banking Authority (EBA) announced its decision to relocate there from London. In March 2019, EBA’s 160 employees will move to the Europlaza Tower, a 31-storey building in the heart of La Défense. Chubb, America’s largest damage insurance company, is also relocating from the UK capital to La Défense, where its European head office will take up 4,400 m2 in the Carpe Diem tower from June next year. Two other significant deals this year were Dalkia leasing 11,000 m2 in Tour Europe and the Louvre Hotel taking 6,300 m2 in Tour Voltaire.
Costs are a significant factor in Paris’ favour: office rents in La Défense are around €550 m2 a year for new buildings and €485 m2 for second-hand space, compared to €830 m2 in Paris CBD and over €1,270 m2 in Central London. The district is attracting start-ups and has also embraced the co-working trend, with 20,000 m2 of flexible spaces which are set to double to 40,000 m2 in 2019.
A family story
La Défense does not want to be seen as a soulless business district but is keen to present itself as a thriving community. A lot of planning and effort has gone into this, said Guillaume: ‘We have been working for seven years to transform the area into a place where people don’t just want to work but where they also want to live, go out and have fun during the week and at the weekend as well. Our slogan is La vie en grand.’
The revitalised district now includes a 31-hectare pedestrian area, the U Arena, which can accommodate 40,000 people for events and concerts and Les Quatre Temps, Europe’s biggest shopping centre, with 220 shops, 36 restaurants and 16 cinema screens.
Currently there are only 42,000 residents at La Défense, but their number is set to increase rapidly as the district is targeting families, said Guillaume. There is now a ‘varied residential offering’, she said, with hundreds of new homes being built. A shift is already under way, said Philippe Pronost, deputy CEO of CDC International Capital: ‘It is too early to quantify the impact on real estate, but demand for family apartments is going up and prices are rising.’
New state schools are being opened to add to the city’s existing international schools in order to make the area more attractive not just to bankers or businesspeople but to their spouses and children as well.
In September the new €53 mln Lucie Aubrac International state school opened at La Défense, which is free to all pupils from age six to 18 and where all lessons are taught in English. Another school is set to open next year specifically for the children of EBA employees, while the next project is a Mandarin-language school for Chinese children.
La Défense is looking to attract occupiers from well beyond London. ‘Already 40% of the companies that have offices in our district are international, but they are mainly from Europe or the US. Now we want to attract more Asian companies and banks, which because of Brexit are looking at Paris instead of London as their European base,’ Pronost said. As proof that La Défense is now on Asian investors’ radar screens GIC, Singapore’s sovereign wealth fund, recently acquired Tour Ariane, a 40-storey office building in the district, for €465 mln.
Positive real estate fundamentals
Vacancy levels at La Défense, which had fallen to 6% last year, have continued to go down this year, to a 10-year low of 4.8% in Q2 and further down to 4.5% in Q3. Yields are between 4% and 5.65%. In the first six months of this year €288 mln was invested in the district, with some large deals such as the sale of Aurore Tower, bought from Carlyle by the Aermont Capital investment fund, and the sale of The Curve, sold by Perial to Monceau Assurances. Investment in the second half of 2018 is set to be significantly higher, thanks to the GIC transaction.
‘Several construction projects have been signed off with blank contracts, a practice almost unheard of in France, a testament to investors’ confidence that we can deliver large-scale projects,’ said Guillaume. ‘The core and shell development projects and the rent increase trend in the forecasts illustrate investor and user confidence in the district’s prospects,’ he added.
The positive real estate fundamentals seem to extend to the entire Ile-de-France region which encompasses Paris and the area around the capital. Office take-up increased by 6% to 1,874 mln m2 in the first nine months of the year, according to ImmoStat figures. Vacancy rates have been falling to 5.5% in the region and to 1.5% in the capital’s CBD, which has led to a 3% increase in rents.
Investment in commercial real estate in France increased by 25% to €18.3 bn in the first nine months of the year. ‘This healthy trend notably stems from the acquisition of numerous office assets in Ile-de-France,’ said Olivier Ambrosiali, deputy general manager in charge of sales for BNP Paribas Real Estate Transaction France. ‘We are still seeing a lot of negotiations of single assets of over €100 mln in Ile-de-France. Under these conditions, investment in commercial real estate in France should consolidate at very good levels and break through the €28 bn threshold in 2018.’
Upward trajectory for Paris
La Défense’s pitch is not an isolated move. The French government has been aggressively promoting Paris as an alternative destination to London and seems to be having some success. In the last few months Paris has scored a few victories in the ongoing battle with Frankfurt, its main rival, to attract occupiers from London. US bank Wells Fargo announced last month that it has applied for an investment firm licence in France to set up a subsidiary office to provide capital markets and investment banking services for European and international customers.
Wells Fargo is following in the footsteps of Bank of America Merrill Lynch, Goldman Sachs, Citigroup, Morgan Stanley, JP Morgan Chase and HSBC, which have all announced plans to relocate staff to the French capital. HSBC is the biggest mover so far with 1,000 people set to transfer to its new Paris trading floor.
French banks such as BNP Paribas moving people back to Paris from London should add another 1,000 jobs. According to credible reports, Japanese bank Nomura plans to use Paris as an alternative banking hub and is in advanced talks with French regulators. As many as 70 asset managers are in the process of acquiring licences to operate in France, including US colossus BlackRock.
‘We have heard that four to five thousand new jobs could relocate from London to Paris in asset management and investment banking,’ said Arnaud de Bresson, CEO of Paris Europlace, the organisation that promotes the French financial marketplace. ‘The context is more favourable in Paris than Frankfurt for financial sector companies. Frankfurt is home to two big German banks that are going through some difficulties and cutting jobs, while Paris has four big French banks that are healthy, strong and expanding.’
Business reforms
Paris’ success has been due to several factors. President Macron’s government has pushed through a number of business-friendly reforms to attract foreign investments. Corporate tax, for example, will be cut from the current 33% to 25% by 2022.
The Pacte Bill, or Action Plan for the growth and transformation of companies which comes into force on 1 January 2019, strengthens the French non-dom regime, exempting employers from having to pay pension contributions for staff who relocate to France for at least three years and offers protection in the event of labour disputes, fixing lower and upper limits for damages. President Macron’s reforms aim to lower unemployment further and ease labour regulations to create a more attractive and flexible French labour market. As such, service-sector employment growth forecasts for all French cities have been upgraded compared to last year. ‘Macron’s reforms have been a real game-changer,’ said De Bresson. ‘If you add the quality of the infrastructure, the deep pool of talent and the numer of big corporates and banks present, you see that Paris benefits from a great ecosystem.’
Infrastructure is a key component of the government’s strategy to attract more foreign investment. The Grand Paris project, which involves €26 bn of investment to develop public transport in Paris, will provide a framework to link the region’s main economic centres and support long-term growth.
The Grand Paris project is transforming infrastructure in the capital, adding an additional 200 kilometres of train lines and new 69 metro stations, four of which in La Défense, making crossing the city faster and easier and increasing the accessibility and attractiveness of many suburbs.
Earlier this year, the French government also approved five new high-speed TGV train lines to improve connectivity between France’s regions by 2023. In addition, the prospect of hosting the Olympic Games in 2024 will trigger a building boom and create a new dynamism in the market. ‘The Olympics are hugely important for Paris,’ said Pronost. ‘They bring more infrastructure projects and, crucially, the incentive to finish them on time, giving investors certainty.’
Will Paris succeed?
Full marks to La Défense and to Paris for spotting an opportunity and seeking to exploit it to the full. But will they succeed? London is still a strong market and has defied negative expectations this year, confirming its status as the most attractive destination in Europe for foreign capital.
La Salle Investment Management’s just-published European Regional Economic Growth Index (E-REGI) shows that London remains the leading city for real estate occupier demand in Europe and the city with the strongest prospects, but Paris is becoming an ever-closer rival. Brexit uncertainty has started to create job opportunities in Paris and it has slowed the pace of employment in London.
‘This year’s results emphasise the strength of Paris in a European context, as the city displays its highest E-REGI absolute score in the 10-year history of the index,’ said Mahdi Mokrane, LaSalle’s European head of research & strategy. ‘Paris also leads the European human capital index,’ he added.
France’s labour market has been recovering since 2015 and economic recovery has taken hold. Employment is set to rise across all sectors, not just banking or finance. According to Oxford Economics, Paris is forecast to have 40,000 additional IT jobs by 2020, the highest number in Europe after London. ‘London will remain an important international financial centre, but it will reduce in size,’ said de Bresson. ‘As March 2019, the Brexit date, gets closer, companies feel that time is running out and they are finalising their plans. We see a definite acceleration in the number of requests and lease agreements signed.’
Scattergun approach
Banks are being extremely secretive about their post-Brexit plans, but seem to favour a ‘scattergun’ approach, moving different functions to different cities in order to have a presence in various countries, so no single European city is likely to get an influx of tens of thousands of people. According to de Bresson, ‘out of every 2,500 jobs that will move from London, I expect 1,500 of them to come to Paris, 700 to go to Frankfurt and the remaining 300 to smaller specialised financial centres like Dublin and Luxembourg.’
As part of its pitch in London, Paris La Défense resurrected its humorous poster campaign first launched two years ago after the referendum. It features a frog and the words ‘Tired of the fog? Try the frogs!’ with images of the district’s skyline in the background. ‘We are playing with clichés and showing it is all done with a sense of humour, mutual respect and a strong sense of our shared history,’ said Guillaume. ‘We do not want to take anything away from London. If there was a second vote and Brexit was reversed we would celebrate with champagne, but as things stand we need to be pragmatic. Brexit is a big opportunity for La Défense, for Paris and for France.’
