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MONTREAL - France might have reported worse-than-expected industrial output figures this week, but Quebec’s pension fund manager is counting on the Parisian office market to remain an oasis of stability despite the country’s sluggish economic growth.

Over the last six months, Ivanhoe Cambridge – the real estate arm of the Caisse de dépôt et placement du Québec – has announced three office deals in the City of Lights valued at more than $1.2 billion total. Although expectations for economic growth remain low in France – real GDP is forecast to grow by a lacklustre 0.1 per cent in 2012, according to Scotia Economics – Paris office vacancies and rents are expected to remain stable even as high-quality buildings command top-dollar purchase prices, analysts say.

“France is not going through a period of large growth,” acknowledged Meka Brunel, executive vice-president of Ivanhoe Cambridge Group in Europe, which accounts for about 20 per cent of the real-estate division’s $30 billion in assets. “But Paris is not the same as France. And we are not buying everywhere in Paris.”

Ivanhoe Cambridge’s latest venture, with U.S. real estate giant Hines, is an option to develop a two-tower project that would redefine the skyline of its surroundings in the Paris Rive Gauche district, which has many aging, smaller buildings. Pending regulatory approval, the $650 million project would be designed by French architect Jean Nouvel for delivery in 2018.

It would involve one 38-storey, 807,293-square-foot office tower, and a second, 21-storey, 161,458 square foot building that would mix office, commercial and a 150-room boutique hotel, Brunel said.

“They have a very ambitious project with a well-known French architect,” said Antoine Derville, president of CBRE Capital Markets France.
A lack of buildable land, and a lengthy regulatory process have limited the development of new office towers.

“The park of office buildings is being renewed very slowly in Paris,” Derville said. “Paris Gauche is one of the few places where we can build new towers.”

Ivanhoe Cambridge is one of a growing number of international investors competing to buy buildings in Paris, one of the world’s largest office markets with a 6.5 per cent vacancy rate and just under 590 million square feet of space, analysts say.

Ivanhoe Cambridge’s Paris acquisitions come at a time when the pension fund manager is planning to sell off some of its mature, non-core office and retailing assets in Europe, Brunel said.

“We have the same pattern,” she told The Gazette in an interview. “Our idea is not to just focus on core assets but to create them.”

The Duo project announcement in late April follows Ivanhoe Cambridge’s $350-million leaseback deal to acquire the 387,500 square foot headquarters of PSA Peugeot Citroën.

And at the end of 2011, Ivanhoe Cambridge said it would buy the Petra building, now under construction in Boulogne Bilancourt, which is expected to deliver 230,000 square feet of office space in early 2014.

Brunel said she was not worried about finding office tenants for Petra and for the Duo buildings, despite the economic climate. On Wednesday, statistics agency INSEE said French industrial output fell almost twice as fast as predicted in March, Reuters reported.

But while France’s current economic climate may be weak, and election upheaval at home and in Greece has some questioning the future financial health of the eurozone, France’s real estate market is significantly stronger now than in 1997, when Ivanhoe Cambridge entered the Paris market.

At the time, the office market had a 53 million square foot surplus in space, Brunel said.

“We had a real estate crisis,” she said. “It was a developers’ market, not an investors’ market.”

“Now we have economic problems, but we do not have a real estate crisis. If you are in a good location you are a lot more resilient.”

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