Promising investments by Paris: how to convert offices to residential

One of the largest real estate markets in Europe — Paris region (île-de-France) — is experiencing a double crisis: the offices are empty, and the apartments is not enough. Increasingly popular is the idea of conversion of commercial premises in the housing stock.

According Immo G Consulting, from 2002 to 2012 in Ile-de-France was built only 420 thousand units of housing, and in order to provide the population with apartments, had to build them twice. Since 2008, rents and the prices of secondary flats continued to grow. Now a square meter in Paris is already more than 8 500 euros.

But from 2002 to 2012 in Ile-de-France began construction of a commercial premises with a total area of over 12 million m2, which is more than twice the necessary volume. Now in the empty region from 2.5 million to 3.6 million m2 of offices, 500 thousand m2 of which ceased to be used during the last four years. Nearly a third of them are without tenants 2-4 years. According to DTZ, in Defense, the main business district of Paris, empty 10 % of the offices. As reported in the study Immo G Consulting, from 2007 to 2011, the sales price was down 20 %, the lease rate is 9 %.

Even if the time to transfer all vacant offices to residential will 54 thousand housing units with an area of 70 m2 each. And it will be only 1 % of the total housing Fund of the Ile-de-France. However, in practice, not all the offices could be converted into apartments. From 1990 to 2010 in the housing of Paris was annually transferred an average of only 33 thousand m2 of office space. That is a year in this way was added 300-400 apartments. By 2020 the government plans to increase this figure several times.

Profitable resale of the property: offices or home?

Paris officials are working to make the process of transforming the office sector quick and easy. For example, for companies, dealing with the conversion of commercial space to housing was introduced, which reduced the rate of Corporation tax is 19% applied to capital gains.

The main advantage of investment offices under renovation that square meter of commercial real estate is 15-30% cheaper than a square meter of housing. It means that refurbished office you can sell at a profit.

Fleuron Immobilier is one of the companies offering investment offices under renovation at their premises. “The essence of the attractiveness of the product, which offers our Agency, is that the price of offices per square meter lower than the price of residential premises, and without professional help, even with the simplification of procedures, the buyer will not be able to get the desired economic effect. We’re talking about offices that are located in Prime locations. It can be as one or two office or an entire floor. The profitability of the transfer housing can exceed 20 %, and this is a very good demonstration for Paris real estate”,— says Alexander the centurion, the owner and founder of the company Fleuron Immobilier.

Another company, Novaxia Immo Club, buys vacant offices and rebuilds them in housing. To join in this enterprise, giving it at least 5 000 EUR. 6 % will be charged when you join and 3 % are taken annually for the management. The investment period is six years. The main benefit for investors is that they acquire objects at a price 30 % below market and get capital gains when selling. Among the projects Novaxia Immo Club — reconstruction of the building in the 20th arrondissement of Paris, on the Boulevard de Belleville. According to forecasts, the gross rate of return will be of 8.66 % per annum.

Pitfalls of translation in the housing

The transformation of offices into apartments is not an easy process. For the implementation of this project will have to comply with many formalities and rules. Since the beginning of the project until its completion may take from two to four years. Now the government represented by the Minister of housing cécile Duflot is working to simplify the procedure and reduce the time of decision-making.

“The basic design of the building must meet certain requirements. The building spans a width of 12-15 m are not a problem. However, the facilities in excess of this footage is poor lighting,” says Stefan Theriault, CEO of Altarea Cogedim Entreprise, dealing massive transfer of offices to residential. Experts also note that in buildings with spans with a width of 18 m in the process of transformation lost 10-20 % of the area.

Despite the fact that work is being done in the sector of secondary real estate, they should comply with the regulations that apply to real estate primary. And construction of older buildings often do not comply with these regulations and energy efficiency standards. There are also technical requirements that satisfy not all commercial buildings. So, to be considered an accommodation, the room must have a ceiling height of not lower than 2.5 m.

To convert office building to residential costs 20-30% more expensive than building from scratch. The cost of transformation of offices into residential buildings is estimated in 2 000 – 2 500 Euro/m2 excluding taxes, construction — in 1 600 – 1 800 Euro/m2.

In Paris, if the area of the reconstructed object is larger than 800 m2, 20-30% of the spaces shall be reserved for social housing. Given that social objects are sold cheaper than the market price, projects for the transformation of offices is not always cost-effective. In addition, the offices more profitable to lease their yield is 5.5–7 %, while flats earn 2-2,5 %.

How is the procedure

First you need to apply to the city planning Department of city hall (service de l’urbanisme) to ensure that the proposed changes are not inconsistent with the plan of construction in the city (plan local d’urbanisme, PLU).

Further, the administration needs to obtain the building permit (permis de construire). If the floor area exceeds 170 m2, it is necessary to hire an architect. If construction works are not expected, and we are talking only about the translation in the housing, neobhodimo to make a pre-notification (déclaration préalable).

If the room is in a condominium, you should learn its rules and learn what are the limitations of this particular building.

The investor should make sure that the premises is connected to all communications: water supply, electric network, telephone line. Connect communications in case of their absence, will be quite expensive.

Then you need to notify the tax authorities. After getting the room transferred from commercial to residential, the owner will have to pay other taxes: the territorial economic tax (contribution économique territoriale) and introduced a tax on accommodation (taxe d’habitation). To change the size of the property tax, called taxe foncière: the tax is calculated on the basis of contingent rent, the amount of which for residential and commercial premises varies.

However, despite all possible problems, now the translation of the commercial facilities in residential are in great demand, important to pick a good, viable option.

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The reverse of the procedure for the transfer of housing to Fund commercial real estate, read the article “How to rebuild an apartment in a commercial building.”

Yulia Kozhevnikova, Tranio.Ru

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