The office property market - France (2024)

1.2 The European office property market

The European commercial real estate market.

According to BNP Paribas Real Estate, **** was a difficult year for commercial real estate in Europe, with investment activity falling by an average of **% to *** billion euros, the lowest level since ****. Property values also fell by an average of **% across the continent. This decline is explained by the sharp rise in the cost of debt and the significant drop in demand for office space, in particular. Despite these challenges, opportunities are beginning to emerge for investors.

The European office property market

In the office segment, uncertainty reigns, with price adjustments following rising debt costs, changes in working patterns suggesting reduced demand for space, and regulatory frameworks contributing to obsolescence.

Commercial real estate investment trends in selected European countries Europe, **** vs ****, as % of total BNP Paribas

In ****, the European real estate market, particularly the office sector, saw a significant drop in investment, with volumes in free fall. The biggest declines were seen in Germany(***) recorded the steepest declines.

Office property investment trends for the European market Europe, ****-****, in € billions BNP Paribas

However, a glimmer of hope emerges in ****, with a slight improvement in the market. Theeasing of prices has stimulated activity, as investors seek opportunities ...

1.3 The French office property development market

The French office property development market

With a CAGR of -*.*% between **** and ****, the office property development market in France is in overall decline, with office occupancy stagnating at around **% in the capital, and a growing adoption of flex office, even reaching **% in Greater Paris. This trend is leading to the optimization and even downsizing of workspaces, in order to reduce the amount of floor space used.

The effects are being felt, with fewer real estate transactions, areas facing excess capacity, increased competition for the best assets, falling investment, and falling prices and rental rates in certain segments of the real estate market.

Office property development sales trend France, ****-****, in billions of € excl. tax Source : Insee & Insee NB: domestic and export sales

1.4 The impact of the Covid-19 crisis

The chart above compares, at base *** ****, the evolution of office property developers' sales between **** and ****.

After a fall in March ****, certainly linked to health restrictions, there was a significant rebound in April, followed by a fall in May.

After May, sales remained below **** levels, but the impact was not too negative.

Comparison of office property sales trends between **** and **** France, ****-****, index base *** **** Source: ****

Impact on the rental market and office property investment:

The negative impact of the crisis on the sector can be seen in the following data:

The amount of office space leased in the Paris region has fallen by **% in **** compared with ****, according to Immostat Office vacancies have risen by more than a third Investments down by more than a third compared with **** in France [***]

Outlook for ****:

According to Amadeis, the office rental market will experience a significant slowdown in **** and ****. The decline will differ according to zone:

Paris intra-muros could see a decline of * to **% The outer suburbs of Paris could see a decline of ** to **%

given this negative trend in the rental market, investment is also likely to contract.

2.1 Macroeconomic determinants of investment demand for office property

Macroeconomic determinants of commercial real estate investment

Real estate as a whole is highly dependent on the general level of economic activity, as reflected in GDP. As the AsiaGreen website explains, there is a strong correlation between GDP per capita and the property price index, whether residential or commercial.

Another important determinant of real estate investment capacity - and therefore of demand for office property - is central bank interest rates. A low interest rate makes it easier for investors to raise money, and also encourages investors to find higher yields than bonds, which are falling sharply.

As a result, the spread - or risk premium - between the yield on real estate assets and risk-free investments is an important determinant of activity. Since the crisis of ****, the risk premium has been very favorable to investment in the real estate sector, thanks to the accommodating monetary policies of central banks with:

very low bond yields attractive borrowing conditions

In ****, investment volume reached an all-time high of €** billion for commercial real estate, as highlighted in the chart below. Nevertheless, today,the global economic situation has had a significant impact on the French commercial real estate market, with a significant drop in investment ...

2.2 Take-up of office space varies from city to city in France

According to ImmoStat,take-up of office space corresponds to all rentals or sales to occupiers (***) of office space. It is expressed in square meters of floor space. The indicator only takes into account new leases signed for a term of more than ** months. lease renegotiations and sales to existing tenants are therefore excluded.

A strong cyclicality in demand is observable, with a concentration of investments in the *ᵉ quarter of each year. This cyclicality is observable in most cities.

Demand for office space is largely strongest in Paris, in comparison with other cities. Nevertheless, the dynamic is better in some major regional metropolises.

The chart below shows that take-up of office space in the Paris region peaked at ***,*** m², representing a **% drop compared to ****.

Office take-up in the Paris region France, Q* **** - Q* ****, in thousands of square meters of floor space Source: ****

Growth in major regional metropolises

Lyon is the most dynamic city after Paris in terms of office real estate, as highlighted by its top position in the graph below, even if the current office real estate crisis is causing values to ease and demand placed in the various cities to converge (***).

Demand for office space in selected cities France, ...

2.3 Breakdown of office property investments in France

The graph below highlights the fact that the Paris region accounts for most of the investment in France.

France, ****, as % of total Source: ****

the table below shows investments and yields in different cities according to BNP Paribas:

given the maturity of the Paris market, yields are higher in the regions.

2.4 Demand trends: the rise of telecommuting

The impact of telecommuting on office demand

Beyond the Covid-** crisis, which caused an explosion in the practice, it had already been on the rise for several years, notably due to repeated strikes and the attractiveness of the practice. According to the Malakoff Humanis survey, teleworker satisfaction rates remained stable at **% in ****.

The graph below highlights the increase in teleworking frequency between **** and ****.

Telecommuting rate trend France, ****-****, in Source: ****

In ****, the average number of teleworking days per month was *.*.

According to the **** Malakoff Humanis survey, the main benefits of teleworking for employees are:

reduced commuting time (***) scheduling according to needs (***) better work-life balance (***)

The home remains the preferred location for telecommuting, as the following graph shows.

Distribution of the workplace of French employees who telework France, ****, in % (***) Source: ****

What does the future hold for telecommuting?

in March ****, */* of employees and */* of managers stated that telecommuting would develop over the next * years.

What's more, **% of managers surveyed byIfop said they would do more teleworking after confinement than before confinement.

The trend seems to be towards partial teleworking, as employees don't want to telework all the time.

2.5 Demand trends: greater office flexibility and collaboration

Flexible" offices: the rise of co-working spaces or "tiers-lieux"

Demand for coworking spaces is coming mainly from SMEs, start-ups or certain freelancers (***).

Who uses coworking spaces? World, ****, in Source: ****

Nonetheless, large companies could be making increasing use of these spaces, which can complement their offices, according to Les Echos. Indeed, they can be a place of work for :

teleworkers who do not have suitable workspaces at home, but where coworking is closer than their usual workplace for employees on the move

The graph below conducted among *** companies in France in **** highlights the rise in coworking and home-office, which contrasts with the fall in the share of head offices.

In ****, what type of office will you be working in? France, **** & ****, in Source: ****

3.1 Segmentation and player dynamics

What does it mean to be a property developer?

The criteria for success are rapid marketing and, above all, ensuring that the end result is in line with budget forecasts. To achieve this, a real estate development project often follows the same stages:

Launching the project after studying the opportunities Control of the land on which the project will be carried out Study of the project'stechnical, financial and commercial feasibility Construction of the project, which includes architectural studies, obtaining building permits, and the actual building itself Marketing the project by finding a buyer or buyers Completion and delivery of the project

The main contracts on offer are: - Vente en L'Etat Futur d'Achèvement (***): in this case, the purchaser becomes the owner of the land once the sales contract has been signed, and then the owner of the home when it is built.- Property development: a mandate obliges the property developer, for a price agreed with the client, to carry out a building construction program and to perform or commission all activities required for construction. [***]

Player segmentation

There are five main types of player in the French office property market (***) :

Developers from the construction industry, such as Vinci Immobilier, Eiffage ...

3.2 Real estate developers

According to Acoss, the number of employees in the sector rose sharply between **** and ****-** (***), before starting to decline during ****. The number of companies, on the other hand, has tended to stagnate over the period, but is down on ****-****. This may reflect a trend towards concentration around the largest companies.

Growth in the number of companies and employees in the office property development sector France, ****-****, in number of companies and thousands of employees Source: ****

3.3 Analysis of office supply in Paris Region

Office floor space in Paris Region

According to ORIE, there are **.** million m² of usable office space in the Paris region. The graph below highlights the upward trend since ****, which culminated in ****, the date from which the market marked a clear downturn. It is equal to the floor area (***), minus the building's structural elements and the technical premises ensuring its operation. It includes all elements for the exclusive use of the user, as well as a share of the common areas. [***]

Evolution of office floor space in France France, ****, in millions of m² Source: ****

Over ** years, the stock has increased by over * million m² at an average rate of *.*%, so growth since **** has been lower in proportion. Supply is no longer increasing very much, or is even declining, which highlights the saturation of supply.

For projects over *,*** m², **% of m² delivered correspond to new construction and **% to restructuring. In all, almost *% of the stock has been renewed in recent years.

However, the Grand Paris Express offers new opportunities with the extension of certain metro lines. For example, the towns of Saint-Denis and Saint-Ouen could benefit from the extension of line ** [***].

Immediate supply of commercial real estate in the Paris Region

According ...

3.4 Analysis of office supply in France's major regional cities

The table below highlights the supply in the * largest regional office markets, as estimated by CBRE in ****. [***]

Among the problems of office space supply in these metropolises, one of the aspects often mentioned is the lower quality of supply - sometimes poorly located and unsuited to needs (***)[***]

3.5 Where are coworking spaces located in France?

Number of workspaces by region France, ****, in numbers Source: ****

The graph above shows that Paris (***) will dominate the number of co-working spaces in **** in France. Nevertheless, Bordeaux, Nantes, Marseille and Lyon in particular have seen increased growth in recent years.

The chart below highlights that WeWork - despite difficulties in ****/**** - is the leader in France in terms of square meters [***]. However, WeWork's announced bankruptcy filing in ****, even if it has not yet had any impact in France, will lead us to reconsider the competitive structure of the market in the years to come.

According to Les Echos, the traditional players in real estate development have positioned themselves in this buoyant coworking segment: - Nexity, which owns Morning, the number * coworking company in France - Bouygues Immobiliers, which owns **% of Wojo, the number * coworking company

French coworking market leaders France, **** announced to shareholders, in thousands of square meters Source: ****

4.1 Analysis of office supply and recent changes

General framework :

Office real estate is part of commercial real estate, as opposed to residential real estate. An office is a workplace in which managers and employees carry out their professional activities, consisting mainly of workstations and meeting rooms, in open or closed spaces. To facilitate employee access and benefit from a dynamic ecosystem, offices are usually located in business parks (***) or in city centers. [***]

Office supply trends :

According to Pierrepapier, trends in office supply before the crisis were as follows:

Well-being criteria: ceiling height, air conditioning, air quality, daylight, plants. Energy consumption: buildings with good energy performance are valued more highly. A shift towards less individual spaces and more user-friendly meeting places, with fewer and fewer fixed workstations (***). Leisure areas are also on the rise. The number of square meters per workstation has thus gradually decreased. Development of facility managementservices: more and more people are buying a global service, with the possibility of delegating the management of meals, reception or other activities. Sharing offices also reduces costs and facilitates exchanges between employees. [***]

Alternatives to traditional offices:

We can distinguish several forms, sometimes all grouped under the same term "coworking".

Business centerswhich are office buildings that host companies for events, seminars ...

4.2 Office rental prices by city

The graphs below show the evolution of office property rents in France's main cities.

This is the "prime" rent, i.e. the highest face rent, excluding convenience transactions, for a product of standard size in relation to demand in the market sector, of excellent quality and offering the best amenities, in the best location for a given market. [***]

In Paris, prices have been rising since **** and, despite a decline in the Covid period, in **** they reached an average of €*** per square meter.

Value of office rents in central Paris France, ****-****, €/sq.m Source: ****

Office property rents in Lyon have been rising since ****, peaking at €*** per square meter in ****.

Value of office rents in Lyon France, ****-****, €/sq.m Source: ****

Lille office property rents have been on the rise since ****, after stagnating between **** and ****, according to BNP Paribas. It peaks in **** at €*** per square meter, the same price as in ****.

Value of office rents in Lille France, ****-****, €/sq.m Source: ****

Office property rents in Marseille fell between **** and ****, before jumping in **** to €*** per square meter , according to BNP Paribas. There will be a drop to €*** in **** due to the reduced availability of quality supply.

Value of office rents in Marseille France, ...

4.3 What does the future hold for office real estate?

Towards more flexible office real estate in the post-covid ** world:

What role can offices play in the rise of telecommuting?

The rise of partial telecommuting fits in well with the flexoffice trend, so we're likely to see a drop in the number of square meters per person. Telecommuting by no means signals the end of the office, but it will profoundly transform its organization: to make it a place "for exchanging and transmitting knowledge" according to Les Echos.for companies, the gain is also financial, since the cost of a workstation can vary between *,*** and **,*** euros excluding tax, depending on the location.

According to Les Echos, the advantages of the office over home-based telecommuting include

creating links between colleagues a clearer distinction between personal and professional life sometimes greater working comfort (***) transmission of corporate culture and knowledge, especially for younger employees generate ideas through more or less informal exchanges motivating teams and training/mentoring new arrivals

The downward trends will surely prove temporary, and the market will land on its feet again.

According to BPCE, although **** has been marked by major challenges, it has also opened up opportunities for investors and real estate professionals to reposition themselves and innovate. This year, ...

5.1 Regulation of investment and real estate activity

Hoguet law hoguet Law: regulation of real estate activity[***]

The activities of real estate professionals (***).

The Hoguet law regulates the following activities:

Real estate agents and business sales representatives; List brokers; Apartment hunters, real estate brokers or business introducers; Property managers; Co-ownership managers.

The PINEL law has made it possible to tax-exempt the purchase of new homes [***]

In ****, the PINEL law catalyzed investment in new property: buyers can rent the property for * or * years (***) with tax benefits of **% to **% depending on the rental period. These tax advantages are bound to encourage more new property purchases.

With the prélévement à la source (***), the **** Pinel Law will be even more attractive for taxpayers who invest during the "white year" in ****. In fact, they will benefit from a cash advance from the State and will therefore have no savings effort over the first few months of ****. In fact, Edouard Philippe, the current Prime Minister, and Julien Denormandie, Minister for Housing, have announced that **% of the Pinel tax credit will be paid out as early as January **** instead of September as originally planned.

Pinel tax relief therefore makes it possible to lower income tax while becoming the owner of a rental investment. The Pinel ...

5.2 Legal form of the main commercial real estate investors

According to the aMF nomenclatureunder the acronym OPCVM (***):

Investment funds

Investment funds are highly international players, benefiting from the blurring of borders in the globalization of financial flows. Their structures can therefore vary greatly depending on the country of origin, and they have no obligation as to the proportion of real estate assets they may hold. They therefore represent a potentially higher risk than an investment in real estate alone.

Sociétés Civiles en Placement Immobilier (***)

An SCPI is dedicated to investing in real estate assets, which must make up at least **% of the company's assets. There are several types of SCPI, but they all operate in a similar way. An SCPI owns real estate assets, and is itself owned by investors, who receive a share of the rents in proportion to their investments, as explained on the sCPI-* website. In the case of commercial real estate, SCPIs are known as "yield" SCPIs. The SCPI is then managed by a management company (***), itself supervised by the Autorité des Marchés Financiers. Legally obliged to hold a large majority of their assets in real estate, these funds represent a low level of risk, and aim to deliver an annual return of ...

6.1 Segmentation

• Icade
• Nexity
• BNP Paribas Real Estate France
• Altarea Cogedim
• Vinci Immobilier
• Bouygues Immobilier
• CBRE
• JLL Jones Lang Lasalle
• WeWork
• IWG Regus (International Workspace group)
• Cushman & Wakefield
• Arthur Loyd
• Arthur Loyd
• Batipart
• Bureaux Locaux
• Ivanhoé Cambridge
• NCT immo
• SFL Foncière Lyonnaise
• GSE Groupe
• Duff & Phelps France (Groupe Kroll)