Imitation is safe. Basic logic suggests following in the footsteps of others reduces risk, based on the philosophy: “It worked in the past, so it will work in the future!” Imitation is thus a natural instinct, but it can become the dominant mindset, and lead to future trends being overlooked.
This is true everywhere and the economy is no exception. Investment in office space in the Paris region provides a good example over recent years. More and more investors entered the market and increased their exposure, drawn by its exceptional level of safety as well as its profitability. In six years, investment volumes have nearly quadrupled, reaching a historic high in 2015.
This success grew around a generalised strategy of closely focussing on high quality buildings, with secure tenants, in good locations. In 2015, 81% of the capital invested in the Paris region targeted Core or Core Plus assets.
“It worked in the past, so it will work in the future!” Certainly, but there are only so many of these prime, Core assets. Drawing on the experience of others is wise up to a point. However, limiting yourself to imitation in today’s market is to pass up new opportunities elsewhere; and we can already see that danger today in Paris.
First, there is the risk of the investment market drying up due to a lack of suitable assets, which partly explains the sharp drop in investment volume in the beginning of 2016 (down 58% in the first quarter). Also, a relentless competition among buyers has pushed prime yields in Core locations to their present historic lows. Moreover, the market has for too long refused to face the big question: how can we restore profitability to the real estate business model, given the accelerated obsolescence of tertiary buildings? New construction techniques, constantly changing patterns of occupier demand, and shifting balances between how much of each building use is required, complicate the task.
However, a new blueprint for the city in the future is emerging, but rather than in market statistics, you can feel its ascendence in the success of the “Reinventing Paris” competition. The Paris City Hall offered to sell 23 sites to groups involving architects, investors and developers, landscape architects, sociologists and experts from various disciplines. What was the key to success? Not the offer price, but innovation, proposing new uses, new management schemes, and phased redevelopment. The need for an ultra-dense city, which has almost no more land available, has created a huge opportunity for investors. In the end, 650 teams from around the world submitted proposals.
The City Hall selected the winners earlier this year, and what came out of the competition? A lot of new thinking, in terms of mutability and mixing of uses, techniques and building materials, density and funding. The sale also netted a lot of money for the city, which will pocket U.S.$620 million for these sites, some particularly improbable, and will generate U.S.$1.4bn of private investment.
Projects that particularly drew attention included, “A Thousand Trees”, designed by architects Manal Rachdi and Sou Fujimoto, and presented by La Compagnie de Phalsbourg and Ogic. Located above the ring road in a polluted and noisy site, “A Thousand Trees” offers a sylvan horizontal landscape open to the public where housing, offices, hotels, services and shops and a small high-end food court will be developed. This unique project is an antithesis of towers, with a bias towards density and a urban mix perfectly assumed by Manal Rachdi: “today, to be innovative and green, you have to be dense and therefore offer a mixed program”.
The Morland building, located in the heart of the Paris Prefecture with its 470,200 sq ft and 16 floors, also relies on this principle of diversity. The developer, Emerige, and the architect, David Chipperfield, even dedicated some space to urban agriculture, with 32,300 sq ft of gardening on rooftops, producing fruits and vegetables that can be eaten on the spot.
Further on, in the new district of the Batignolles, hops growing on the facade of the Stream Building will be harvested in the fall. By that time, it will have finished protecting the building from the heat, and will be used for beer. Eurosic, Hines and the architect Philippe Chiambaretta, pushed their thinking with the Stream Building very far. Real estate is conceived as a living organism, a constantly changing metabolism. A workplace, or a place to live, blurring codes and habits, with about a hundred of mini-lofts combining accommodation and work areas and the principle of highly flexible leases. A flexibility which is even found in the organisation of the building, whose wooden structure must facilitate the mutation of uses over time. The goal? Delaying obsolescence for as long as possible.
A rather crazy bet, but a tempting one. It hasn’t worked yet, but it will work one day!