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France – Q1 2021
S P OT L I G H T
Office Letting
Savills Research
Market
Building «Network», Bagneux - © Stefan Tuchila
Trends and outlook for the office letting market
Spotlight - Offices - Q1 2021
IN BRIEF: ECONOMIC CLIMATE
WHAT’S BEEN HAPPENING IN THE MARKET? STAGGERED RECOVERY
327,500 sqm 13 On the pandemic front, The upswing should
Take-up Transactions multiple unknowns remain be apparent across
in Ile-de-France > 5,000 sqm – not least the threat the board, affecting
since January 1st since January 1st
posed by new variants. investment, consumption
This makes the immediate and international trade.
economic outlook far
trickier to read. That said,
most forecasters agree 9.5%
that France can look
forward to a vigorous
-30% 10 economic rebound
Unemployment rate
annual trend transactions last year in 2021. Following
(forecast to end
2020’s wincingly sharp
2021)
contraction in GDP
(8.2%), France should
make speedier progress
than either the Eurozone Some of the losses
3,787,000 sqm 6.9% as a whole or the UK. The chalked up during the
Immediate supply Vacancy rate in Ile-de- Bank of France would crisis will no doubt
in Ile-de-France France appear to concur, having be recouped, but
upgraded its 2021 growth not enough to fuel
forecast to 5.5% in mid- significant job creation.
March. We can therefore expect
climbing unemployment,
peaking at some point
during 2021. However,
the situation is likely to
+30% 5,3% 5.5% be less alarming than
annual trend one year ago
previously suggested
(affecting 9.5% of the
active population, rather
than the 10.5% predicted
In Q1 2021, office take-up in Île-de-France stood at until now).
327,500 sqm. Despite a year-on-year drop of 30%, it The economy should
seems that the lettings market is emerging from its French GDP
growth estimated
continue to rev up over
slumber. for 2021 2022 (+4%) and 2023
(+2%), albeit in fits and
starts, bringing France
Major occupiers have taken heart since 2020, closing back in line with the
13 deals for a total volume of 115,000 sqm. These projections, Eurozone average. If all
released just before of these predictions bear
the French government out, companies will be
Meanwhile, the influx of immediate supply has kept announced the latest in a renewed position to
on coming. By the end of the quarter, vacancies were round of pandemic think about their future
restrictions at the end of workspace needs: good
pushing 3.8 million sqm (up 30% year-on-year), bringing March, strike a note of news for the lettings
Île-de France’s vacancy rate to 6.9%. caution for Q1 2021 and market.
distinct optimism for the
second half of the year.
For the moment, prime rents are holding steady at So, there’s a lot hanging
the upper end of the scale. Conversely, rental values for on the ongoing fight
existing property are wilting all across the region. against COVID-19.
savills.com/research 2
Spotlight - Offices - Q1 2021
A market on the mend
Take-up: Lacklustre
A little over a year ago, on 17 March 2020 – day one of France’s first national lockdown – the
Île-de-France office lettings market was hit with an unprecedented shock from which it still
struggling to recover. Towards the end of 2020, a general sense of lassitude hung over the
market, and yet there was a glint of hope as activity seemed to rally...
These stirrings remained faint at the close of Q1
2021, but did appear to be spreading, particularly Variation in take-up in Île-de-France
in the major transactions segment. Our 3 000
impressions of the early part of the year may Legend: Q1 Q2 Q3 Q4
therefore seem to support the first whispers Ten-year average:
of a stabilisation, perhaps even a resurgence. 2 500 2,268,967 sqm
Yet, such optimism, cautious as it may be, is not
supported by recent market data.
In fact, take-up in Île-de-France is down 30%
2 000
Thousands of sqm
y-o-y, with almost 327,500 sqm let in Q1 2021.
The downward trend in the market is evident
across all space categories: -15% for small lettings
(5,000 sqm).
1 000
Perhaps we should manage our expectations:
a number of indicators are back in positive
territory and that alone is a cheering sign of 500
market resilience. The first thing to bear in
mind is that take-up for Q1 2020 was bulked up
dramatically by Total’s lease of 126,000 sqm in 0
The Link. If this outlier is ignored, the year-on- 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
year slump observable in the Q1 2021 figures is
Source Savills Research - Immostat
much less pronounced. Instead of -30%, we end
up on -4% – we might almost call that “stable”. Meanwhile, an upward trend in major 10,000 sqm bracket and a few of up to 28,000
This is even clearer if we hone in on the major transactions activity, first apparent at the end sqm. Judging by provisional research findings,
transactions segment. of 2020, has only steepened. this trend may have some way to run.
Thirteen major deals were completed over
Second, looking at the composition of the the course of Q1 2021, amounting to a total All the same, most areas of Île-de-France are
market in Île-de-France, there are two things volume of almost 115,000 sqm. That holds up trending in the opposite direction, i.e., down.
that jump out. Activity is still being driven well against the ten transactions recorded in the The only exceptions are the Western Crescent
by small-scale transactions – this segment same period of 2020, with a combined volume of and Outer Suburb; here take-up has grown by
is more structurally stable than the rest and 204,000 sqm. 35% and 41% respectively.
seems pretty resilient, accounting for 40% of
total take-up. Although demand from smaller This positive news shines all the brighter given To the west, more outlying areas have made
companies has waned, falling 15% in the space that this time around there was no supersized something of a comeback thanks to growing
of 12 months, it’s still the primary mover of the deal to bump up the figures – just a series of demand from major occupiers: six transactions
office market and vital to its performance. regular transactions for spaces in the 5,000– were recorded in these locations in Q1 2021,
compared with two in the same period of last
year. The town of Meudon (Western Crescent/
Take-up by floorspace segment in Île-de-France
South End) was the outright winner, thanks to
Altran Technologies and Vallourec grabbing
the last remaining spots in M-Campus (for a
total of 15,000 sqm). There’s been quite a bit of
40% 25% 35% movement in the North End as well: the Smile
group leased 5,000 sqm in the Front Office
building in Asnières-sur-Seine, while Energies
France plumped for 5,500 sqm in the Clever
Transactions Transactions Transactions building in Gennevilliers.
< 1,000 sqm 1,000 - 5,000 sqm > 5,000 sqm
Source Savills Research - Immostat
3
Spotlight - Offices - Q1 2021
At 77,200 sqm, take-up in this segment was
Take-up by geographical area and floorspace segment actually 3% higher than this time last year.
180 y-o-y
Legend: < 1,000 sqm 1,000 - 5,000 sqm > 5,000 sqm Change La Défense also saw a sharp drop in take-up
160 (down 86% y-o-y). There was just one major
deal – 11,600 sqm in Carré Michelet à Puteaux – to
140 bring a flicker of energy to this fairly uninspiring
quarter. But beware of unfair comparisons: figures
120 for early 2020 were unusually strong, boosted by
Thousands of sqm
the Total deal. For small and medium-sized offices,
100 -21% 35% 41% take-up is also trending downwards (-18% and -38%
respectively). This major business district is still
80 failing to live up to its potential, having posted
-39% a total take-up of just 21,000 sqm. There may be
60 an opportunity to regain some ground in the next
-86% few months, if a series of major deals, currently
40 under negotiation, come through as expected.
20 The Inner Suburb looks to be one of the hardest-
hit areas in terms of the fallout from the pandemic:
0 lettings activity has fallen 39% in the last 12
months. However, this figure masks a great
Q1-20
Q1-21
Q1-20
Q1-21
Q1-20
Q1-21
Q1-20
Q1-21
Q1-20
Q1-21 deal of variation between submarkets. The
Paris La Defense Western Inner Outer
East Inner Suburb has pulled ahead of the pack,
Crescent Suburb Suburb with activity up 42% year-on-year. This relatively
strong performance is partially attributable to a
Meanwhile, the completion of a number of deals skew our reading of the market in the South Outer major deal for 5,000 sqm in Fontenay-sous-Bois,
in the >5,000 sqm segment injected a bit of life Suburb. let to BPI. The North Inner Suburb fared less well
into the Outer Suburb market, although it’s still (down 35% year-on-year). The most resounding
far too early to speak of a recovery. As for Paris itself, here take-up is down by crash has been noted in the South Inner Suburb,
That’s because the performance of this market 21%. The city centre saw just two transactions where barely 3,000 sqm found a taker in Q1 – that’s
was buoyed up by two particular deals, including involving space of over 5,000 sqm, both in the a year-on-year drop of 82%. Prior to the current
the lease of 28,000 sqm at the Dassault Systèmes CBD, combining to a total of 15,000 sqm. The crisis, the prevailing winds were blowing in this
campus in Vélizy-Villacoublay. lessees in question were a financial institution and market’s favour, but COVID-19 seemed to throw
This transaction dropped into the 2021 figures the French video game developer Voodoo. The up a wall that is still blocking its recovery. Major
after conditions precedent were waived, but the mid-sized transaction segment is also struggling, occupiers, traditionally the main drivers of activity
deal itself dates back quite some time. Like The posting a year-on-year slump of 20%. Most market in this market, have drifted towards other outlying
Link deal in La Défense a year ago, it is liable to action is centred on small-scale deals (60%). locations across the region.
Immediate supply: A year of plenty
Immediate supply began to rise in Île-de-France in early 2020, consolidating further over the
past four quarters.
Variation in immediate supply in Île-de-France
At the end of Q1 2021, close to 3.8 million sqm Legend: Second-hand New or refurbished Vacancy rate
was lying vacant across the region (+30% y-o-y, 6,9%
+3% q-o-q). We would have to rewind a whole
five years, to early 2016, to find levels that high.
Most of this excess space can be put down to new
construction (+58% year-on-year, versus +23%
Thousands of sqm
for vacancies in existing supply). Consequently,
the share of Grade A supply was bulked up
by 24% in Q1 2021, reaching a total volume of
922,000 sqm.
So much for the traditional office market – but
what about flexible workspace and so-called
“grey” (i.e., sublet) space? These two phenomena
are particularly rife in central Paris, where grey
space is rapidly gaining ground. However, its
market share is not easy to quantify. As long as
the market environment remains so uncertain,
savills.com/research 4
Spotlight - Offices - Q1 2021
such solutions will be a welcome option for
businesses, offering many benefits in terms
of flexibility, added services and rental cost Immediate supply by geographical sector
trimming. Legend: Offre immédiate au T1 2020 Offre immédiate au T1 2021
y-o-y
Change
This rebound in immediate supply is not
curtailed to a single submarket, but is +19% -2%
occurring practically everywhere in the
region. Vacancies have virtually doubled in Paris
as a whole (+89%), but ground zero seems to
+89%
be the CBD, where available space has now hit
+30%
263,000 sqm (up a prodigious 150% year-on-year).
It’s the same picture in the Western Crescent
(+19%) and the Inner Suburb (+30%). La Défense,
sqm
too, is awash with vacant space (+110%). Only +110%
speculative developments in the Outer Suburb are
resisting this trend at present.
As more space has come onto the market, the
region’s average vacancy rate has reached 6.9%
– arguably still reasonable by historical standards.
While supply has risen more or less everywhere,
there is much variation between submarkets.
Undersupply remains an issue in Central
Paris (with a vacancy rate of 4.6%), while more Paris La Defense Western Inner Outer
outlying areas have a bit more breathing space: Crescent Suburb
-3.8% Suburb
the vacancy rate in the Inner Suburb came in
at 8.6%, while the Western Crescent is sitting
on 12.2%. The region’s highest vacancy rate was
Immediate and future supply in Île-de-France
Legend:
recorded in Péri-Défense (Western Crescent),
Immediate supply Excepted in 2021 Excepted in 2022 Excepted in 2023
where available supply now accounts for 18% of
total stock.
3,787,000 sqm
For now, there are certainly no signs that
undersupply is becoming a generalised problem
in Île-de-France. But... the COVID-19 crisis is
541,500 sqm
not over. There will undoubtedly be many
more changes in the office market to come, 796,500 sqm
as occupiers reassess their workspace needs,
gravitate towards mixed-use formats and continue
625,000 sqm
to operate with a remote workforce. As time goes
on, it could become more and more difficult for
empty offices to find tenants.
For this reason, some owners are now exploring
the options for a change of use. Thus, an Vacancy rate by geographical sector
aging office block might be reborn as residential Paris La Defense Western Crescent Inner Suburb Outer Suburb
apartments, serviced housing or a mixed-use
developments. Up until now, France has not seen
very many of these kinds of conversions, but
investors are pricking up their ears and interest
12,2%
may well heighten over the coming months. 11,2%
8,6%
5,3%
4,6%
Source Savills Research - Immostat
5Spotlight - Offices - Q1 2021
Rents: Diverging fast SO WHAT’S
NEXT?
The gap between Grade A and existing space is spreading rapidly.
In a market environment where supply is
increasingly plentiful (+30% year-on-year) and
locations. A high-quality space in a coveted
location will still command a lofty price: the average
1 Hopes of a strong
economic recovery in 2021
have been dampened by the
transaction activity on a downward slide (-30%), prime rent in the CBD remains upward of €930 per unrelenting mutability of
rental prices for existing property edged south sqm per year. the global pandemic. As far
in Q1 2021, with some areas managing to stay on as the real estate market is
an even keel. Almost everywhere in Île-de-France This degree of polarisation began to weigh in concerned, the anticipated
has experienced rent contraction to some extent, occupier choices over the first three months of the bounce in lettings activity
including the Paris CBD (down 3% year-on-year). year. Most major companies have tightened up their in 2021 seems likely to
budgets, starting with real estate costs. That is why disappoint, with take-up
Market values have not been too badly affected take-up of larger spaces has been proportionally clipped at around 1.5–1.6
– the concessions are hiding in the various greater in more outlying areas. These occupiers million sqm.
support measures offered to tenants. Across have been quick to pinpoint the Western
Île-de-France, the average tenant had benefited Crescent and the Inner Suburb as more affordable
from concessions equating to 23% of rent by the
end of Q1 2021. There was, however, a great deal of
variation depending on the submarket (from 12.5%
alternatives to a central location. Only two firms
took on space in central Paris in Q1 2021 – both in
fast-growing industries with high added value, both
2 Available supply will
swell further over the
-3.8%
rest of 2021 – an inevitable
in the CBD to 29.1% in La Défense), the quality of opting for the iconic Poste du Louvre, fresh from a result of a fresh influx of new
the property, surface area and lease period. Those high-profile remodel by Dominique Perrault. space, blueprinted in more
negotiating major deals (>5,000 sqm) were still the This leads us to suspect that Paris’s outskirts may bullish times, combined with
most likely to secure a substantial rent-free period. be poised for something of a revival. plummeting pre-sales and
lettings activity. Still, we
All the same, prime rents are still perfectly cannot attribute this bounty
healthy, particularly in the most sought-after to a struggling market alone;
new space, in particular, is
being left on the shelf for
longer than it would have
two years ago. Over the
medium term, however, this
Letting values by geographical sector extra margin of higher-
Legend: quality stock will be a real
Prime rent Q1 2021 - Q1 2020 asset as the horizon finally
Average rent Q1 2021 - Q1 2020 begins to clear.
3 In terms of rental prices,
there is a good chance
that the very marked
divergence between new
and existing space will
persist for another few
months. The landscape will
€/sqm/year
remain highly differentiated
by geographical area
and property type. There
are some faint signs of
stabilisation on the horizon
that may become clearer
as the months go by. That’s
how we’ll know that the
recalibration of the Île-de-
France market is almost
complete, and a return to
Paris La Defense Western Inner Outer “normality” imminent.
Crescent Suburb Suburb
Source Savills Research - Immostat
savills.com/research 6Spotlight - Offices - Q1 2021
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Cover: Photograph by Stefan Tuchila
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Agency
Bertrand Renaudeau d’Arc Caroline Guezo Serge Vayer Fabrice Le Roux
Director of Agency Department Director of Office Transactions Director Tenant Representation Head of Workthere France
+33 6 08 18 38 47 +33 1 44 51 73 00 +33 1 44 51 50 28 +33 (0) 6 15 33 49 79
brdarc@savills.fr caroline.guezo@savills.fr svayer@savills.fr fabrice.leroux@workthere.fr
Research
Cyril Robert Emilie Renté
Director Of Research Department Analyst
+ 33 1 44 51 17 50 +33 1 44 51 50 37
cyril.robert@savills.fr erente@savills.fr
Savills plc: Savills plc is a global real estate services provider listed on the London Stock Exchange. We have an international network of more than 600 offices and associates throughout the Americas, the UK,
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