Spotlight Agency - Ile-de-France - Office Market 2018

Market Trends in Ile-de-France

After a distinctly upbeat first half of 2018,with almost 1.4 million sqm let, take-up inIle-de-France flagged slightly in Q3, never quite managing to make up the ground lost over the summer.

For the year as a whole, take-up reached 2.5million sqm, down 5% on the 2017 figure of 2.6 million sqm. Considering that 2017 was an exceptional year, this slackening should be viewed in context — 2018’s take-up figure is still far higher than the ten-year average (2.33million sqm).

The downturn in the market was particularly pronounced in the >5,000-sqm segment, both in terms of the number of transactions (81 in2018, compared with 87 in 2017) and the total area let (982,000 sqm versus 1,130,000 sqm). In this part of the market, take-up has fallen by 13% y-o-y, accounting for only 39% of the total, compared with 43% in 2017. The slump is also evident for small-scale transactions, where take-up ended 2018 at 763,650 sqm, down 5% from the 2017 figure of 807,810 sqm. Only in the middle of the scale (i.e. offices of between 1,000 and 5,000 sqm) did take-up increase, rising by 8% y-o-y to almost 760,000 sqm.

In geographical terms, all parts of the Ile-de-France region recorded a dip intake-up, with the exception of the Outer Suburb, which saw y-o-y growth of 26%. Again, we need to bear in mind that the figures for 2018 are being measured against an exceptionally strong year in 2017.

The boom in letting activity is putting as queeze on immediate supply in Île-de-France. At 2.9 million sqm, availability has fallen 10% y-o-y. The vacancy rate has followed suit, dropping to 5.4%. Nonetheless, it is interesting to note that new-build stock is on the rise again (up 2% y-o-y); Grade A space now accounts for 18% of the region’s total supply, compared with 16% at the close of 2017. There is significant geographical variation; while immediate supply has shrunk dramatically in central Paris, the situation in the immediate and outer fringe is quite the opposite.

Against this backdrop, a number of trends with respect to rental prices are taking shape.There is strong upward pressure on rents in the most prestigious locations, but also in less central areas, popular for their good transport links that place them within easy reach of the city’s main business hubs. In more outlying areas, where availability is less constrained, rents have remained largely stable or even fallen.

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Early results for January and February 2019 confirm that we are indeed seeing a slowdown in the market, with transaction activity dropping by almost 25% in comparison with the same period of 2018. The downturn is particularly noticeable in the large-scale segment.

Judging by the deals currently in the pipeline,the next few months should help curb the decline. Nevertheless, there is good reason to suppose that the total area let in 2019 will be lower than in 2018, as the market falls back inline with the ten-year average.

Such market conditions are likely to inspire caution among businesses when it comes to rental prices. It is therefore reasonable to expect that the current upward pressure on rents will abate to some degree. Rents soared in 2018 for Grade A property, both in central Paris and in several peripheral markets, and these pressures have tended to spill over into the existing property segment in areas where supply is particularly tight.

2019 should call a halt to this incipient overheating. That does not necessarily mean that prime lettings (i.e. those valued at around €850 in the CBD) will dry up: this premium segment of the market may in fact continue to benefit from the bullish mood among co-working operators, who are vying hard to offer their clients the most appealing properties in the most desirable locations. However, the rents agreed in this segment will be far removed from general market trends.