My eye was drawn this week to an article in Le Figaro that spanned two pages, describing the current difficulties faced by the office real estate sector in France’s Ile de France region. Le Figaro is obviously not the first newspaper to describe the impact of teleworking on the occupation and transformation of office spaces – the Financial Times, to name just one, had already echoed this. Nonetheless, I found the conclusions of this article particularly interesting.
The main point highlights a polarization of the market, between a Parisian center that is still in high demand, with vacancy rates below 5% in most districts, and an outlying area that is losing momentum, where this rate exceeds 10%. Thus, there are “millions of square meters” that are currently unoccupied in the Paris region.
The authors explain this phenomenon by a shift in the job market and employee preferences, which I fully agree with. The budget allocated by companies to real estate seems to remain largely unchanged, however, they are ready to move to smaller premises (as fewer employees are in the office) that are better located (to reduce commuting time). Knowing how the density of the public transport network weakens once past the peripheral areas, it becomes clear why companies seek to position themselves within central Paris to attract talent, which is always too scarce in this period of relatively low unemployment.
This change obviously has consequences for the owners of office buildings in the suburbs, who are increasingly left with empty spaces, sometimes for several years. Without rental income to offset growing expenses (energy, local taxes, cost of debt driven by interest rates), some are forced to dispose of part of their portfolio at a discount, or even to declare bankruptcy. However, we must not forget that behind these institutional real estate investors, there are often pension funds. Ultimately, the commercial real estate crisis impacts the balance of our solidarity system.
Beyond the owners, this lifestyle change also has broader consequences on the life of entire areas, and the businesses that make them up: restaurants, bars, supermarkets located in office neighborhoods see their attendance, and therefore their turnover, decrease. The City of London’s business district has sometimes been taken as an example in this regard. With the teleworker staying at home, it is likely that this decrease in one neighborhood is not entirely compensated by an increase in activity in residential neighborhoods.
Part of the solution is to consider that we are living in a relatively extraordinary, and very likely temporary, period where the balance of power between employer and employee largely favors the latter, even if some signs of a slowdown in the job market are beginning to reach us from across the Atlantic. If economic activity were to show signs of slowing down, or even of recession, in the coming months, we can imagine that some employees, unconsciously and/or on instruction from their employer, will want to frequent their office a little more diligently to defend their company – and perhaps save their job.
Nevertheless, it seems illusory to think that we will ever return to a situation exactly like the one we knew pre-COVID. Our behaviors have changed in a partially irrevocable way, and the organization of cities must respond to this new reality. Actors in the real estate sector, both private and public, have begun to react on several fronts. The first reflex is to change the use of vacant offices, for example by converting them into housing. However, this solution requires consultation with public authorities, to ensure a more general urban coherence. With the appearance of housing, new needs are created, in healthcare structures, childcare (nurseries, schools, etc.), in transport, the implementation of which goes beyond the individual building. The Grand Paris project, a major rail infrastructure project aimed at freeing the French capital from the corset represented by the Parisian ring road, is a visible and major step in this direction.
Wearing my economist hat, I also think it can be interesting to seek to optimize the “rate of use of real estate assets” – or “making assets sweat” in corporate finance jargon. Airlines have become masters in that field by reducing plane downtime, either between two flights or due to repairs. Practically speaking, it seems to me indeed regrettable to hear talk of a shortage of surfaces when a large part of the real estate surfaces are ultimately occupied only a handful of hours in the day. Offices are empty in the evening and at night, restaurants are only occupied during meal times (at most 6 hours a day), unlike hotel rooms. Can we imagine new hybrid models, like hotels offering rooms at night, converted into offices during the day? To the material and economic benefits would be added an ecological benefit. A building used more in one place eases the need to build elsewhere and thus limits urban sprawl.
This brief article obviously did not aim to solve complex problems in a few lines, where the solutions provided will, by definition, be evolutionary according to our societal and economic context. To a question of work organization at the individual level are superimposed issues of corporate culture, interpersonal relationships, viability of our economic and urban fabric, and ultimately the organization of our society at large.