BNP PARIBAS REAL ESTATE COMMENTS THE OFFICE MARKET IN GREATER PARIS AND INVESTMENT MARKET IN FRANCE: Q3 2016 RESULTS AND OUTLOOK
“The market for small and medium-sized units (less than 5,000 m2) is stabilising (+1%), and this is a fairly uniform pattern throughout Ile-de- France. Conversely, the large unit segment (over 5,000 m2) jumped 46%, and should account for take-up of a million m2 this year. All told, office take-up in Ile-de-France is expected to come in at around 2.5 million m2 over full year 2016, compared to 2,270,000 m2 last year” anticipates Richard Malle, Head of Research France, BNP Paribas Real Estate.
La Défense has seen the strongest growth in office take-up since the beginning of 2016 (+165%). “Take-up in this business district should exceed 250,000 m2 over the full year, close to the record levels of 2006-2007. Moreover, La Défense has the best profitability potential for offices in the Paris region in the medium term, thanks to both its potential for initial yield compression and expected growth in underlying and headline rents” explains Laurent Boucher, Chairman of BNP Paribas Real Estate Advisory France.
The vacancy rate for offices in Île-de-France had dipped significantly as of October 1, 2016, to 6.8% vs. 7.4 % a year earlier. The biggest fall in supply was at La Défense, where the vacancy rate now stands at 8.2 %. “The vacancy rate is falling even more in Paris (3.6%), well below its 10-year average (4.6%), suggesting that rents are set to rise further. Conversely, as supply is still abundant in the Western Crescent (12.2%) and to a lesser extent in the Inner Rim (8.7%), rents are unlikely to change much or even fall locally in certain districts. Incentives have been prevalent in a very broad range since the beginning of 2016, averaging 21% throughout the whole of Île-de-France, and ranging from 15% in Paris Central Business District (CBD) to 28% for La Défense” explains Richard Malle.
There has been a sharp increase in offices under construction, up to a million m2 as of October 1, 2016 (+30% over one year), boosting completions for availability in 2017 and 2018. “In this context, the vacancy rate is bound to stop falling, giving way to stabilisation or even some expansion in certain Ile-de-France office districts in the coming quarters” points out Richard Malle.
In the wake of uncertainty, notably caused by the UK referendum on June 23, 2015, economies in Europe have slowed, even though the latest economic surveys still point to moderate economic growth. GDP growth in France should reach 1.3% in 2016, before slowing to around 1% in 2017. The yield on the 10-year OAT has been at 0.2% since the beginning of October, while the initial yields of prime office assets in Ile-de-France have changed little. Over the course of 2016, prime yields in Paris CBD fell by just 10 points to 3.15 %. Nevertheless, average office yields have dipped since the beginning of the year.