The Ile-de-France Office Rental Market - November 2020

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The Paris region office market remains stagnant, with no sign of a rebound in Q3 2020.

Given the current health crisis, its future uncertainty, and the measures implemented to stem the spread of Covid-19, most companies have put their plans on hold. Also, the widespread use of work from home and alternative solutions such as co-working or sub-letting have encouraged companies to delay any real estate decisions requiring a long-term commitment.

As a result, Q3 take-up dropped by 58% compared with Q3 2019; by September 2020, take-up totalled 913,200 sq m, -46% since the start of the year.

Large surface areas in excess of 5,000 sq m have suffered most. Despite TOTAL's 126,000 sq m lease in the LINK building, take-up for this segment has fallen by 54% compared with the previous year.

Only 16 large transactions have been recorded since the start of the year, and of these only 3 were signed in Q3 (vs. 52 at the same period in 2019).

For the time being, rents have not been affected, except in La Défense where rents have already fallen. However, incentives have increased. This is particularly true for the 1,000-5,000 sq m segment, where incentives reached 21.3% (and +3.5 pts for surfaces in excess of 5,000 sq m). On the other hand, incentives may subsequently decrease in areas that suffer from potential oversupply such as La Défense, the péri-Défense and the Inner Rim North.

Unfortunately, in the wake of the epidemic's second wave, companies are failing to be confident about the future. As a result, the negotiation schedule for some current large surface transactions is being extended. 2020 take-up will undoubtedly fall below the post-1990 crisis threshold. It should total 1.2 to 1.4 million sq m.

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The Paris region office market remains stagnant, with no sign of a rebound in Q3 2020.

Géraldine LATHAM

Key figures November 2020

Take-up in Île-de-France region per quarter ​

Source: MBE Conseil according to Immostat

Take-up in Île-de-France region per quarter  ​

  • The decline in take-up that started at the beginning of the year continues.
     
  • Only 246,000 sq m were leased in Q3 (-58%/Q3 2019). This brings the take-up total to 913,200 sq m, i.e., -46% since the start of the year.

Take-up in Île-de-France region by size

Source: MBE Conseil according to Immostat

Take-up in Île-de-France region by size

  • All unit sizes have experienced decreased demand.
     
  • However, surface areas in excess of 5,000 sq m suffered most. Take-up for this segment totalled 258,000 sq m compared with 570,000 sq m in 2019 at the same period, representing a -54% decline.
     
  • Only 3 large transactions were signed in Q3, bringing the total number of transactions for this segment to 16 since the start of the year. By the end of Q3 2019, 52 transactions had been signed.
     
  • However the TOTAL lease in the LINK building has ensured that the >20,000 sq m segment decline was limited to 18%. Take-up for surface areas <5,000 sq m dropped by 42%; however, the decline was more significant for the 1,000 to 5,000 sq m segment, where take-up dropped by 51%.

Take-up in Île-de-France region by geographic area

Source: MBE Conseil according to Immostat

Take-up in Île-de-France region by geographic area

  • Only La Défense has a positive outcome; yet without the TOTAL transaction in LINK, take-up would have declined by -40%.
     
  • In Paris, business districts and the CBD have experienced the greatest decline: there is significant co-working supply in these sectors, which could constitute a viable alternative for companies that have been weakened by the crisis and are therefore deferring any decisions requiring a long-term commitment.

Vacancy rate in Île-de-France

Source: MBE Conseil according to Immostat

Vacancy rate in Île-de-France

  • As take-up has fallen since the start of the year, the vacancy rate has increased.
     
  • The Greater Paris region vacancy rate reached 5.7%, compared with 5% at the start of the year.
     
  • The risk of oversupply is to be expected in La Défense, where the vacancy rate is already 7.8%, in the PériDéfense (13.3%) and the Inner Rims North and South.
     
  • Although the Paris vacancy rate has noticeably increased from 2.1 to 3.5%, this is still below the equilibrium threshold.

Evolution of average weighted rental values for new buildings

Source: MBE Conseil according to Immostat

Evolution of average weighted rental values for new buildings

  • Rent for new/refurbished buildings in the CBD has not yet felt the impact of the decline in take-up.
     
  • In fact, the number of transactions for this type of asset remains limited. Those that have been finalised were completed at the start of the year prior to lockdown.
     
  • There has been a slight decrease in business districts and suburban transactions have stabilised.

Selected major transactions over 5,000 sq.m in Q3 2020

Significant transactions for spaces - November 2020
TENANT/PURCHASERLETTING/TRANSACTIONSPACE (sq. m)ADDRESSLOCATIONCONDITION
WEBHELPL7 392Toko - 1-5 rue d'HeliopolisPARIS 17NEW
VERSPIERENL6 018Curve - 15 rue du LandySAINT DENISNEW
SOPRA STERIAL21 613Latitude - 19/29 rue du Capitaine GuynemerLA DEFENSENEW
Source: MBE Conseil

Selected major transactions over 5,000 sq.m in Q3 2020