Office Rental Market - May 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.

Our vision of the office rental market
The view of Géraldine LATHAM

SUBMARKETS MAP

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.

Géraldine LATHAM

Key figures May 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 decrease in takeup that began at the end of 2019 accelerated in Q1 2020 with the initial effects of the Covid-19 health crisis;
     
  • Take-up decreased by -37% y-o-y, totalling only 340,000 sq.m, the lowest level recorded since 2004.

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

Source: MBE Conseil

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

  • This decrease has affected all surface area segments;
     
  • For surface areas in excess of 5,000 sq.m, the slowdown that had begun at the end of 2019 is intensifying: there has not been a single transaction of more than 20,000 sq.m in Q1 2020 and transactions for 10,00020,000 sq.m have dropped by -7%, after ending 2019 with a decrease of -40%;
     
  • Transactions for surface areas of less than 5,000 sq.m decreased by 33%. Transactions for less than 1,000 sq.m decreased by 24% whereas the decline was more more significant for 1,000-5,000 sq.m units (-41%).

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 2 sectors have not suffered: Paris CBD and the Emerging North Hub (low volumes);
     
  • Sectors that have been most severely impacted are the Western business district (excluding La Défense), the Péri Défense and the rest of the Outer Rim;
  • La Défense stabilised with a low transaction volume. In the coming months, everyone will have to focus on tenants' post-Covid-19 priorities: tenants will be reluctant to rent offices in towers where current health and safety conditions are more difficult to implement (lifts, toilets, etc.);

  • Take-up in the East and South districts is very limited due to the lack of supply in these areas.

Vacancy rate in Île-de-France

Source: MBE Conseil according to Immostat

Vacancy rate in Île-de-France

  • All sectors will experience a slight increase in vacancy rates as a result of the decrease in takeup in Q1 2020;
     
  • It is difficult to assess the full impact of the Covid19 health crisis at the moment. Yet given the expectation that take-up will continue to decrease, vacancy rates are likely to rise over the course of the next two quarters;
     
  • Only those sectors where major projects are due for delivery are likely to experience a potential risk of oversupply, including La Défense, the Péri Défense and the Inner Rim North;
     
  • Sectors with extremely low vacancy rates could progress towards a more balanced situation.

Evolution of average weighted rental values for new buildings

Source: MBE Conseil according to Immostat

Evolution of average weighted rental values for new buildings

  • It is still too early to assess the impact of Covid19 on rent. Average rent is calculated on the basis of a reduced number of transactions;
     
  • In the CBD, rent for new space continued to rise due to a number of €900/sq.m transactions completed at the start of the quarter, but these were for small surface areas;
     
  • In other sectors, rents have increasingly stabilised.

Selected major transactions over 5,000 sq.m in Q1 2020

Significant transactions for spaces - Mai 2020
DATETENANT/PURCHASERLETTING/TRANSACTIONSPACE (sq. m)ADDRESSLOCATIONCONDITION
Q1 2020BOSTON CONSULTING GROUPL19500L1vePARIS16NEW
Q1 2020VYV (MGEN)L975062 rue Jeanne d'ArcPARIS 13NEW
Q1 2020JP MORGANT660021 rue du Marché Saint-HonoréPARIS 01SECOND HAND
Q1 2020BICL6370E-ConicCLICHY-SUR-SEINENEW
Q1 2020MORNING COWORKINGL6076Hôtel de la MarinePARIS 08NEW
Q1 2020KPMGL5219Tour EuroplazaLA DÉFENSESECOND HAND
Source: MBE Conseil

Selected major transactions over 5,000 sq.m in Q1 2020