One of the world’s largest asset managers raised nearly 1 billion euros to open offices in Europe, betting that demand for modern jobs will rebound after the pandemic.
Axa IM Alts, part of the French Axa Investment Managers fund, has raised € 799 million for a European deployment with a focus on the UK, Germany and France. The bulk of the investment will go to finance offices in large cities, and the remainder to housing.
“To launch such a development strategy, you have to believe that offices have a future,” said Ian Chappell, head of development and value-added funds at Axa IM Alts.
The company is committed to developing “high-quality, flexible office space that fits future work habits” and to meet the growing demand for low-carbon offices. The investment will expand the portfolio, which also includes 22 Bishopsgate, the largest office block in the City of London.
“The occupiers are much more concerned about how the buildings of the future will meet the ESG requirements. [environmental, social and governance] requirements. … … it will be the building that investors want to buy first, ”Chappell said.
High quality downtown offices tend to attract institutional investors in the aftermath of the economic crisis, as long-term leases and well-capitalized tenants represent a stable and steady stream of income.
But there are concerns among developers that things could be different this time around, given that the pandemic has upended the way people work, severing employee attachment to the workplace.
Mat Oakley, head of commercial real estate research in Europe at real estate company Savills, said: “This year I have not had a conversation with any real estate investor that did not discuss whether offices are as important. [as a result of coronavirus]”.
Multiple employee surveys over the past year have shown an increased appetite for work from home even after it is safe to return to work, raising doubts about the viability of some older and less-used office space.
“All these 12 months have really drawn attention to obsolescence. … … There will inevitably be more pressure to repurpose offices, ”Chappell said.
Both Chappell and Oakley predict polarization in major European cities: office rents will fall in older, less attractive jobs, but will remain stable in new projects.
Investors are also willing to bet that modern, high-end offices will remain attractive. According to global real estate company CBRE, up to £ 45bn of global capital is targeted at the London office market – the largest volume since the company began tracking investments in 2012.
This is far more than the stock available, according to James Beckham, CBRE’s managing director for investments in central London. Demand has risen, he said, as restrictions have pushed back investors, who are now targeting “best-in-class” offices.
Oakley said London’s appeal was underscored by the rollout of the vaccine in the UK, ahead of European counterparts. “Take Brexit out of the equation, and getting out of lockdown is pretty much the only factor driving investors right now,” he said.