A. Guennoc, T. Delamain (AG Real Estate): “Real estate has remained a safe haven”

Decision makers. What is AG Real Estate’s positioning?

Arnaud Guennoc. AG Real Estate is the real estate subsidiary of the insurance group AG Insurance, leader on the insurance market in Belgium. An integrated real estate operator, active in Belgium, France and Luxembourg, it is present in various businesses: Investment, Asset & Property Management, Development & Construction Management, Public-private partnerships and Real estate financing. Managing a portfolio of real estate assets worth around 6.5 billion euros, it has a development pipeline of around 900,000 m² in offices, residential and retail. AG Real Estate acquired, in 2002, a Belgian promoter called Bernheim-Comofi whose resources, know-how and operations pipeline we had integrated.

We have been present in France for fifteen years, initially through real estate development to develop a tertiary site in Gennevilliers (Carré 92) on which AG Real Estate completed a first turnkey project for the headquarters of ‘UP Chèques Déjeuner on 30,000 m² then a second for Thales Communications & Security on 90,000 m². From 2011, AG Real Estate wanted to develop more dynamically in France in its two favorite businesses, real estate development and investment. Since then, Thibault Delamain and I have been developing our assets and commercial real estate development operations, particularly in Paris and its inner suburbs.

In our news, we are developing the Hekla tower in La Défense, in co-promotion with Hines, and the architect Jean Nouvel, an 80,000 m² tertiary asset to be delivered in September 2022. We are also working on Bruneseau, a mixed project in Paris 13 between the Duo towers and the Seine, on which we are going to develop 100,000 m² with 50,000 m² in residential as well as shops and offices.

Thibault Delamain. The French portfolio represents just over 1.2 billion euros in assets, and it is made up of 30% offices, 30% retail and 20% logistics, with the balance diversified real estate. We intervene directly in the management of this heritage, with our own administrative and accounting teams as well as with an exacerbated customer culture: we want to be as close as possible to our tenants and not entrust this relationship to third parties. The assets have evolved regularly since our arrival in France with investments both in secure “core” operations and in more risky value-creating operations. It is moreover on this trend that we have intervened in recent years.

You operate on all types of assets, what are your convictions regarding the evolution of the real estate markets?

TD It would be difficult to say that the health crisis has not upset us or impacted our market on several levels. Nevertheless, our first observation confirms that real estate has remained a safe haven. To start with the office market, take-up has been strongly affected, Immostat figures for 2021 confirm a certain recovery, but activity remains 20% below the ten-year average of take-up in Île-de-France and it is mainly large transactions that have suffered. On the side of AG Real Estate France, we are maintaining our strategy and striving to invest in assets whose locations are relevant in relation to transport connections, whether in Paris, at the level of the various Grand Paris projects and in province. We favor neighborhoods where the mix of uses gives a new attractiveness to office spaces open to their local environment. In addition, we are adapting the services of our buildings in order to respond to the flexibility and demands of users who have many questions and who do not all have the same problems. With this in mind, we strive to categorize our tertiary assets according to their size because the needs of users are not necessarily the same and we have to adapt. Also, we are seeing a lot of changes, particularly with regard to the office, with the impact of teleworking, flex-officethe mix of uses, the tertiary decree and the ESG criteria to be taken into account in our investments.

“It would be difficult to say that the health crisis has not upset us”

In logistics, we are witnessing a boom in the sector which has been in the spotlight since the importance of logistics flows in the economy was observed. AG Real Estate has been very active in this segment for several years with a view to diversifying our yields and our income. We are now a little more reluctant to do so because of lower yield levels than those experienced a few years ago. Furthermore, we remain cautious regarding the announced boom in rental values ​​in the sector. Some areas will increase due to a shortage of land or assets, while others will tend to stagnate.

In retail, we intervene little but keep our assets high street.

Apart from these asset classes and still in this logic of diversification, we own an operating real estate portfolio accounting for around fifty bus depots operated by Keolis and Transdev, subsidiaries of the SNCF and the Caisse des Dépôts, which are also extremely resilient companies. These are operators intervening in delegation of public services for the transport of people almost everywhere in France.

AG In promotion, we work on two types of assets: residential and office. What is certain is that the health crisis has changed the office market in the short term. We are not worried about the strength of take-up in the longer term. The projects launched, in correlation with the weaker take-up of the past two years, will contribute to the increase in inventory, so we are a little less inclined to start new tertiary operations at risk in the short term while waiting for this demand placed finds a little improvement. To summarize our strategy in tertiary real estate: we are even more selective on the location, the quality of public transport and the immediate environment as well as on the fundamentals of the market, the vacancy rate and the future stock. Our ability to sign up for residential operations allows us to continue our developments in this aspect. These operations benefit from a little wider playing field than in tertiary real estate, particularly with regard to the distance to public transport.

Hekla Tower (©Other Image)

You stressed the importance of environmental criteria. How do they fit into your strategy?

AG For many years, we have had this desire to be systematically labeled. This involves thinking about reducing energy consumption and minimizing the carbon footprint, right from the study of a project. We study, for each project, the solutions to be implemented without standard specifications. Today we have an important reflection on low-carbon construction and the use of biosourced materials. We are not going to systematically use wood construction: on a high-rise building with fire regulations issues, we can integrate wood, but not completely. There are other operations that will require other biosourced materials: our sector is currently facing strong pressure on wood, and the wood industry is not necessarily able to supply all the operations. It therefore seems necessary to think about and experiment with other solutions. We are not going to have the same response on a high-rise building 180 meters high as on a residential operation that will develop on four floors. The RE2020 is not yet operational so we don’t have all the data, which will force us to learn by walking. We will have to find other constructive solutions and not be “one-answer”. Some tertiary assets will become totally obsolete, it is therefore necessary to start thinking about their conversion into residential. It’s not always easy to redefine the morphology of an office building, it requires a bit of gray matter, but that’s what drives us.

“For many years, we have had this desire to be systematically labeled”

Could you describe your activity in the field of public infrastructure. Diversification?

TD We are very active in Belgium in this area. This historically comes from a development program of almost 200 Flemish schools, designed, built, financed and managed by AG Real Estate within the framework of a Public Private Partnership. This does not stop at these schools, as evidenced by the recent delivery of maintenance hangars accommodating Belgian Defense Airbus A400M aircraft. These are very long-term operations with many connections with public authorities. We are less active in France, with the exception of our financing in bus depots which ultimately constitute the delegation of public services operated by semi-private companies. We are also the majority shareholder of Interparking, which ranks second or third among car park operators in Europe according to the rankings. All these activities highlight the fact that AG Real Estate is a long-term investor with secure and resilient flows.

What are your areas of development in the short, medium and long term?

TD We often qualify as a start-up attached to an institutional player. In France, we are a relatively agile team of about twenty employees dedicated to our real estate development and investment businesses. We have never had a completely fixed roadmap and are building up our assets as opportunities arise, hence our growth in residential, an activity that we lacked two years ago. Our strategy lies in the search for operations which respond at a given moment to the problems of our insurance company: to generate relatively secure flows over the long term, without necessarily being immediate, or to develop operations to create value in the promotion to generate profit.

Buildings could in the future be less constrained in terms of destination. Will the phenomenon spread or is it marginal?

AG These are still local decisions with a mayor who has the last word on the programmatic choice of his perimeter. He will decide on his municipality of the destination of the zones. Some may be tertiary, others residential, others finally accept both programming, without imposition of destination. In this case, the community or the State will inevitably lose some programmatic control. In the case of the tertiary sector, the public authority controls its programming through approval, through the production of housing that it can demand in compensation for square meters of office space. Without a destination, it is difficult to control this production. It could indeed be quite interesting to have administrative authorizations which authorize one or the other, letting the market determine the most relevant hypothesis at a time according to market demands. Some local political constraints may conflict with some state wishes. When the latter encourages the production of housing, his will may come up against the refusal of a mayor to welcome new ones.

Interview by Alban Castres

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