Office Rental Market - July 2020

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By the end of H1 2020, take-up had fallen to a 20-year historic low. H1 2020 take-up totalled 668,000 sq.m, a 40% decline compared with the previous year.
 

Vacant supply increased by 3% between Q1 and Q2 2020, i.e., a total of 10% since the end of 2019 due to low take-up and a decrease in pre-lettings.
 

Vacancy rates increased across all sectors due to the impact of low take-up. They will undoubtedly continue to rise in the coming months. There is also a concern of a surge in vacancies due to widespread bankruptcies.
 

It is still too early to measure Covid-19's impact on rents given the low take-up.
 

Rents will undoubtedly be adjusted in several sectors, but at this time it is difficult to determine to what extent. Initially, commercial incentives are likely to increase.
 

To date, we have already noted a drop in some headline rents for projects in La Défense. Some sectors such as La Défense, the Péri-Défense and the Inner Rim North are likely to become over-supplied and therefore suffer a more significant impact than other sectors.
 

Even if vacancy rates are rising in Paris, they remain extremely low. Rent adjustments will be significantly less dramatic.
 

Uncertainty persists: everyone is wondering when a treatment or vaccine will be discovered. With the potential for a new wave in the autumn, a predicted 11% fall in GDP, and a future increase in unemployment, a climate of fear persists. These are significant barriers to the emergence of a renewed climate of confidence. Given the context, companies are putting projects on hold and waiting to search for new premises.

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The view of Géraldine LATHAM

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By the end of H1 2020, take-up had fallen to a 20-year historic low. H1 2020 take-up totalled 668,000 sq.m, a 40% decline compared with the previous year.

Géraldine LATHAM

Key figures July 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  ​

  • H2 2020 recorded the lowest take-up in 20 years: -65% y-o-y;
     
  • With a Q2 2020 take-up of 198,000 sq.m, H1 2020 take-up totalled 668,000 sq.m, i.e., a -40% decrease 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

  • With the exception of the > 20,000 sq.m segment which recorded a take-up increase thanks to TOTAL's lease in The Link at La Défense for 126,000 sq.m, the decline in take-up has affected all surface area segments, particularly the 10,000-20,000 sq.m segment where transactions have fallen by -78%;
     
  • Only 2 transactions for more than 5,000 sq.m were signed in Q2 2020 (approximately 6,000 sq.m each), representing a 94% decrease in transactions of more than 5,000 sq.m during this quarter.

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

  • Take-up has declined across all sectors, whether in Paris or the suburbs (-50% on average);
     
  • Even Paris CBD has suffered, despite being the only sector to remain stable in Q1 2020;
     
  • Only La Défense recorded an exceptional increase thanks to TOTAL's transaction in THE LINK. Without this transaction, takeup in this sector would have dropped by -44% since the start of the year.

Vacancy rate in Île-de-France

Source: MBE Conseil according to Immostat

Vacancy rate in Île-de-France

  • The H1 2020 decline in take-up has led to increased vacancy rates across all sectors;
     
  • In Paris, CBD vacancies have increased from 1.6% to 2.4%, although space remains scarce; in Paris 14th and 15th, they have risen from 3.5% to 5%.
     
  • In terms of suburban sectors, only La Défense (5.8%), the Péri Défense and the Inner Rim North may have excess supply in the short-term;
     
  • Suburban vacancy rates are increasing more slowly: they will continue to increase in these sectors, notably in La Défense where 208,000 sq.m will be delivered within the year, and an additional 110,000 sq.m will be delivered between 2021-2022.

Evolution of average weighted rental values for new buildings

Source: MBE Conseil according to Immostat

Evolution of average weighted rental values for new buildings

  • We have not yet observed a rent decrease as a result of the health crisis and its economic impact;
     
  • In fact, too few transactions were completed in H1 2020, and those that were had been negotiated before lockdown;
     
  • However headline rents for some buildings are starting to fall in La Défense.

Selected major transactions over 5,000 sq.m in S1 2020

Significant transactions for spaces - Juillet 2020
DATETENANT/PURCHASERLETTING/TRANSACTIONSPACE (sq. m)ADDRESSLOCATIONCONDITION
S1 2020TOTALL126 000The LinkLA DÉFENSENEW
S1 2020BOSTON CONSULTING GROUPL19 500L1vePARIS 16NEW
S1 2020VYV (MGEN)L9 75062 rue Jeanne d'ArcPARIS 13NEW
S1 2020GOLDMAN SACHSL6 30883 MarceauPARIS 08NEW
S1 2020KPMGL5 219Tour EuroplazaLA DÉFENSESECOND HAND
Source: MBE Conseil

Selected major transactions over 5,000 sq.m in S1 2020