Good market activity continues
No slowdown in the rental market over the summer
The Greater Paris Region office market posted a further increase this summer. With figures for Q1 already over the 500,000 sq m level, Q2 fared even better and exceeded 600,000 sq m. Q3 also saw a good level of performance with 592,000 sq m of take-up. By the end of September, transactions stood at over 1.7 million sq m (+14% year on year) which is in line with the ten-year average normally seen for this period.
Activity in the over 5,000 sq m segment has been consistently good since the beginning of the year with no fewer than 17 transactions completed by major corporates this summer while there were 16 and 15 over Q1 and Q2 respectively. These transactions also demonstrate major corporate appetite for new space (29 of the 48 transactions) as this type of space allows them to improve the quality of their offices as a working tool. The major transactions over Q3 included RTE's lease of "Window" (~38,000 sq m), currently being redeveloped in La Défense, RATP's lease of "Elyps" (~32,000 sq m) which is currently under construction in Fontenay-sous-Bois and INSEE's lease at "White" which was completed last quarter in Montrouge.
Paris remains far in the lead and has accounted for over half of all transactions since the beginning of the year. Markets on the Left Bank were particularly active due to transactions for spaces over 5,000 sq m. Following leases in Paris 12-13 at both "Elements" and "France Avenue" (~15,000 sq m in each), BPCE/NATIXIS has opted for further expansion in "Austerlitz" (~14,000 sq m). In Paris 14-15, activity is still being driven by companies in the press and media sectors, with moves including LES ECHOS / LE PARISIEN in "10 Grenelle" (~18,000 sq m) as well as another well-known company (~14,000 sq m) following ALTICE's lease in Q2.
The business district of La Défense posted a remarkable performance for this point in the year with a take-up of 231,000 sq m. Since the beginning of the year, large companies have shown a high degree of interest in this submarket which has seen 10 major transactions, compared with only 4 over the same period in 2015. Three of these were for spaces in excess of 30,000 sq m: following DELOITTE's lease in Q1 and SAINT-GOBAIN's in Q2, RTE opted to remain in La Défense and move to "Window", a building which has been developed above the "Quatre Temps" shopping centre.
As availability contracts, particularly in Inner Paris, we are starting to see occupiers shift towards towns on the outskirts of Paris. The Inner Southern Suburbs have also benefited from this phenomenon, particularly with INSEE's transaction for "White", the IONIS group's acquisition of 63 Boulevard de Brandebourg in Ivry-sur-Seine and EUREST/COMPASS at "Smart up" in Châtillon as the most recent examples.
Changes in prime headline rents vary by submarket. In the Central Business District, the prime rent posted a further increase – mainly due to additional completions at rents of more than €750 per sq m/year – reaching €770 per sq m/year. In La Défense the prime rent fell to €515 per sq m/year over Q3 2016 - with a rent of less than €500, the RTE transaction had an impact on values. In terms of incentives, we are now seeing a slight decrease, particularly for small spaces in the Central Business District and this is starting to spread to other submarkets. Rental incentives reached 20% in the Greater Paris Region, ranging from 17% in Inner Paris (or lower in some districts of Paris) to an average of 21% across the whole of the Inner Suburbs.
Immediate supply in the Greater Paris Region posted a decrease for the fifth consecutive quarter and stood at 3.6 million at the end of September, this equates to a vacancy rate of 6.8% for the region. This reduction in supply has particularly affected new supply which now only accounts for 17% of overall supply, a level not seen since 2006.
There is now a lack of supply in Paris which has a vacancy rate of less than 4% and rates of less than 3% in Paris 5-6-7 and Paris 12-13. The substantial gap between Paris and the Inner Suburbs persists as most markets in the latter have vacancy rates of more than 10%. Supply in the Inner Suburbs is plentiful with the Western Crescent accounting for most of this availability (960,000 sq m). Finally, the vacancy rate in La Défense stabilised over Q3 at 8.6%.