Axa IM places €800m bet on return to the office in Europe

One of the world’s largest asset managers has raised almost €1bn to develop offices in Europe, betting that demand for modern workspaces will bounce back after the pandemic.

Axa IM Alts, part of French fund house Axa Investment Managers, has raised €799m to deploy in Europe, with a focus on the UK, Germany and France. The bulk of the investment will finance offices in major cities, with the remainder going towards residential development. 

“To launch this kind of development strategy you have to believe there’s a future for offices,” said Ian Chappell, head of development and value-added funds at Axa IM Alts.

The company is aiming to develop “high quality, flexible office space aligned with future working habits” and to cater to growing demand for offices with low-carbon emissions. The investment will expand a portfolio that also includes 22 Bishopsgate, the City of London’s largest office block.

“Occupiers are far more concerned about how buildings of the future will meet ESG [environmental, social and governance] requirements . . . those will be the building that investors will want to buy first,” said Chappell.

High-spec, city centre offices have tended to attract institutional investors in the aftermath of economic crises because long leases and well-capitalised tenants represent a steady and stable income stream. 

But there are fears among developers that this time round might be different given that the pandemic has upended the way people work, severing employees’ attachments to the workplace. 

Mat Oakley, head of European commercial property research at real estate company Savills, said: “I haven’t had a discussion with any real estate investor this year that hasn’t touched on whether offices are quite as core now [as a result of coronavirus]”.

A slew of employee surveys conducted over the past year have shown an increased appetite for homeworking even once it is safe to return to work, raising doubts about the viability of some older, less desirable office stock.

“This whole 12 months has really put obsolescence in the spotlight . . . Inevitably there will be more pressure to repurpose offices,” said Chappell.

Chappell and Oakley both predict a polarisation in major European cities, with office rents falling in older, less desirable workplaces but staying firm in newer developments.

Investors are also willing to bet that modern, high-end offices will remain attractive. According to global real estate company CBRE, as much as £45bn of global capital is targeting the London office market — the largest volume since the company stared tracking investment in 2012.

That represents far more than the amount of available stock, according to James Beckham, managing director of central London investment at CBRE. Demand has built up as lockdowns have sidelined investors, who are now targeting “best in class” offices, he said.

London’s attraction has been burnished by the UK’s vaccine rollout, which has outpaced European peers, according to Oakley. “Take Brexit out of the equation and the emergence from lockdown is pretty much the only factor driving investors at the moment,” he said.