Real Estate Horizons

Location, location, location

By Mathias Schönhaus, Margot Derumaux, and Sabine Reimann

With the full impact of COVID-19 yet to be seen, relocation to mainland Europe might not seem like an immediate option. But with lockdown gradually lifting and a hard Brexit still a possibility, relocation might well return to the agenda. Here we look at Paris and Germany as possible alternative locations.

Paris

Paris traditionally may be one of the most romantic cities in the world but it is also one of the most renowned economic centres in Continental Europe.

However, although Paris comes with a high rent tag which reflects the lack of available space, there is only around 2% of vacant offices in the city. Despite this, landlords often offer rent-free periods to ensure long-term occupancy. In this respect, it will be interesting to see in the near future what will be the consequences of COVID-19 on the Parisian market: longer rent-free periods? Lower rent? More office space available?

French legislation provides a number of leasing agreements. Some require a long-term commitment but others allow more of a “trial period”. Examples of lease arrangements include:

• a commercial lease agreement with a minimum term of nine years but with a tenant option to leave every three years. This type of agreement offers a certain level of protection to tenants including a right of renewal at the end of the lease. Landlords are only entitled to refuse to renew if they agree to pay an eviction indemnity to the tenant. The indemnity is calculated, among other things, on the value of the business goodwill of the tenant;
• if nine years is too much of a commitment, companies can settle for a short term lease (maximum term of three years). These leases do not include rights of renewal; and
• one last option is to enter into a service agreement, which allows a business to occupy office premises while benefiting from an “all inclusive” service agreement. This solution is becoming popular for tenants but some investors remain cautious about renting their premises to co-working companies.

Despite the low vacancy rate, Paris has already attracted a number of businesses who are keen to relocate and view Paris as the best option.

German cities

For businesses considering Germany, commercial leases are easy in terms of formalities; the signatures of both parties under the contract deed are sufficient. A notary is not required. A suitable rental property can usually be found through an agent. The costs are around three months’ rent.

Leases are usually entered into for a term of five to ten years and often include an option to renew for a further five years. The terms of the lease can be agreed relatively freely between the parties. In practice, certain standard terms have emerged that have become tried and tested in commercial leases. The German Civil Code only applies if the lease does not contain any explicit contractual agreements between the parties. The rent is typically calculated per square meter. But be careful! In addition to the rent, tenants usually pay additional administration costs (2-3% of the rent) and all ancillary costs, which are often around €3.50 to €5.00 per square meter per month. Tenants are also responsible for maintenance and repair as well as redecorating the premises. Landlords also expect a rent deposit of three to six months’ rent.

In prime locations, space is limited and expensive. In Germany there is no guaranteed right to sublet or assign the lease to another company. If you have entered into a fixed term lease, there is no quick way to terminate the lease. All this requires the landlord’s approval, which may cause delays.

If you want to relocate – Germany is certainly a most attractive choice!

A longer version of this article appeared in Global Cities Guide, Spring 2020, published by EG.