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Touching base: what does investment currently look like across Europe?

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Sharing their opinions are Sigrid Duhamel, Global CIO, BNP Paribas REIM, Dominique Jones, Chief Executive Officer and General Manager of BNP Paribas Real Estate Investment Management Italy, and Claus Thomas, CEO of BNP Paribas REIM Germany

Will the current health care crisis change offices and how they are used? Will companies require less square metres or perhaps square metres that are reimagined? Will investors become less confident in the office asset class? 

Sigrid Duhamel: There are many questions at the moment concerning how office space is going to be used, but I absolutely believe that the office asset class will not become ‘has been’. Office space has always been in a state of evolution, whether that is open-plan offices, flexible space or co-working and history has shown that these evolutions have not reduced the need for square footage but have changed how we use the space. Office space reflects the constant change in employment and how those in employment want to interact with it. Covid-19 has of course been a huge accelerator and tested our ability to carry out remote working on a large scale. The fact that this period has highlighted the joys of not commuting but also how much we miss direct exchanges and being with the people we have chosen to work with, shows that offices will naturally evolve. We will surely find that remote working, third places and the office become interlinked, responding to new demands and trends. 

Dominique Jones: It’s still a little bit early to say what the effects of Covid-19 will be, but as far as I can see companies will likely reduce some of their office space as they have understood that having more employees working from home means it’s possible to reduce costs. This is especially true for the smaller firms, the bigger ones may remain unchanged as they require a flagship head office with larger amounts of space. 

Large companies are likely taking stock of the fact that their own spaces won’t be used as much as they were in the past, with less people in the office at any one time. This means flexibility is going to be vital. For headquarters, this might mean opening up the office to the community, allowing space to be used during evenings and the weekends. This would certainly promote the ESG side of our business. 

Claus Thomas: The Covid-19 crisis has shown that working from home is possible, and on a large scale. However, over the long term, we have to consider the social element, the spontaneous exchanges that we have with colleagues are missed and it makes the case on a permanent basis for offices.

This means that we will call into question how we use the space. If we haven’t got 100% of the staff in the office, the function of the office is going to change and what happens in the office will be of greater significance. Offices will be used, in a more significant way, for meetings, social interactions and become a place that corporate identity is centred around. The space needs to be attractive, functional and provide tools and experiences that you can’t have at home. 

Sigrid Duhamel

The work and activity of investment and asset management is to ensure returns for our investors through management of the investments and properties of our clients. We must always consider the positioning of investments and how they can be made more appealing for end users, after all we have two clients: the investors and the end users.

Sigrid Duhamel
Global CIO, BNP Paribas REIM
France

The hybridisation and diversification of space inside a building are now key topics of conversation. As an asset management company, are there specific recommendations they you are making investors aware of (co-working, different layouts, third places) in order to optimise the building? 

Sigrid Duhamel: For investors there are of course many questions and we are in a prime position to respond to them.  BNP Paribas Real Estate is at the heart of these conversations, covering all aspects: transaction, end users and the investment side. We are one of the players that can address these questions and help offices evolve. 

Dominique Jones: Some work will have to be done on the way that space is structured in the office and how it’s furnished and allocated. The trend for a hybrid office, with mixed-space allowing for team and individual work, which was already in place before the crisis is only going to become more prominent.  

The office will be a place where you meet and collaborate, so different spaces will be required, which encourage social interactions. Whilst offices will evolve and prices could be affected, there is still many deals to be made for quality offices, in town centres. Where the office has already been designed intelligently, these are still attractive investments. 

Claus Thomas: The quality of the building, in terms of the space, services and location will become even more important.  I would say that you may need slightly less space but not significantly. In terms of the German market, before the pandemic, there was a scarcity of good quality office space and we’re not expecting big changes there. When you are a large occupier, you will still have the problem of finding the space, if you want to be in the city centre. The office class will not be seen as less attractive, although the pressure will be taken off a bit, and investors will be more price conscious, so rents may not go up in the way we would have expected before. 

It was already important, but now the flexibility of space has become even more crucial. We need to have the ability to convert space. A building that allows you to do that is more valuable, both in terms of rent and as an investment.  This will probably mean people are more demanding when it comes to space and less willing to settle for space that isn’t optimal for them. 

Dominique Jones REIM

Being in the real estate business, it is our job to anticipate trends. We were very much aware of the need for flexibility and hybrid spaces. We need to be sure that our investors are also well aware of these advantages and take them into account when investing in spaces.

Dominique Jones
Chief Executive Officer and General Manager of BNP Paribas Real Estate Investment Management Italy
Italy

In terms of future investments, how are you monitoring changes in the market and what products are you currently promoting? 

Sigrid Duhamel: We are constantly managing real estate on behalf of our clients and their projects so this has not changed with Covid-19. The work and activity of investment and asset management is to ensure returns for our investors through management of the investments and properties of our clients. We must always consider the positioning of investments and how they can be made more appealing for end users, after all we have two clients: the investors and the end users. 

BNP Paribas Real Estate REIM is also involved in the designing of space, making sure that we understand how to adapt buildings in the best way. The office sector will be a sector where we’ll have to really work on this continuous change. Unsurprisingly we’re seeing that the appetite for the office sector across Europe remains incredibly strong and competitive, specifically on Core and Core+ investment opportunities. For this reason, our strategy remains the same, driven by ESG, innovation and being strongly pan-European, serving both our private and institutional investors. 

Dominique Jones: Being in the real estate business, it is our job to anticipate trends. We were very much aware of the need for flexibility and hybrid spaces. We need to be sure that our investors are also well aware of these advantages and take them into account when investing in spaces. By providing good asset management and helping investors restructure the office, we are able to help add value to their buildings and office space. 
During this time, we have remained in close contact with our clients. We have taken advantage of this situation to present our views of the future, backed up by research, from an economic and real estate point of view. This has been a very valuable time for us and solidified the predictions we had made before the crisis. I feel we are ready for future challenges, as we too have incorporated flexibility into our way of working.  

Claus Thomas: For some investors like pension funds and life insurance, investments are made on a long-term basis. As such, many asset classes that they can chose from will not necessarily provide the returns that they need to match their liabilities. In times of crisis, this means turning to alternative assets such as real estate. When you have an office space with a 10 or even 15-year lease, with a good credit company, you will be able to enjoy a fixed income stream that is above other asset classes 

Our relationship with our clients got even stronger during the crisis, communication and transparency were key and we needed to show that we were proactively considering all elements. Therefore, we were speaking to the tenants who were trying to pay their rent, and responding to questions about the impact on clients’ portfolios. In difficult times, it is particularly important to communicate bad news timely but also provide information about solutions and how to tackle such issues, which has been very much appreciated. 
 

Claus Thomas

Our relationship with our clients got even stronger during the crisis, communication and transparency were key and we needed to show that we were proactively considering all elements.

Claus Thoma
CEO of BNP Paribas REIM Germany
Germany