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11 October 2017

BNP PARIBAS REAL ESTATE COMMENTS ON THE IMMOSTAT INDICATORS

For Q3 2017 and outlook for the office market in Île-de-France (Paris region) and investment in France

Take-up in Île-de-France reached 1,766,000 m² in the first 9 months of 2017, up 2% over a year.
This rally was essentially due to large units (over 5,000 m²), which came in at a total of 723,000 m² through 50 transactions (+13%), including the rental by Orange of 53,000 m² in the group’s future Le Roosevelt head office at Issy-les-Moulineaux. On the other hand, smaller and medium-sized units fell by 5% over a year after two highly dynamic years. The other notable factor since the beginning of 2017 has been the resurgence of activity observed among certain flagship markets outside Paris. Office transactions increased sharply in the Southern River Bend (+81%), Neuilly-Levallois (+57%), Péri-Défense(+43%) and the Northern Inner Suburbs (+379%).

The strong overall results were partly driven by the upward trend in economic activity, with GDP growth of 1.7% expected in 2017 (vs 1.1% in 2016). Director of the Ile-de-France Office Leasing Division of BNP Paribas Real Estate Transaction France Éric Siesse analyses the situation stating that: “take-up in the smaller and medium-sized units market is increasing, associated with strong employment growth in Île-de-France, which is expecting over 70,000 job creations in 2017, after 55,000 last year. Among large units, the level of transactions in progress is excellent and demand for units of over 5,000 m² has increased significantly. Total take-up should certainly exceed 2.5 million m² in 2017”.

After declining in 2015 and 2016, the office vacancy rate in Île-de-France showed signs of stabilising in 2017 (6.7%). Due to a supply shortage, Paris CBD recorded its lowest rate in 15 years (2.9%), while La Défense (8.2%) remains close to its equilibrium level. Although vacancy rates are increasing in the Northern River Bend (15.3%) and stagnating in the Défense Area (16.6%), a downward trend has been observed in the Southern River Bend (8.3%) and Neuilly/Levallois (8.5%). However, supply under construction has increased sharply to its highest level since 2008 on 1 October 2017, at 1.3 million m² in over 80 buildings. Global Head of Research for BNP Paribas Real Estate Richard Malle explains: “Over the next few quarters, vacancy rates should see upward pressure, 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”.

Investment in commercial real estate in France was moderate at €14 billion over the first nine months of 2017 (-31% over the year). During Q3, prime office yields remained broadly unchanged in Île-de-France, but nonetheless fell marginally in Paris CBD (3.05%). On the other hand, the contraction in average yields accelerated, notably in Paris ex-CBD and the Western Crescent. The healthy occupiers’ market, combined with the favourable economic context and consistently low short and long-term interest rates, contribute to a dynamic market. Chairman of BNP Paribas Real Estate Advisory France Laurent Boucher says: “In the Île-de-France office segment, we have already recorded almost twenty-five transactions in excess of 100 million euros that should be finalised over the next few months. Total investment in commercial real estate in France should consolidate at around 28 billion euros in 2017, which is lower than the 32 billion euros of 2016 and 2015, owing primarily to a shortage of products placed on the market”.

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