Demand for Paris office space drops

Office rentals in Ile-de-France have suffered a drop in early 2015, but the wider commercial rental market is due to bounce back in September.

A study published last Tuesday by industry reference group Immostat found that office rentals in Ile-de-France plummeted in the first half of 2015. With 915,200 square meters rented, this equates to a 22% drop since last year.

Sales have dropped accordingly, as many investors intent on capitalising on office buildings only do so provided these are already rented out.

There are geographical disparities within this figure in the capital region, with the market up 8% in Paris itself but down 49% in La Défense. Additionally, Immostat reports that no deals were signed for offices over 5,000 m2 in that period, as compared to several large-scale transactions recorded last year during the same time. One of these was the Thales Group’s 10,000+m2 lease of the top seven floors of the Carpe Diem tower in La Défense.

Discrepancies in the trends for different office rental sizes were significant. Rentals of small offices (less that 1,000 m2) increased by 10%, whereas medium-sized offices (between 1,000 & 55,000 m2) were less in demand, with a 9% drop in new rentals.

Richard Malle, director of research at France BNP Paribas Real Estate—a division of the Immostat group—says that while “larger than expected”, the decline was no big surprise. He cites the sharp economic slowdown in the summer of 2014 as contributing to the scarcity of demand for medium and large spaces, as well as the lower volume of leases expiring in 2015 as reasons for the fall in rentals overall.

Hope remains for unrented offices according to Virginie Houzé, director of France research at Jones Lang LaSalle, a real estate consulting firm. She believes that the current market is an improvement over the “catastrophic” first quarter of this year, with only 400,000 m2 leased. The second quarter, with 503,000 m2 leased, is a “return to normal”. New deals signed for September should render the second half of the year more active.

While the market had risen to 2.2 million square meters rented in 2014, Houzé predicts a total of 1.9 million square meters placed in 2015, similar to the 2013 figure. Roman Coste of CBRE—also part of Immostat—told Le Figaro that major projects materialising in the coming months mean the 2 million square meters rented mark for 2015 is still within reach.

The absence of very large transactions has led overall investment amounts in Paris business rentals (offices, but also shops and warehouses) to plummet by 68% since last year. Still, other professionals concur with Houzé, also citing new deals to be signed by the fall as a clear sign that the market is shifting. The general sense is that the overall market dynamic is “rather good”.