Paris Office Market Thrives Post-Brexit
According to Knight Frank's Q3 Paris Office Market Outlook Report, office take-up in Paris is expected to exceed the long term average as occupier activity remains strong despite Brexit uncertainty.
Office take-up in the Île-de-France region amounted to 1.2 million square meters in H1 2016, surpassing the volumes achieved for the same period last year. The outlook is set to remain positive with full-year take-up forecast to reach 2.4 million square meters.
Though the CBD remained the main focus of demand amongst occupiers, the La Défense market experienced a record first half-year as take-up reached 126,500 square meters. This surge of demand in the area was contributed to by increased occupier activity amongst larger corporates such as Deloitte & Associés and Bureau Veritas.
Strong pre-letting activity and a constrained development pipeline caused a fall in vacancy levels, leaving office availability in the CBD of the city at 4.1%. Grade A space will continue to be eroded as over 50% of the development pipeline to 2019 is already pre-let. However, such buoyant market conditions may motivate developers to launch speculative schemes.
Office investment in Paris in the latter half of 2015 exceeded expectations, leading inevitably to a more subdued start to 2016. Investment activity has now gathered pace driven by strong investor appetite for higher-yielding non-core assets and the finalization of several large-scale transactions.
Pent-up demand for core-assets in the CBD has led to prime yields in the area hardening to a historic low of 3.25%. The lack of Grade A space may result in rental increases and yields sharpening in the CBD and inner-city regions, however only the best locations and assets will be affected.
Both the investment and occupier markets in Paris have a positive outlook. The CBD remains a popular area for occupiers and investors alike, while improvements to connectivity and mobility will contribute to the attractiveness of the Greater Paris area, allowing the office market to advance across a wider area.
Philippe Perello, Office Head, Knight Frank Paris commented, "The Paris letting market was not impacted by concerns relating to Brexit, and it remains characterized by it's depth and it's dynamism. CBD and La Défense are the predominant beneficiaries of this environment.
The ever decreasing supply of properties-to-let has had a positive impact on the investment market by encouraging domestic investors to position themselves on more speculative assets and, as well as encouraging some new investors, mainly from Asia, to enter the Parisian market".
Vivienne Bolla, Senior Analyst, Knight Frank also commented, "Occupier and investment confidence remains strong, despite Brexit uncertainty, and we can expect a continuation of robust performance throughout the remainder of 2016 and into 2017."