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BNP PARIBAS REAL ESTATE COMMENTS ON THE IMMOSTAT INDICATORS THE OFFICE MARKET

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This rally is essentially due to large units (over 5,000 m²), which came in at a total of 323,000 m² through 19 transactions from January to March, including the rental of 87,000 m² by Natixis in Tours Duo (Paris 13th). The segment of medium-sized units of between 1,000 and 5,000 m² is also buoyant (+3%). These robust figures are partly driven by a decent economic performance, with GDP expected to grow 1.3% in 2017 (vs. 1.1 % in 2016), and should continue in the coming quarters. “The resurgent demand for small and medium-sized units reflects the strong job-creation trend in Ile-de-France (some 40,000 jobs are expected to be created in 2017). There is healthy take-up of large units and marked growth in requests for large premises. This suggests that transactions for the whole of 2017 should come in at around 2.5 million m²” observes Laurent Boucher, chairman of BNP Paribas Real Estate Advisory France.

After having fallen continuously since 2015, the office vacancy rate in Île-de-France showed signs of stabilisation in Q1 2017 (6.6%). The rate in the capital is particularly low (3.5 %), well below its 10-year average (4.6%). The vacancy rate is now balanced at La Défense (8.6%) with very low new supply (25,000 m²). Conversely, Péri-Défense is oversupplied (15.8 %) as is the Northern River Bend (12.7 %).

As of April 1, 2017, there has been a substantial recovery in offices under construction, up to 1.3 million m² (+50% over a year) across the whole of the Paris region, boosting completions available for take-up in 2017 and 2018 in most districts. “In this context, there are likely to be upward tensions on the office supply in Ile-de-France in 2017, particularly in Paris and the Western Crescent. However, there has already been a steep decline in planning permission and speculative building intentions, confirming controlled production in the medium term” notes Richard Malle, Head of Research for BNP Paribas Real Estate.

Investment in commercial real estate in France was moderate at € 3.5bn in Q1 2017 (-22% over a year). The beginning of the year was characterised by a notable presence of international investors, accounting for 48% of investment, particularly the Germans (20%), Americans (12%) and British (11%). In Q1 2017, prime office yields changed very little in the Paris region, still at 3.15% in Paris CBD and 3.65% in the Western Crescent.

There are few changes in the regions, apart from Lyon that now has a prime office yield of 4%, compared to 4.8% a year earlier. Tensions on the 10-year OAT yield, close to 1% at the beginning of April 2017, are still too moderate to prompt a significant inflexion in real estate yields. This is contributing to the strong market trend.

Even though there are persistent geopolitical uncertainties in this first half of the year, the healthy rental trend, abundant liquidity and the quest for safe-haven investments are market drivers. Against this backdrop, investment in commercial real estate in France should consolidate at very good levels, around € 28bn—30bn in 2017”, anticipates Laurent Boucher, chairman of BNP Paribas Real Estate Advisory France.

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BNP Paribas Real Estate comments on the Immostat Indicators for Q1 2017
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