Office Rental Market - January 2020

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Q1 figures do not yet reflect the full impact of the Covid-19 health crisis.

 

Given the lockdown only started on 17 March, it is difficult to assess its impact on the last two weeks of March.

 

However, the take-up slowdown observed at the end of 2019 continued. Take-up dropped by -37% compared with Q1 2019.

 

Decrease in demand is likely to accelerate in coming quarters as companies struggle to manage the impact of the global health crisis and delay their plans as they recover.

 

For several companies, real estate will be a secondary consideration. Companies will instead prioritise resuming operations and addressing the problems related to resuming activity after lockdown.

 

Rents are therefore likely to be affected. First, incentives will in all likelihood increase in neighbourhoods that lack supply, such as the CBD; second, prime headline rent will undoubtedly decrease.

 

There will probably be fewer companies that can afford rents around €900.

 

In sectors with more vacant space, rents may drop even further. However, we can hope that as companies seek to reduce costs, some sectors could benefit from delayed demand and therefore suffer less from plummeting rents.

 

Demand will only fully rebound when there is a clearer view of how to emerge from this crisis: will the 11 May be confirmed as the date for easing lockdown restrictions, and will there be a second wave following this period?

 

Only the hope offered by an effective treatment or vaccine will restore companies' confidence and allow them to plan for the future. However, one thing is certain. Companies will have reconsidered their working methods, and working from home will undoubtedly become more routine in future. Offices where employees come together to work will have to function as loci of collaboration with a focus on well-being at work.

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Paris region take-up totalled more than 2.3 million sq.m in 2019. Although this represents a 10% decrease compared to 2018, it is nevertheless equivalent to the average over the last ten years.

Géraldine LATHAM

Key figures January 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  ​

  • 2,316,500 sq.m take-up in the Paris region for 2019: a 10% decrease compared to 2018, but a satisfactory take-up that is in line with the average over the last ten years;
     
  • Take-up was unevenly spread over the year: after a 20% decline in H1, excellent demand in Q3 helped limit the overall decrease in take-up.

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

Source: MBE Conseil

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

  • Significant 40% decrease in 10,000-20,000 sq.m transactions, and a 29% decrease in 5,000-10,000 sq.m transactions;
     
  • Although large transactions were absent in H1, they surged in H2 (+145%) with a total of 5 transactions. As a result, this segment grew by 27% in 2019;
     
  • Decreased take-up for the <5,000 sq.m segment (-7% in 2019; -22% in Q4 due to a 29% decrease in the 1,000 to 5,000 sq.m segment).

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

  • The decrease has affected all sectors except:
    • The emerging North market, which is this year's big winner in terms of growth: +79%, i.e. 175,000 sq.m. This must be understood in context, as this increase is primarily the result of 3 major transactions; 

    • The Western CBD (excluding La Défense) performed well in 2019, with a 15% increase. 3 major transactions were signed in this market: CNP’s 40,800 sq.m and CANAL+’s 37,600 sq.m in Issy-les-Moulineaux, and BNP PARIBAS RE’s 37,000 sq.m in Boulogne;

    • La Défense: take-up increase is highly relative as 2018 was already a difficult year; 

    • Overall take-up volume in Paris CBD decreased by 13% for a total of 407,000 sq.m. This is due to a space shortage but perhaps also to ever-increasing rents?

Vacancy rate in Île-de-France

Source: MBE Conseil according to Immostat

Vacancy rate in Île-de-France

  • Space is growing increasingly scarce throughout the Paris region;
     
  • The Paris vacancy rate continued to drop slightly to 2.1%;
     
  • Vacancy rates have dropped across all Inner Rim sectors except the PeriDéfense whose vacancy rate increased (11.4% vs. 9.8% y-o-y);
     
  • The 4.8% vacancy rate in La Défense must be understood in context as supply available within one year is substantial and the rate could edge towards 8% if demand does not improve.

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 buildings has increased throughout the Paris region;
     
  • In the CBD, average rent for a new building is €734/sq.m, with a top rent of €880/sq.m.
  • Top rents were often paid for co-working spaces in the CBD, but also for space in other business sectors such as WOJO's transaction for €650 /sq.m in the ATELIER GAITE building next to Montparnasse, i.e. about €100 more per sq.m than the sector’s top rent;

  • Top rent in the Western CBD reached €520 with the lease of SWAYS by CANAL+;
     
  • Several Inner Rim buildings were leased for €300 to €390/sq.m, the latter of which was paid for the KONECT building which borders the Paris ring road and has a double address: Saint-Ouen and Paris 17th.

Selected major transactions over 5,000 sq.m in Q4 2019

Significant transactions for spaces - Janvier 2020
DATETENANT/PURCHASERLETTING/TRANSACTIONSPACE (sq. m)ADDRESSLOCATIONCONDITION
Q4 2019CANAL +L37634SwaysISSY-LES-MOULINEAUXNEW
Q4 2019ENEDISL29200ParallèleCOURBEVOIENEW
Q4 2019HSBCL1327838 KléberPARIS 16NEW
Q4 2019AIR FRANCE KLML10550Altais EvolutionMONTREUILNEW
Q4 2019PAYFITL7500Quai 8PARIS 08NEW
Q4 2019ACCURACYL612916 MatignonPARIS 08NEW
Source: MBE Conseil

Selected major transactions over 5,000 sq.m in Q4 2019