Paris – pourquoi pas? Why Paris attracts less investment than London.

Speaker: Andy Schofield, Director of Research at Henderson

There was a pleasing irony that the subject for our lunch on 25th October was the comparative investment merits of London and Paris. Henry V would, of course, have attached a different meaning to the word ‘investment’ than that used by our speaker, Andy Schofield, but, as Henry was equipped with long bows, so Andy was equipped with the research power of Hendersons.

Paris, of course, is not bereft of investment sources for real estate, but, whereas London seems able to tap the world, Paris draws its money more locally, and thus from a smaller pool. Why is this? Andy reviewed the elements that seem important to trans-national investment.

Both markets are quite liquid, but recent history shows that London remains more liquid at times of stress across a wide range of lot size. London also offers this liquidity in larger lot sizes. Both markets are in the Jones Land la Salle top 10 for transparency, but Andy argued that London valuers appear to be more aggressive and realistic in responding to market changes, which adds to confidence. On past performance there are, of course, differences, but Andy doubts whether that is a dominant factor in investment decisions. On all these criteria, then, there appears to be not much material variance. What tips the balance?

Andy picked two facts. The first is the London lease structure. Lease lengths of 10 years plus, with upward only rent reviews is attractive when compared with Paris’s 9 years with a break at 6 and an indexed review – i.e. perhaps an improved chance of a rent rise, but, of more significance, also a chance of a fall. The London structure is greatly to be preferred if borrowing is to be part of the transaction. There is no evidence that Paris occupiers are actually more footloose, but the security is a key factor.

The second key factor in London’s favour is its international status, particularly in finance. Some would argue that it is top, whereas Paris is 22nd. This brings familiarity amongst key decision-makers, and a sense of ‘bottom’. If you are a serious player, London is a ‘must’. Paris offers, of course, many jewels, but London has the Crown Jewels. (Your Scribe’s fantasy!)

In the subsequent discussion, London’s enduring eminence was questioned. Will the disgrace of financial markets devalue the merits of being a financial centre, and allow the centre of gravity to move away? Whilst this was thought to be a factor, a number of contributors pointed to the blossoming of other ‘international’ markets in London – business services and creative industries, for example; perhaps it will not need to depend so much on finance. The problems of the Eurozone, Andy felt, whilst very real, will not much affect comparisons between the two markets; Europe as a whole will swim or sink. Finally, current taxation proposals in France seem to be potentially damaging; as your Scribe’s addition, one thing the French are pretty good at is realism, once the gesture is got out of the way.

Andy was therefore pleasingly upbeat about London. However, there are storm clouds over Europe; its No 1 status may soon join Agincourt as a glorious thing that was not, perhaps, quite as glorious as myth paints it.

Michael Mallinson