Real estate development: the colossal challenge of creating housing

The study also offers a unique financial analysis of the sector based on a panel of promoters.

The real estate development market experienced a sharp downturn in 2023. Developers' revenue fell by more than 20% in one year, reaching €37,9 billion, a level lower than in 2018. This decline is due to a combination of factors: an unfavorable economic environment marked by high interest rates, a scarcity of land, and increased caution among banking institutions, even as construction costs soared, leading to the suspension of many projects. As a result, demand for new housing collapsed, and developers are struggling to clear their inventories.

Margins under pressure, small players on the front line

As a result of the decline in activity and rising unavoidable costs, the sector's profitability has deteriorated sharply. In 2023, average EBITDA fell to near zero, leaving the market generally in deficit after deducting depreciation, taxes, and financial expenses. Small and medium-sized developers were the hardest hit, with many posting losses. The fifty largest groups managed to limit the effects of the crisis, but nevertheless saw their EBITDA-to-revenue ratio decline by 2,3 points, to 6,8%.

An ever-increasing housing deficit

The paradox is striking. While the market is paralyzed by sluggish demand, housing needs remain considerable. The shortage of affordable housing in major economic hubs, exacerbated by the growing exodus of the middle classes to peri-urban areas, remains structural. According to consultants at Les Echos Etudes, the housing deficit currently stands at 2,5 million units. By 2035, if the pace of construction does not accelerate, the deficit will remain high, at a shortfall of 108 million square meters.

Retraining: a lever, but not enough

Faced with this impasse, the conversion of commercial real estate into housing appears to be a lever that should be accelerated. It aims to address, at least in part, the residential shortage, while also making the most of excess space in the tertiary sector, particularly retail and office space. Each year, nearly 800 office-to-residential conversion projects are authorized in France, representing approximately 1,2 million square meters. This corresponds to nearly 10% of the current office vacancy.

But even if these operations multiply, their impact will remain limited. They can only represent a marginal contribution given the scale of the needs. Redevelopment will need to be accompanied by more ambitious strategies for creating residential space, in a context of increasingly constrained land.

Illustrative image of the article via Depositphotos.com.