Take-up of offices in the greater Paris came to 493,000m² in Q1 2016, up 19% over one year, although this should be seen in perspective given the low figure last year, according to research by BNP Paribas Real Estate. As such, take-up in Q1 2016 is lower than the 10-year average over 2006-2015 (501,000m²). The market for large units (over 5,000m²) increased by 23% with 175,000m² taken up in 16 transactions. There have been two deals of particular note: the lease by Deloitte of 30,500m² in Tour Majunga (La Défense) and the rental of 20,100m² by a major French company in Millénaire 4 (Paris 19th).
“There are some substantial deals for large units in the offing. This means that office take-up in the Greater Paris could be close to 2.4 million m² over the full year 2016,” anticipated Richard Malle, head of research France for BNP Paribas Real Estate.
The office vacancy rate in the Paris region stood at 7.3 % on 1 April 2016, in moderate decline for the past few quarters. The most notable fall in supply was at La Défense, where the vacancy rate now stands at 8.4%, compared to 11% a year ago. The vacancy rate has fallen again in Paris (4.4%), suggesting further rental increases, particularly in the CBD. Conversely, as supply is still particularly high in the Western Crescent (13%) and the Inner Rim (10%), rents are likely to be flat or even dip locally in certain districts. There is not much in the way of offices under construction for completion in 2016 (165,000m²). This could mean that supply is set to dwindle further by the end of the year.
Recent months have been particularly eventful in macroeconomic terms, notably with the sharp upturn in commodity prices and highly volatile financial markets. As recent economic surveys have shown, both corporate and household confidence has been muted across the Eurozone. As such GDP growth in France in 2016 is expected to be stable vs. 2015 (1.2%). This should nevertheless lead to an increase in employment in 2016 (+0.4%) after stabilisation in 2015 (+0.1%).
“In this environment of doubt and almost zero inflation, central banks are set to keep monetary policies very accommodative. This is why by the end of 2016, interest rates could fall again from current levels: 0.4% for the 10-year French government bond and -0.2% for the 3M Euribor,” explained Malle.
Investment in commercial real estate has got off to a shaky start in France in 2016, with just €3.8bn invested in Q1, down 35% over one year. “Investments of over €100m have stalled temporarily, representing just 41% of take-up, vs. 64% in 2015. However, there should be a strong catch-up in the coming months. Investment in commercial real estate in France in 2016 should be comparable to that in 2014 (€28bn) and 2015 (€31bn),” noted Malle.
Yields for prime assets have changed little in Paris CBD (3.25%), the rest of the capital (3.5%) or the Western Crescent (3.65%). “Given the downward trend in interest rates, a widespread narrowing of prime yields is expected by the end of the year. Meanwhile, average yields for offices in Ile-de-France have dipped again in Q1,” concluded Richard Malle.
