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The office market in the Greater Paris Region 2Q 2015

​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​Paris La Défense launches its Strategic and Operational Project (SOP)

Paris La Défense, covering 564 hectares centred on the Grand Arche, is Europe's leading business district with nearly 4 million sq m of offi ce space, which in 2014 encompassed 11% of surface area marketed and 15% of investment in the Greater Paris Region. The district is currently considering possibilities for its future redevelopment, with the intent of repositioning itself within the Greater Paris Region, with a focus
on the Paris Greater Metropolitan region (the Métropole du Grand Paris).

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 Investment Market

The 2nd quarter 2015 will not be a landmark period for the investment market, with €1.79 billion invested in the Greater Paris Region. Taken as a whole, total investment reached €5.385 billion, down 38% as compared with June 2014.​

After a dynamic start to the year, major transactions fell by 51% in terms of volume and by 10% in terms of number as compared with the same time the previous year. This drop must be considered in context, however, given the exceptional size of certain transactions last year, with two sales exceeding €1 billion during the 1st half of 2014. It must be noted that, up to the threshold of €500 million for a single investment, the market finally showed more vitality in the 1st half of 2015 than in the 1st half of 2014, recording a 10% rise in invested volumes.


Investment Market in Greater Paris Region | Etude | JLL
 

Life insurance companies and entities that collect deposits from individuals are especially active, finding in real estate investments yields that are no longer available from bonds. Foreign investors are focused on the largest properties, with two of the transactions over €100 million in the quarter involving sales to international investors. Finally, though yet not reflected in the figures, Chinese investors, who have been exclusively positioned in the hotel market, are now present in the office market and have made proposals. At the end of the 1st half of the year, distribution of invested volumes was consistent with traditional market equilibrium, with 57% of acquisitions made by French investors, versus 43% made by international investors.​

Under the pressure of ongoing high demand, real estate yields as a whole remained stable despite the OAT-yield-rise. Increasing from 0.65% at the start of April to 1.20% at the end of June, it nevertheless only achieved its levels of last fall, and at this level the risk premium offered by real estate remains competitive at over 200 bps.​

We note that the forward funding market has benefited from the pursuit of higher yields, rising to €826 million invested by the end of the first half of the year.

 Office Leasing Market

​After a lacklustre 1st quarter with 412,000 sq m placed, the leasing market improved slightly during the 2nd quarter to surpass 503,000 sq m, bringing its performance for the first half of the year above 915,000 sq m. Despite this, the market has not overcome the slowdown it faced in the 1st quarter, recording a drop of 22% in the Greater Paris office market compared to the previous year.​

Upon analysing the market by surface area bands, once again transactions over 5,000 sq m suffered the most, with only 9 new transactions recorded in the 2nd quarter. Notable transactions were the OECD's lease of the entire “In/Out” building (~33,000 sq m), delivered during 2013 in Boulogne-Billancourt, and RFF's lease at “Le Coruscant” (~15,000 sq m) in Saint-Denis.

Small and medium-sized surface areas (less than 1,000 sq m) showed solid performance, representing 40% of the total surface area leased in the Greater Paris Region during the first half of the year (an increase of 10% over the previous year). This was the only segment that showed a favourable trend from one year to the next, possibly reflecting the improved health of small and medium sized businesses, as well as a trend among large companies to take up extensions close to their principal offices rather than undertaking major relocations. For mid-sized transactions (1,000 - 5,000 sq m), the trend is consistent with but less marked than the 1st quarter, falling by 7%: mid-market companies are always looking for ways to streamline costs, thus leading to reductions in surface area.

Generally speaking, we note that falling rents in established markets have allowed them to attract users that would have been positioned in more affordable markets one or two years ago. Once again, 1 sq m out of every 2 was taken up within the Paris city during the first half of the year, performance that significantly exceeds its typical 35 to 40% ratio.​

Vacant stock in the capital region rose just slightly, in the 2nd quarter exceeding the symbolic threshold of 4 million square metres of office space, a vacancy rate that remains at 7.6% for the entire Greater Paris Region.

Changes in prime headline rents have varied from one sector to another, but generally remain within the lower range of values.

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