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“Turning pumpkins into carriages”: sustainable urban development and the financialization of ‘green’ commercial real estate in France

Katia Attuyer, Antoine Guironnet and Ludovic Halbert


There is increasing pressure from political circles and citizens’ groups to ensure the production of urban built forms that can address both social and economic needs while respecting long-term environmental goals. This has resulted in new legislative and policy frameworks aimed at encouraging the adoption of sustainable development practices. This paper analyzes how professionals investing finance capital in commercial real estate properties in France are responding to such pressure. It raises the theoretical question of how sustainability goals may be internalized by investors in a context of financialization of urban production. Based on a qualitative analysis, the paper questions how property investors engage with the sustainability agenda and how this affects their organizational charts, business strategies, investment processes and day-to-day management of commercial real estate. The results show that FCIs have to internalize potentially contradictory objectives, i.e., countering the capital depreciation arising from new legislation by upgrading their portfolios and, at the same time, limiting their investments to maintain their profit margins. To achieve this, they both encourage their tenants to reduce energy consumption and adopt spatially selective ‘green’ investments that favor a limited number of ‘established’ markets at both intra and inter-urban levels.

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  • 1  This research is funded by the Plan Urbanisme Construction Architecture (PUCA), an inter-ministeri (...)

1There is increasing pressure from political circles and citizens’ groups to ensure the production of urban built forms that can address both social and economic needs while respecting long-term environmental goals. This has resulted in new legislative and policy frameworks aimed at encouraging the adoption of so-called sustainable development (SD) practices. This paper analyzes how major owners of commercial real estate property in France (i.e., non-residential), who are increasingly professionals raising capital on financial markets and using investment techniques borrowed from the finance industry, are responding to such pressures.

2Building on the ‘financialization of geographies’ literature, which underlines the relative dearth of empirical studies (French et al. 2011, Pike and Pollard 2009), we attempt to pursue a body of work that combines inputs from the geography of finance with urban studies (Theurillat 2011). Starting with the hypothesis that finance capital plays an ever greater role in the (re)production of cities (Harvey 1985), the paper analyzes how Finance Capital Investors (FCIs) respond to an evolving policy environment. As authors like Boltansky and Chiapello (1999) have contended, a key underlying question is how a finance-led regime of urban production internalizes “social critiques” that stress the lack of ‘sustainability’ of the existing mode of production of the built environment. Our study sheds some light on how investors adapt by examining three components of their own practices, namely their organizational chart, their business strategies, and their investment processes. What organizational, strategic, and operational adjustments do FCIs undertake to maintain their positions, and what are the effects on the geography of commercial real estate on tenants?

3The first section of the paper draws on existing research literature that analyses the growing role of finance capital in the creation of uneven geographies of property. It highlights the lack of empirical research on how the financialization of the (re)production of the built environment may or may not collide with the policy imperatives for more sustainable urban development (SUD). The paper then details the research questions and explains the methodology used, which is based on a qualitative approach, before going on to discuss the empirical results in the following sections. The next section analyzes the evolution of both organizational charts and investment strategies in the property-owning companies studied. Shifting the focus onto the rationale and modus operandi of property investment, the fourth section studies the nature and actual impacts of these changes by analyzing the latent potential contradictions between sustainability objectives and investors’ financial calculations. The fifth section reflects upon the differentiated geographies that may result from these ongoing changes in the investment industry. While in all cases, obliging tenants to improve building energy consumption is considered a (relatively cheap) way to meet legal requirements, the geography of sustainability-related investments seems to reinforce the pre-existing unevenness of property investment.

Sustainable urban development and the financialization of urban production

4While financialization has become a pervasive process in our economies (Boyer 2000, Sweezy 1997), its geographies and impacts on the production of urban spaces remain an under-researched area (French et al. 2011, Pike and Pollard 2009). Authors such as Harvey (1985) have highlighted how the “switching” of capital into the built environment paves the way for the precedence of exchange value over use-value. However, the evolving mechanisms by which financialization – understood in a broad manner as “the growing influence of financial markets over the unfolding of economy, polity and society” (French et al. 2011: 798) – affects the (re)production of urban space need to be empirically studied. The paper pursues this objective by analyzing the actual representations and practices of investors raising capital on financial markets in their attempts to capture exchange value through rent-capturing strategies.

5Although the role of finance capital is not new, as exemplified during the building of Haussmannian Paris or Victorian London (Harvey 2003, Lescure 1980, Scott 1996), FCIs are playing an increasingly important role in older industrial countries (Henneberry 1999). The production of shopping centers and office developments has always been dependent on the availability of capital. However, to an increasing extent, the built environment is owned directly or indirectly by investors such as investment banks, insurance companies, Real Estate Investment Trusts (REITs) and other third-party asset management companies who regard buildings as just another class of “quasi-financial” asset among others (stocks, bonds) (Coakley 1994). Property investors are not merely acting as passive providers of capital for the benefit of developers and occupiers and their investment strategies are not guided solely by demands emanating from user markets (Henneberry and Roberts 2008). On the contrary, some authors suggest that real estate players’ actions are part and parcel of a “Financialized Accumulation Regime” (Boyer 2000), whose growth increasingly rests on the valorization of financial assets (Theurillat 2011). This would lead to a rising decoupling between investors’ behaviors and what might be seen as ‘market fundamentals’. In other words, real estate values are not solely determined by actual and expected rental income or by tenants’ needs (i.e., demand-led). They may also be related to investors’ mimetic behaviors – what Henneberry and Roberts (2008: 1232) called “herd instincts”, which may be partly disconnected from demand (e.g. Lizieri [2009: 181] on the merits of investing in International Financial Centers). In short, investors have a greater degree of autonomy (Theurillat 2011).

6Such investors share a set of common traits according to which they may be considered as a distinctive, albeit non-homogeneous, group. First, professionals working in the French property industry constitute an epistemic community that increasingly share similar educational backgrounds due to the recent development of real estate business and finance courses (Nappi-Choulet 2003). The circulation of knowledge and practices is further encouraged by the professional mobility of individuals who move from firm to firm – be they investment, brokerage, or increasingly real estate development companies. Second, the local investment industry has the attributes of a milieu centered on the western Paris business arrondissements. Frequent formal and informal gatherings, numerous face-to-face meetings and conferences, and a dedicated business press: all contribute to define what their members see as a ‘small world’. Third, investors share the same calculative tools and methodologies and have developed benchmarking techniques and collective databases (e.g. the Immostat database, or the IPD index). Fourth, investors increasingly claim to develop similar practices, i.e., active sourcing of new assets, risk-adjusted returns, dynamic management of assets with timely arbitrage. This may result in a blurring of the boundaries between ‘long-term’ traditional institutional investors and others, as the former tend to increase the turnover of assets held in their portfolios. Lastly, these investment firms raise capital on the financial markets, thereby increasing the interpenetration of financial and real estate markets (Fainstein 2001, Lizieri 2009). Taken altogether, this argues for considering these firms as a group of Finance Capital Investors (FCIs). That is not to say that inter-firms discrepancies do not exist (in terms of risks and types of assets for example), but rather underlines the ongoing convergence of strategies and practices in the investment industry despite increasing complexity and fragmentation (Lizieri 2009).

7Additionally, the producers of urban space have been asked to address growing social and political demands regarding sustainability. A number of recent policies have defined energy performance as a crucial issue. In Europe, this was triggered by the 2002/91/CE EU Energy Performance of Building Directive intended to encourage energy reduction for both new and existing buildings and requiring EU governments to define legally-binding targets. In France, in 2008 and 2010, respectively, the Grenelle de l’Environnement Round Table I and II put forward a general policy framework aimed at decreasing energy consumption in tertiary buildings by 38% in the existing stock of real estate before 2020. This is to be achieved through compliance with primary energy consumption thresholds set by pre-existing Thermal Regulations that has now been updated to 2012 standards. As in other European countries involved in a parallel process, this new regulatory framework may potentially accelerate the depreciation of the buildings by rendering them obsolete. This therefore poses a challenge to FCIs in their rent-seeking strategies.

8Some authors (mainly economists) in the real estate literature suggest that such challenges may be resolved through market mechanisms, i.e., that a rising demand for ‘green’ products would lead suppliers of office space to adapt their investment strategies. Hence, as suggested by Nappi-Choulet and Décamps (2011: 3), there exists a “growing literature [that] aims at measuring the economic value of sustainable or green buildings for investors and landlords” (see notably de Francesco and Levy 2008, Fuerst and McAllister 2009, Eichholtz et al. 2010, Miller et al. 2008, Wiley et al. 2010; as quoted in the original). In their review of recent empirical work on such “green value” or “green premium”, Nappi-Choulet and Décamps (2011: 3) argue that all studies pointed towards a positive influence of “sustainable certification” on property value, even though such a result was to be qualified given “the very preliminary nature of the linkage”. According to this literature, “green value may be explained by inter alia a decrease in operating costs and productivity gains for tenants, and reduced risk of ‘premature obsolescence’ for investors” (Nappi-Choulet and Décamps 2011: 3-4). However, such explanations endorse an economic approach where investment decisions are implicitly demand-led.

9Conversely, we argue that the analysis of how FCIs develop new products such as green buildings cannot be restricted to exogenous factors such as evolving tenant demands in relation to legal or functional obsolescence, for example. Attention must be given to the investment firms and processes that play a substantial role in enacting legal injunctions and social demands through their day-to-day activity. Cultural economists have highlighted how the black box of investment, once opened, unveils a complex reality (Roberts and Henneberry 2007). This approach militates against an interpretation of investment decision-making as a linear process. Further, it supports research acknowledging that property owners do not merely assess and follow changes in demand on the rental market mirrored in their calculations, but that these are also determined by the investors’ own independent logic regarding the investment market. Recent comparative research into property markets in France, the UK, and Germany, has shown that investors do not follow rational patterns of action regarding either comprehensive investment procedures (Roberts and Henneberry 2007) or maximizing return on assets (Henneberry and Roberts 2008). However, while they are insightful, these studies do not consider either at what stage or how SD issues impact property investment decisions.

10In their analysis of the production of large-scale multi-purpose complexes in Switzerland (stadia, shopping centers), Theurillat and Crevoisier (2012) offer a first empirical approach. They show how real estate developers play a key role in negotiating the compliance of FCIs with the sustainable development criteria increasingly imposed by local authorities. Yet, additional research directly focusing on investor strategies and practices is needed to understand how the underlying logics of rent-seeking financial investments are challenged and redefined by a changing social and regulatory environment. This empirical analysis is concerned with the wider political economy. At a theoretical level, it challenges the ability of financial capitalism to internalize its “social critiques” (Boltanski and Chiappelo 1999). In the case of investor strategies regarding commercial property we hypothesize that, to continue as owners of profitable global city-region property stock, FCIs have to take the evolving regulatory environment into account and assess its impacts on risk and return. The aim of this paper is therefore to analyze how investment firms, considered as heterogeneous entities, respond to the changing market rules imposed by governments.

Documenting responses to demands for sustainable property investment

11By investigating the repercussions that the rise of the sustainable agenda has on the investment industry, this paper does not seek to analyze the actions of investors in terms of a predefined set of goals that, taken together, would amount to sustainable development. Following an “actually existing sustainability” perspective (Krueger and Agyeman 2005, Theurillat 2011), we will refrain from adopting a normative definition of sustainability and set out to capture its definition as enacted within the industry’s activity. Furthermore, the paper appraises to what extent new expectations in terms of SUD lead to actual changes in practices: are FCIs merely repackaging pre-existing strategies and behavior as ‘sustainable’? Or are they engaging with the sustainability agenda by developing new strategies, practices and/or implementing organizational adaptations? Lastly, based on the observation that property investors are selective in terms of the clients and places they are willing to invest in, the research queries how the integration of sustainability issues may affect the uneven geographies of commercial property investment.

12This research has adopted a qualitative methodology by conducting semi-structured interviews because of their suitability for analyzing decision-making processes. They provide much richer data than that obtainable through survey questionnaires. Even when open-ended questions are used, surveys do not allow for clarification of statements, nor the immediate discussion of tensions or themes that warrant further exploration. Therefore, a flexible and qualitative research technique was used to capture participants’ attitudes towards new or controversial issues (in this case, sustainable development) and to critically discuss potential changes in their practices and behavior. This research framework yields data for interpretation rather than for statistical analysis. The respondents were chosen for their expert knowledge of the industry and most interviewees hold senior/managerial positions. Respondents were selected by using a mix of reputational and snowball sampling techniques. 13 pilot interviews were conducted between April and June 2011, followed by the main data collection phase between October 2011 and March 2012. A total of 67 interviews were conducted. 19 interviews previously conducted by one of the authors from 2007-2009 have been included to examine possible recent changes. Moreover, attendance at the 2012 Marché International des Professionnels de l’Immobilier (MIPIM) – one of the major international real estate gatherings for professionals – provided additional insight into the workings of the industry. In total, more than 100 participants were recruited for the study.

13Participants were for the most part drawn from the major companies investing in the French property market and include 30 interviewees from third-party asset management firms, 16 from REITs and eight from insurance companies. Seven interviewees were from sustainable development departments, reflecting the still limited number of firms that have appointed a specific person and/or department for handling sustainability issues. Interviewees were involved in some or all of the following tasks: acquiring assets, managing existing portfolios, disposing of assets and/or providing data to inform decision-making. Because firms are not homogeneous entities more than one interview was conducted in each firm (whenever possible), which allowed for the comparison of different points of view and the identification of potential tensions. Interviews were conducted with investment managers (IM), asset managers (AM), research analysts, managing directors and with the heads of sustainable development departments (SDD) if one existed. At the industry level, particular attention was given to ensuring the inclusion of different risk profiles, ranging from insurance companies to more opportunistic investors such as private equity players. Further, the size of their portfolio was taken into account, from funds owning 100 million euros worth of assets to larger ones with assets of one billion euros. Accordingly, the research covered a whole range of investment deals, from several million euros to a hundred million, i.e., most investments in the commercial property sector in France above 5,000 m2. This allowed us to take into account the diversity of investors, strategies, and funds. At the same time, as underlined in the first section, in the light of our results, individual differences between firms gave way to substantial and relevant forces of convergence shared by the industry at large. In addition, we conducted interviews with the main brokerage and consultancy firms because they contribute to shaping the market and to opening up new markets by providing investors with data (Dörry 2011). Similarly, one may expect them to be in a privileged position to influence investor views and commitments with regard to sustainability issues. Twenty-five interviews were conducted with brokers, research department directors, and sustainable development experts.

14The semi-structured interviews typically lasted between one and two hours and covered the same broad themes, although the order and formulation of the questions varied slightly to respect as much as possible the flow of the conversation. This had the advantage of preserving the interviewee’s natural presentation of the issues under discussion and allowed for the creation of a more informal setting, itself potentially conducive to a greater willingness of participants to discuss sensitive issues, while still ensuring consistency across interviews. The interview guide listed four thematic areas: presentation of the interviewee (role within the firm, nature of his/her interactions with other staff members and the firm’s organization); qualification and explanation of the rationale of the firm’s strategy in terms of real estate product types and locations; description of the investment decision-making process (actors, tools, criteria, stages) ranging from the creation of a fund to the acquisition of assets, their management, and sale; perception of the impact of sustainability issues on the interviewees’ day-to-day work, on the organization and investment strategy of the firm (including financial models), and on the industry at large. The latter point aimed to explore the participants’ conceptions and beliefs rather than to provide a pre-conceived definition of sustainable investment and sustainable commercial properties. It also enabled us to assess interviewees’ current practices by asking them to provide detailed examples of their day-to-day working practices and by reviewing with them the nature of their new instruments (if any), tools, and calculation techniques. Documents produced by the firms were also collected, discussed and analyzed prior to, during, and after the interviews. For each interview, two out of the three authors were present, allowing extensive notes to be taken in those cases where audio recording permission was not granted. The authors relied on a multi-step process to analyze the data, which included: preparing the data through extensive transcription based on notes and recordings; defining codes; coding the data; reviewing and altering codes; and identifying patterns.

Changing strategies: adaptation not revolution

15Interviewees share a common belief that the passing of new legislation and the prospect of stricter laws to come has prompted property investors to reassess their position in respect of sustainability issues. Our research first highlights the extent to which this may be reflected within organizational charts as well as in investment strategies. Since implementation decrees for new legislation are still being prepared, some may nevertheless be tempted to wait and see: “First, we are waiting for the final implementation decrees, because we still do not know on which data we will have to base our calculations [] but of course, we are considering the question” (REIT, AM, 107). Yet, according to the data collected, investor motivation with regard to SD-related issues is evolving: “We used to ignore the issue [sustainability]. Now, we don’t know how to address it, but we do know that we cannot ignore it any longer. The main hassle is that we do not know how to address it” (Insurance, SDD, 036).

16From being mainly a Public Relations (PR) matter, as it was believed to marginally impact the company’s image, the new legislation has created anxiety among investors that now see SD as a potent element that will inevitably affect the asset’s capital value in the future. Integrating sustainable development variables is perceived as necessary for protecting the value of FCI portfolios: “We have been looking into sustainable development for a while, especially since the Grenelle 1 and 2 laws have been in the pipeline and even more so since they were enacted. Certain draft articles of these laws will impact us directly, such as the article requiring us to sign green leases” (Insurance, SDD, 036). Another interviewee argues that: “All of this is due to the legislation. For instance, […] that building is ten years old. A few years ago we would not have worried about its condition: a simple paint and carpet and ceiling fix, and then back on the market. Today, in order to anticipate all the obligations, we went for HQE Renovation, so I am changing the air conditioning system which is only ten years old! We have a major cost overrun but we calculate that if we have to lease it again in say, three to six years, it will be completely obsolete” (Insurance, SDD, 056). Although there is disagreement on what the exact figure will eventually come down to, the question of SUD-related depreciation has resulted in a reassessment of the practices and strategies to adopt within the industry.

17This preoccupation is firstly translated in the organizational chart of some larger-scale and often publicly-listed investors with the creation of Sustainable Development Departments. Although they are always relatively small in terms of staff, these departments are in some cases assigned transversal competencies and may report to the company’s CEO directly.

18Secondly, we observe that some companies have drawn up formal SD investment policies, sometimes in conjunction with a larger CSR plan. These policies tend to be written in liaison with the Head of SDD. The “green strategies” we examined, such as that of La Française AM’s GreenBook/GreenWay or AEW Europe’s Corporate Social Responsibility Policy, define goals (in terms of the energy performance of a proportion of their assets over a period of time); propose a methodology (energy performance audit, data collection and database analysis; implementation of targeted action plans by the Facility Management team); list the tools used to evaluate how their property portfolio fares in terms of energy consumption; and analyze the investment stages at which SD should be considered and the types of assets concerned by the strategy, with different criteria applying for example to new and second-hand buildings. For existing buildings, strategies are either defined for each asset or group of assets with common features (year of construction, year of upgrading) using a sampling method. For instance, La Française AM has developed nine Green Books based on the use of the buildings (office, retail, logistics, industrial) and their age (‘Haussmann-type’ i.e., typical late 19th century Parisian building, 1960-70s, 1980s, 1990s, 2000s, new). In both cases, the plan is not to systematically carry out improvement work for all buildings. Priority is given to properties likely to meet the broad new standards applicable in future legislation without generating expenses above a certain threshold. This threshold is defined as the Capital Expenditure (CapEx) investment that can be recouped within a pre-defined time span, or as a maximum amount to be spent per m2.

19Based on the analysis of such documents and on our interviews, SD is mainly interpreted by investors as an energy efficiency issue – which may arguably not cover the so-called three pillars of sustainable development or all environmental preservation objectives. This is consistent with the strong emphasis the new legislative framework places on energy use. Some participants nevertheless spontaneously displayed a broader understanding of the issue and brought up topics such as waste, biodiversity protection, and adaptability of buildings over time. With a few exceptions, ‘social’ topics were hardly mentioned during the course of the study. Those supporting the inclusion of social issues focused primarily on the health and comfort of tenants and discussed the economic benefits of such approaches for the firm renting their premises. This broader acceptance of the term is epitomized in the following quote: “There’s a lot of talk about energy use but that does not cover everything. We ought to look at the environment, comfort, and air quality. This is interesting for a tenant, as it can be a medium for communicating inside and outside the firm. Corporate social policies can be built on real estate related initiatives that contribute to attracting or retaining employees. This existed prior to the emergence of the sustainability agenda and includes providing shared facilities such as a gym or a canteen” (Third-party Asset Management firm, SDD, 058).

20Additionally, even though a few respondents contended that mixed-use districts should be favored to reach the SUD objective, the bulk of the interviewees limited their interpretation of SD to the scale of the building. Correspondingly, while one respondent stressed the importance of “sustainable, and not green” on the basis that “in the market, you have green buildings that are not sustainable” (Third-party Asset Management firm, IM, 049), seemingly implying a broader understanding of SD, the investment decision nonetheless appeared to be based on the technical aspects of a building (Table 1).

Table 1. Investment criteria for acquisitions in a green property fund


Sustainability of technical specifications

Design and services

Mechanics and electricity

Occupancy and adaptability of floor space

Built specifications

Urban environment

Location and transport

Source: authors

21Therefore, we observed a high reliance on technological innovations for solving SD issues. This reflects a general belief in a future decrease in the costs of greening properties thanks to the dissemination of technologies in the construction or property management sectors. However, we will demonstrate further in the paper that this belief at the strategic level does not prevent property owners from actually relying on disciplining tenants to reduce their energy consumption costs.

22Such changes in the organizational chart and in investment policies are more easily documented for larger-scale investors. Nevertheless, interviews with smaller investors show similar changes albeit in a less formalized manner. A strategy might be called an “idea” or a philosophy and not always be incorporated into a document. A REIT of 30 employees with 1.4 billion euros of properties held in France insisted on the potential impact of the new legislation: “Our idea is not to get rid of the buildings that are performing less well, but to work with them and upgrade them to new market standards. We consider that the Grenelle Round Table is an opportunity with the potential for value creation” (REIT, AM, 107).

23However, one should be careful not to overstate the extent of the transformation in reaction to the new legislation. The recent trend of appointing executives to take responsibility for the development of sustainable property investment might be a sign that investor culture is changing. Yet, the representatives of SD departments interviewed have limited resources in terms of staff (between one and three people) and have been assigned a substantial number of tasks. These may vary from circulating information on new legislative frameworks to collecting data to assess the value of greening portfolios and/or helping to find technical solutions to greening a particular property. This lack of manpower may limit their ability to drive change. In fact, they mainly described their mission as “accompanying change” (Commercial Property Investor, SDD, 032). One interviewee explained that “for the moment, what is important is that a dialogue is taking place with the asset managers” (Insurance, SDD, 036). This dialogue is meant to have an educational role by providing information (memos on legislative changes, diffusing studies on the merits of green investment). Yet they admit lacking in-depth (financial) data to convince their colleagues of the benefits of ‘greening’ their portfolios. Second, they see themselves as facilitating change by working towards the progressive integration of new practices and by creating new routines, notably by ensuring that new energy-efficient scenarios and data are considered when deciding on the adoption of an investment plan.

24Further, the main limitations of these SD managers are apparent in their lack of resources and direct powers. They depend on other staff members to implement the strategies they devise. None of those interviewed had a dedicated annual budget for implementing their action plans. Similarly, although they may sit on investment committees, they do not wield the power to veto or enforce an investment decision. Instead they endorse an advisory role. Interviewees from SD departments stressed that their ability to convince those controlling the allocation of funds varies greatly. This capacity was identified as depending on the financial performance of the asset and on the personal beliefs of their interlocutors: “Asset managers’ sole objective is value creation. Some see SD as an additional cost, a constraint; others as an opportunity. It really depends on people’s mindsets. Some have got it and seek our help during negotiations with tenants, during the sale phase, when restructuring a building or obtaining certification” (Third-party Asset Management firm, SDD, 058).

25The multiplication of new documents and organizational changes – SD strategies, green charters, and SD departments – indicates that in a number of firms at least some consideration is given to ‘green’ issues when assets are acquired, managed, and sold. It would be erroneous to conclude solely on the basis of this observation that this issue is uniformly and widely considered throughout the industry or even within each firm. Based on our data, the dissemination of new practices and ways of thinking still appears to be uneven. There is evidence of intra- and inter-firm heterogeneity. This finding remains true when we shift from strategy to implementation, as we shall discuss in the following section.

Sustainable development in practice: the business of managing contradictions

26For FCIs, the challenge of sustainable development is not just to redefine their corporate and investment strategies, but to actually ‘green’ their portfolios, which they accomplish either by buying new buildings with green label certification or by renewing their existing assets. We argue that this adjustment dynamic – which aims to offset the capital value depreciation associated with changing market standards – is confronted with the prevalence of a financial rationale that consists in maximizing asset returns.

27In order to incorporate SD into their portfolios, some FCIs adapt day-to-day tasks or try to devise new tools that help investments to meet pre-defined energy efficiency goals. However, the path to change is not straightforward: strategic plans are sometimes designed on the basis of pre-existing actions that interviewers associate with the implementation of SD, and thus may partly consist of formalization; some investors may not even have devised strategic goals yet. Further, the scope of these new SD-related actions and tools ranges from one-off, trial-and-error initiatives to attempts to develop routines through industrialized processes aimed at systematically exploring green options in investment plans. In this light, we shall focus on one key innovation put forward by our interviewees.

28In line with the definition of SD indexed to energy efficiency at building level, the starting point is usually to measure the actual performance of one’s assets. This ‘mapping’ is based on Diagnostics de Performance Energétique (DPE, Energy Performance Audits) which allow investors to analyze and rank buildings according to their energy consumption. As expressed by one of the interviewees, “a building is just four walls, technical equipment and flows of people. There is an increasing need to analyze energy performance” (Third-party Asset Management firm, IM, 066). This on-the-ground analysis is frequently outsourced to engineering consulting firms which then report back to owners. Secondly, in some cases measurement may involve data storage and sorting instruments that provide detailed and sustainable mappingsolutions, such as databases that summarize the assets’ condition and typology and group similar assets together. However, data collection is by no means a trivial task: “At present, the issue is to collect data which is very scarce. You have data everywhere but it is scarce because it is not collected or managed properly. It is dispersed, and there are costs involved in centralizing it. […] Data information flow must be organized throughout the building lifecycle. We don’t simply have the information, use it once and then just forget about it” (Sovereign Fund, SDD, MIPIM 2012 Conference, 072).

29All this measurement and the subsequent storage, organization, and analysis of data – which necessitate new technical skills for investors – are presented as a pre-requisite for implementing green strategies and the basis for drafting investment plans that factor in green aspects inter alia. That is not to say that such information is absolutely vital for preparing the investment plan, which is based first and foremost on financial calculations, nor that considering energy-related information will alter the ultimate investment decision. Rather, we stress that what is new is precisely the incorporation of SD-related data within the investment plan. As summarized by one SDD interviewee, “the investment decision cannot be only based on SD. At present, my input is taken into account to the extent that this solution [SD] is systematically integrated among the different investment choices” (Insurance, SDD, 036). Accordingly, ‘green’ data is a supplement to the usual information upon which the investment decision is based. This information is often captured under different scenarios and specific assumptions based on underlying variables (rate of occupancy, rent levels, lease term, etc.) that will eventually impact the discounted cash flow analysis. When drafting an investment plan, FCIs usually distinguish between three scenarios, according to the amount of CapEx they plan to invest (Table 2).

30First, investors may choose to invest very little money in the building (or part of the building) they wish to lease, based on what they view as the ‘paint and carpet’ scenario. This slight ‘facelift’ is unlikely to transform existing assets into energy efficient buildings or, put another way, “to turn the pumpkin into a carriage” (Real Estate Brokerage firm, Broker, 048). Second, the middle ground option aims at improving energy efficiency, with the goal of limiting capital depreciation due to new market norms while remaining within a strict short-term investment return strategy. Although there is no standard practice here, especially since FCIs may have different timescales in their investment strategies, interviews would tend to suggest that seven years constitutes an acceptable time horizon for recouping CapEx. Third, the most expensive scenario for the investor involves high CapEx to allow for in-depth retrofitting such as changing the building’s façade. This usually requires the building to be vacated and such opportunities are rare and depend on the movement of multiple tenants whose lease dates and conditions may vary. This scenario recognizes the capital value depreciation due to new market norms that trigger obsolescence. As such, the mechanism for maintaining (or even increasing) capital value is twofold. On the one hand, it involves betting on higher rents from the tenants of the refurbished building (i.e., boosting the income stream by increasing the use-value of the product). However, interviewees reckoned that this demand-led scenario is increasingly unlikely in a context of rising energy costs and general economic slowdown. On the other hand, it may be aimed at reselling the refurbished asset at a higher price to other FCIs, most often institutional investors looking for regular rents from premium tenants, thus betting on the speculative behavior of other investors.

Table 2. Usual investment scenarios


Amount of CapEx


Paint and carpet

200 euro/m2

Business as usual

Energy efficiency improvement

500 euro/m2

Slow anticipation to limit capital depreciation while maintaining investment return (seven year time horizon for recouping investment)

In-depth retrofitting

2,000+ euro/m2

Offsetting the loss of capital value and risk of market exit due to obsolescence in light of new market norms

Source: authors.

31In this light there is an inherent contradiction between the objectives of maintaining the rate of return of an asset at a high level by keeping investments low and preserving capital value through upgrading the asset to comply with market norms. This contradiction is mostly ‘resolved’ on the basis of a financial argument that relies on the use by AMs of unchanged tools and criteria. Indeed, SDDs are not yet able to demonstrate where the alleged ‘green value’ lies and therefore have difficulty assessing what the benefits might eventually be. In contrast, IMs or AMs offer financial spreadsheets that assess what the expected return might be: “Eventually this investment memo comes down to an Excel spreadsheet of returns, and we run scenarios […] the extent of the green focus will depend on our hypotheses […] at the end of the day the approach still remains very financial” (Third-party Asset Management firm, Consultant, 069).

32Still, the adoption of the in-depth retrofitting scenario should not be misinterpreted. Rather than embodying an aggiornamento in investment strategies, it is above all the result of a financial calculation applied to what are perceived as financially distressed buildings. Plagued by high vacancy rates, and therefore generating low returns – if any – these buildings are on the verge of exiting the rental market. Improving their marketability for potential end-users implies upgrading to meet market standards. This means that the upgraded building will comply with green norms, since they now dominate on the market for new commercial buildings. Indeed, in 2012, it was estimated that 80% of new developments of more than 5,000 m2 complied with the French HQE label (Agence Régionale de Développement Paris Île-de-France et al. 2010: 19). As such, it is hard to distinguish between green and upgrading impacts as the investment decision may stress the first-hand characteristics of the market rather than its green dimension.

33The development of a legislative framework for the sustainable buildings may impact some FCIs. However, firstly, this change in practices is limited in scope with evidence of heterogeneous stances, ranging from ‘wait-and-see’ to pioneering investor initiatives. Secondly, it has to contend with an investment decision process that is still driven by the bottom line and requires what is perceived as hard financial data. This has consequences on the different solutions that are adopted to overcome the financial contradictions faced by FCIs. The continuing prevalence of a financial rationale implies a reproduction of the pre-existing geography of property markets which we will discuss in the next section.

The uneven geography of sustainable development

34Our empirical research reveals that (spatially selective) solutions are endorsed by the investment industry. First, both the industry as a whole and its members individually militate for the possibility of sharing the burden of new regulations with their tenants. Second, strong spatial discrimination adds to this emphasis on end-users. In areas referred to as ‘prime’, significant levels of investment (CapEx) may be perceived as financially sound, whereas in others the focus is restricted to the disciplining of tenants’ behavior, i.e., the stress is laid on “processes” whereby the users of a building have to change their behavior to improve energy efficiency (Third-party Asset Management firm, AM, 107).

35On the one hand, areas with high rents and selling prices are often considered spaces where existing buildings can be refurbished according to new green standards, i.e., rental streams will generate sufficient revenues to cover one-shot CapEx transactions. However, according to investor views and their financial models, this is not feasible everywhere. First, the uneven geography of SD reflects inter-urban disparities: large metropolises like the Paris City-Region and, to a much lesser extent the central markets of regional capitals such as Lyon, Marseille, and Toulouse, offer higher rents than other cities. According to their financial frameworks, FCIs consider these as places where SD initiatives may be implemented through refurbishment of existing assets. Second, within these metropolitan regions themselves, the interview material confirms a strong intra-urban bias leading to a clear distinction between what FCIs refer to as ‘established zones’ that are worth the investment, and the rest. Because such zones often provide higher rental income and capital values, green scenarios figure on the radar of FCIs.

36On the other hand, areas that are not located within these spaces are off the CapEx investment map. Instead, FCIs may consider alternative ways of reducing energy consumption by shifting the focus from investing in the building to disciplining end-user practices by supervising tenants’ energy-use. The underlying assumption is that, with increasing energy costs, tenants will inevitably have to reduce their operational costs and move to energy-efficient buildings. Yet, the actual occurrence of this set of events will depend on local market conditions. Where demand outstrips supply, it is unlikely for such scenarios to be enacted and tenants will more readily accept any building. Nonetheless, a great deal of carbon reduction potential may reside in individual behavior rather than in upgrading buildings and, ultimately, one can achieve a lot with minimal spending.

37As one of our interviewees from a third-party asset management firm argues, “in provincial markets, we will focus on energy performance contracts and green leases – measures that can help achieve the 10%, 20% or 30% required energy savings. We will focus on consumption processes, on how the tenant uses and manages the building for as long as possible, over 20-30 years when an in-depth restructuration will be necessary. […] But in Paris, which houses the headquarters of large companies, we will have tenants that will immediately ask for green buildings for their own PR purposes, and they won’t hesitate to invest with us and upgrade based on in-depth retrofitting” (AM, 107).

38For FCI interviewees and consultants, this leads to the publication of end-user guidelines containing recommendations on proactive and SD-compatible small gestures such as turning lights and air conditioning off when they are not needed. It may also take the form of limited investments that provide an improved level of facility management control over consumption in buildings (heating and water systems). In one particular case, this turned into an opportunity to institute regular meetings with end-users to facilitate communications between the owner, their end-users and facility management: “We already had these regular Partnership Committees. We had close relationships with our biggest corporate tenants and meetings were scheduled every fifteen days. At the beginning, we were discussing SD and we have now set-up dedicated committees […].[It] is very enlightening to see what the issues are regarding real estate. To the user it is a medium and a tool, not an end in itself” (REIT, SDD, 108, emphasis added).

39Because of the key role of data within an energy-based definition of SD at building level, relationships with tenants and facility management are crucial to owners. This is one of the key findings in the interviews we conducted, during which owners associated SD with renewing their relationship with end-users. However, such cooperation can prove detrimental to tenants as the ‘mapping’ of asset performance discussed above may also be seen as an opportunity for property owners to collect evidence and confront occupants with their (in)ability to limit their own consumption. This strategy is seen as a cheap means of complying with the new legislative framework without having to invest in CapEx. Given the difference between office and retail markets in the structure of operating expenses, such a scheme may arguably be more likely to happen in the former instance, for investors usually do not pay for utility bills. In contrast, buildings in which utilities cost are partly assumed by investors, such as shopping centers, may provide additional incentive for CapEx investment. Bearing that in mind, what relevantly stands out is that FCIs would rather rein in tenants’ energy consumption as a means of slowing down the depreciation of their portfolio value.

40This does not mean that this tactic is not relevant for CapEx-compatible areas: building use seems to be a growing concern for FCIs as they see it as a way of shifting the burden to end-users. One interviewee assumed that a change in end-user behavior could help cover a major part of gas emission reduction targets (the regulatory aim being a total 38%), an opinion consistent with industry claims (see Brunel 2010: 32). This conjecture also applies in ‘established zones’ in which investors also pay great attention to the end-user issue. First, at building level, talks with corporate tenants may also include negotiations on sharing the investment burden, albeit on a case-by-case basis. This seems plausible for large multinational corporations with long-term leases (up to nine or 12 years) for whom the building showcases their concern for the environment. Second, the industry has been inclined to champion the idea of sharing the burden with end-users and advocating the development of the corresponding regulatory tools. For instance, one of the fifteen recommendations of the Grenelle working group on “Green Value in Business Real Estate” was the introduction and promotion of “green leases” (Brunel 2010: 34) while another recommendation sponsored by the renowned CEO of CBRE, Maurice Gauchot (2011: 4), pleaded for their introduction for a wider range of tenants by including lessees of smaller floor spaces. This would imply putting additional contractual obligations onto end-users regarding building use and energy consumption, such as providing property owners with information on actual consumption, setting energy consumption targets based on behavior, and scheduling regular meetings between owners and tenants.

41Furthermore, from a longer term perspective, there is evidence from our interview material that the territorial dimension of refurbishment economics may reproduce the uneven geography of financialized commercial real estate that preceded the implementation of SD-related legislation. Due to their financial modus operandi, FCIs tend to develop standardized processes and products (Henneberry and Roberts 2008). We have shown elsewhere how this results in institutional investors having a strong preference for ‘established’ markets that are thought to offer sufficient rental liquidity and possibly involve competitors in transactions in excess of €10 million. Investors also favor large multinational firms with proven credit-worthiness based on an AAA rating from Standard & Poors. Lastly, investors select buildings that have standard technical specifications and potentially offer a balanced mix of tenants that will not make them either overly-dependent on a single end-user that may well leave or on too many tenants, which could drive up property and facility management costs (Attuyer et al. 2012). Our findings show that further investment to meet new standards is more readily considered – and sometimes actually disbursed – in zones perceived as being ‘established’ areas. Thus, through their own definition of SD, FCIs may greatly exacerbate the resulting uneven geography of property investment, exemplified by the assumption that “sustainable development is a thing for the wealthy” (Real Estate Brokerage Firm, CEO, 042).


42French commercial real estate offers a vantage point from which to analyze the ability of finance capital to “internalize its social critiques” (Boltanski and Chiappelo 1999). The recent changes in the legislative framework acted as a trigger for SUD. Many investors associate a greater focus on sustainability with the Grenelle Round Tables I and II. The main rationale for considering SD is rooted in a fear of capital depreciation in the wake of new market standards (legal obsolescence). This finding is consistent with industry beliefs in other European countries whereby governments and the law are considered the main drivers for moving towards a sustainable built environment (MIPIM 2012 Conference, 076). As a consequence, property owners try to adjust to emerging market norms. Far from a tabula rasa attitude, FCIs respond through multi-faceted changes. New SD managerial positions emerge in corporate organizational charts as well as sustainable strategies – sometimes within a larger CSR agenda – that formulate investment objectives compliant with forthcoming legal standards.

43All these changes share a common basis to the extent that they frame the sustainable development agenda as an energy consumption issue at building level. This leads to contradictory objectives between preserving exchange value through CapEx investment and maintaining solid returns through the lack thereof. This situation is epitomized in the conflictual relationship between sustainable development departments and investment/asset managers, with the latter maintaining precedence over the former by influencing the decision-making process and/or the allocation of available financial resources. While the industry may quarrel over the existence of ‘green value,’ conflicts between financial and sustainable objectives are partly resolved by shifting the burden onto tenants and forcing them to exercise greater discipline over their energy consumption within the building. Further, in some selected ‘prime zones’ investors may invest CapEx and sometimes engage in talks with AAA-rated tenants to share the cost of upgrading their flagship HQ.

44Such attempts at reducing energy consumption and discriminating between tenants reinforce the spatial selectivity of FCIs whose investments are unevenly distributed among firms and territories. Accordingly, we argue that because of FCIs’ spatial selectivity, the geography of ‘green’ property investments is highly discriminatory and further reinforces the strong metropolitan bias observed in research literature (Aveline-Dubach 2008, Halbert 2006, 2010, Henneberry 1999, Henneberry and Roberts 2008, Lizieri 2009, Theurillat 2011, Theurillat et al. 2010).

45Our findings have strong implications for policy-making. First, if investors restrict sustainability to an energy-based issue to be addressed at building level, this may be partly attributable to the emphasis that the regulatory framework (Thermal Regulation legislation and the Grenelle Round Table initiative) has placed on environmental issues from the outset, with initial objectives relating to energy consumption in buildings. Nevertheless, our paper demonstrates that investment industry practices contribute to the definition and scale of SUD in a way that should not be underestimated. Second, the uneven geography of SD may pose a threat to socio-spatial cohesion by exacerbating the pre-existing intra- and inter-urban bias. Second-hand buildings or business parks that do not fit with CapEx investment criteria may fall into a derelict condition and turn into brownfields due to lack of upgrading. Given their peripheral location in most cases, this has strong spatial consequences that may require policy consideration.

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1  This research is funded by the Plan Urbanisme Construction Architecture (PUCA), an inter-ministerial agency directly linked to the French Department of Ecology, Sustainable Development, Transport and Housing and by the Ile-de-France Region’s Sustainable Development Research Network (R2DS).

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Electronic reference

Katia Attuyer, Antoine Guironnet and Ludovic Halbert, « “Turning pumpkins into carriages”: sustainable urban development and the financialization of ‘green’ commercial real estate in France », Articulo - Journal of Urban Research [Online], 9 | 2012, Online since 23 November 2012, connection on 20 January 2017. URL : ; DOI : 10.4000/articulo.2155

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About the authors

Katia Attuyer

Katia Attuyer is a Lecturer at the University of Paris-Est Marne-la-Vallée, France. She teaches at the French Institute of Urban Planning. She completed her PhD in Urban Geography at Trinity College Dublin in 2010. Email:

Antoine Guironnet

Antoine Guironnet is a PhD candidate in Urban Planning and Development at the Doctoral School “Ville, Transports et Territoires”, University of Paris-Est, France. He holds a Master in Urban Studies from Sciences Po. Email:

Ludovic Halbert

Ludovic Halbert is a CNRS Researcher and Senior Lecturer at Ecole des Ponts ParisTech (ENPC). He holds a PhD in Urban and Economic Geography. Email:

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