Some 79% of investment into new office stock in Ile-de-France (IDF) in 2012 was for High Quality Environment (HQE) certified stock, totalling €1.4bn of which, 54% were invested by domestic investors, nearly 24% by German funds and 13% by US investors.

Overall the volume of forward funding acquisitions remains limited due to ongoing economic uncertainties and the difficulty in obtaining debt from cautious banks. However, there is an increasing investor perception that 'green' properties involve less risk when forward funding deals.

Indeed, HQE investments accounted for 73% of all forward funded acquisitions recorded in IDF in 2012.

This represents a significant rise in the share of forward funding for HQE investments compared with 2011 (54%) and 2010 (33%), reflecting a growing investor confidence and demand for sustainable office product in this region.

Whilst there is still no indication at present of the HQE label impacting a property’s rental level or on the potential growth in capital values that can be achieved by a decline in operating costs, HQE offices are perceived as attractive, secure and future-proof by investors. This is notably shown by the fact that 64% of the green office investments recorded last year were acquired by core funds.

A landmark green office investment includes the forward funded acquisition by Union Investment of the City’zen project based in Bois-Colombe for €240m signed in July 2012. The scheme, which includes two office buildings (40,000 sqm and 10,000 sqm), will be delivered during the second half of 2013 and will also be BREEAM and LEED certified. 

Office tenants becoming increasingly “greener”

Looking at the occupier market, we are seeing corporate responsibility policies encouraging many tenants to choose certified ‘green’ properties
and ‘HQE operating’ certified offices, which can save up to 30% of energy costs according to Certivea. This is particularly important in a cost cutting economic context with volatile and unpredictable energy prices.

As a consequence of this growing occupier preference for green buildings, over 50% of the HQE certified office space in IDF is leased prior to completion thus reducing the risk of vacancy. These offices generally attract well-known office users with good covenants. 

Green office developments as core investment opportunities

There are currently 369 HQE office buildings across France, representing approximately 3.7m sqm and 80% of this space is concentrated in IDF.

Thus nearly 8% of the IDF office stock is now certified. The majority of green office buildings exceed 5,000 sqm and are located in the suburbs of Paris in Plaine Saint Denis, La Defense or in the Western Crescent, where land is available to develop large HQE schemes. The concentration of HQE
buildings in IDF and more generally in large cities is resulting notably from the expensive green construction costs (5-10% higher than the standard construction costs).

Central Paris, notably the CBD has a lower concentration of green office development because the “HQE Refurbishment” certification, to bring existing buildings in line with HQE standards, was initiated later than the HQE certification for new developments and involves more significant costs. However, we believe the volume of certified stock in Paris will gradually increase particularly for quality CBD office buildings and the “HQE refurbishment” certification will allow the old Haussmannian buildings to adopt a green image.

With an additional 5.3m sqm of registered office space due to be delivered onto the market over the next three years, the share of certified office
stock in IDF will reach 17% by 2015.

The majority of offi ce space currently in the process of being certified is concentrated in the Hauts-de-Seine, Paris and the Seine-Saint-Denis areas
of Ile-de-France as well as La Defense, which is becoming the major “green hub” of the region. Most of the multicertified schemes, where assets have HQE as well as LEED or BREEAM certifications, are already concentrated in La Defense with a further 550,000 sqm of HQE offices due to be delivered by 2015.

Source: Savills