Olympics Arrive In Paris Just As Politics And Real Estate Fall Into Flux

PARIS — From the second floor of the Eiffel Tower, 10 weeks ahead of the 2024 Olympic opening ceremony, the finishing touches for the Paris Games would appear to be progressing serenely.

The sand at the centre of the beach volleyball stadium erected in the Champ de Mars park dazzles in the sun. About a mile away, temporary grandstands on the Pont Alexandre III and in the Place de la Concorde for the swim marathon and 3-on-3 basketball are close to completion. And off to the northeast, the site of showpiece track and field events, the Stade de France in the suburb of Saint-Denis, can just be glimpsed. 

But on the streets of Paris itself, it’s a different story.

Paris is holding some Olympic events near famous tourist attractions in the city centre, an innovative way of showcasing one of the world’s most beautiful cities.

Yet the traffic chaos it has caused, closing bridges and main arteries, has infuriated locals. When a 10-kilometre fun run ahead of the Games closed more roads, taxi drivers disgorged passengers anywhere in the vicinity, unsure whether they could actually drive to their destinations.

There is a split opinion, too, about the impact the Games will have on Paris. The Games are now as much about the economy of a city and its place in the world as amazing feats of sporting prowess. And that is particularly true of Paris because the Olympics arrive in the city at a time of political flux and seismic changes in the real estate market that may limit the lasting legacy of the Games. 

French legislative elections in June and July threatened to hand a majority to a far-right party for the first time but eventually delivered a hung parliament with no clear majority. The tumult turned attention away from the Olympics, and the heightened political instability is making international investors warier of France just as the country is looking to shine.

“There are definitely mixed feelings about it, depending on who you talk to,” AEW Europe Chief Investment Officer and Head of France Raphaël Brault said. “There are definitely some people who want to run away from the capital city because of the transport issues. But it’s a once-in-a-lifetime occasion to have such an incredible sporting event here.”

New transport infrastructure, planned before Paris won the Games, was accelerated to finish in time. It is being delivered as changes in the way people live and work are shifting the economic geography of the city away from areas like Saint-Denis, a historically less affluent area that was supposed to benefit from the Games, and back toward the wealthier historic centre.

“The investment in infrastructure will pay off, and it will help those places like Saint-Denis [and nearby district] Saint-Ouen-sur-Seine,” Partners Group Global co-Head of Real Estate Karim Habra said. “But it will take time because those are markets where you have oversupply. The market is polarised.”

When the Olympic flame arrived earlier this month, with parades featuring dancers, sports figures and thousands of Olympic volunteers, Parisians started to embrace the spirit of the Games, Europa Capital partner Andy Watson said.

“It is the car drivers that whinge the hardest,” said Watson, one of those volunteers.

Watson added that the cultural events being held and the demographics of the 45,000 volunteers who will help visitors find their way around the city and its various Olympic sites will be a brilliant evocation of the diversity of modern France.

A Test Of Politics — And Investors

That image of diversity was severely tested in the month before the Games when the far-right National Rally party won the largest share of the vote in the first round of legislative elections, with the left-wing New Popular Front in second place and President Emmanuel Macron’s Ensemble alliance coming in third. 

In the second and deciding round, the NFP won the most seats, followed closely by Ensemble and trailed by National Rally, but no party won enough seats to form a majority. 

The resulting hung parliament is a better result than either a far-right or heavily left-leaning government, AEW’s Brault said, but the instability and political gridlock are not good for markets generally, including real estate. 

“The political programmes of the far right and far left involved far more lavish spending, and that would have been bad for deficits and created more volatility,” he said, pointing to a narrowing of the spread between French and German government bonds since the second round of the elections.

“That shows that what the markets feared most has been avoided,” he said.

Nonetheless, there is the perception of France as a politically unstable environment that didn’t exist before. 

“Since 2016 and the Brexit vote, people have looked at Britain’s politics and said, ‘What is going on?’” Watson said. “Now the UK looks stable, and it may have switched places with France.”

That instability is having a clear and present impact on transactions in both the investment and occupational market.

Investment in Greater Paris real estate was down 57% in the first half of 2024 at €1.9B ($2.1B, £1.6B). That drop is in line with other large markets where real estate investment volumes fell sharply in the last two years as interest rates rose from historic lows. But like the UK in the wake of the Brexit vote, Paris and France now have their own idiosyncratic political issues to negotiate.

“It is not as acute as at the peak after the first round of the elections, but businesses need confidence about the future to make decisions,” CBRE France President Fabrice Allouche said. “A big chunk of our revenue is frozen. Everyone is waiting for news.”

Allouche pointed to an investment deal the company was advising on in which a German investor dropped out of a transaction because of the uncertain political situation. A French company has now moved in as preferred bidder. 

Le Timing Est Tout

When it comes to the office occupancy market, leasing in Greater Paris historically sat around about 24M SF to 25M SF a year. But since the pandemic, that figure is averaging about 19M SF to 20M SF a year, a gap that is unlikely to ever be bridged due to changes in working patterns, Allouche said.

Where that leasing is happening is what is important for the lasting impact of the Olympics and the investments in infrastructure it facilitated.

For almost 20 years, Paris has been working on an infrastructure improvement known as Grand Paris Express. At a cost of $43B to the city and surrounding suburbs, the project extends two metro lines, one running north-south, one running east-west, and adds an entirely new line running a ring around the outer suburbs.

The idea was to better connect outer suburbs so residents didn’t have to travel toward the centre of the city and back out again. The extended lines would enable faster connectivity between suburbs and the centre, including Saint-Denis, home of the Olympic Village and the national stadium, a centrepiece of the Games. 

The wider aim of the transport investment, accelerated by winning the Games, was reducing the economic differential between the wealthy centre of Paris and its suburbs, where residents have historically earned less and suffered worse health outcomes. 

With Saint-Denis in particular, improved transport connections were supposed to not just allow residents to travel more easily to the city but also persuade businesses to relocate to the area’s nascent peripheral office market, bringing new businesses and jobs to the area. 

In the wake of the pandemic, though, that is not how it is playing out. Improved transport infrastructure is arriving at exactly the moment businesses are moving away from noncentral markets. 

“Grand Paris was supposed to be a big play for Saint-Denis. People were hoping it could become a major office market,” Partners’ Habra said. “You have seen sports go there, hotels and the Olympic Village, which will be converted to residential after the Games. But in the office market, people are moving to the CBD. In central Paris, for modern stock, there is still little availability, and rents are holding steady. It is peripheral markets that have suffered.”

Office vacancy is about 19% in Saint-Denis and higher in neighbouring Saint-Ouen, according to data from Knight Frank, compared to about 5% in the city centre.

While improvements in transport will benefit the residential market in the area, Brault said, there is a lot of vacant office stock to absorb before more investment goes to offices and other commercial sectors that serve office workers, like retail.

“It will take a long time before that market benefits,” he said. “If you’re in the centre of the city, it’s beautiful.”

The genuine long-term economic impact of hosting the Olympics is always hard to quantify. Paris has tried to keep the cost down by limiting the amount of new facilities built and funnelling infrastructure spending toward transport projects that were already underway.

And as was the case with London, getting private developers — in this case, investors Icade, CDP and CDC Habitat — to build the Olympic Village and then repurpose it as multifamily residential after the Games brings the cost for the city down further. 

Yet as the Games begin, there is hope that immediate-term problems recede, at least temporarily, and the City of Light shines in the world’s spotlight. 

“There was a concert on TV the other evening, and they were filming it from the air, at night, and it was so beautiful,” CBRE’s Allouche said. “It’s a great piece of advertising for the city. All the world is focused on us, and it's great for our image. That will have a great impact on Paris. Hopefully, the world can forget the politics of the last few months.”