Article | La Défense is sold out... but until when?

A favourite district for large companies, La Défense is preparing its transformation. While awaiting the arrival of new premises by 2022, demand is falling, constrained by the scarcity of available space. The situation should gradually evolve towards a new cycle.

Located on the northwestern outskirts of the capital, the La Défense district is a natural extension of the Central Business District. Since its construction in the 1950s, it has offered very large buildings that are rare in the capital, including high-rise buildings.

The preferred district for large companies

La Défense has areal estate portfolio of nearly 3.6 million m², making it the largest business district in Europe. It is home to more than 3,600 companies, including 15 of the world's 50 largest corporations, 1,500 head offices and approximately 180,000 employees. The district concentrates a large number of decision-making centres from all sectors: industry/energy (Total, Areva, EDF, Engie, RTE, Saint-Gobain, etc.), financial services (HSBC, Société Générale, AXA, Allianz, etc.), information and communication technologies (Orange, etc.), as well as auditing and consultancy services (KPMG, Deloitte, EY, Mazars, etc.)

As demonstrated by the major transactions of recent years (RTE, Saint-Gobain, Total, Orange), La Défense remains the preferred district for the headquarters of industrial groups and listed companies.

La Défense has many advantages. Its skyline and the variety of its towers give its occupants a modern image. Benefiting froman integrated multimodal transport network that is constantly being developed (RER Eole by 2022, future L15 of the GPE by 2030), the district offers quality office buildings at controlled prices . Although often disparaged, La Défense is undergoing a transformation, placing its occupants increasingly at the centre of its concerns by developing multiple service offers (see box).

Falling demand, constrained by historically low available stock

La Défense is a cyclical market that alternates between large-scale transactions and a decline in take-up. The year 2018 will remain a year of mixed results. With 135,000 sqm placed, demand weakened by 25% over the year, far from its ten-year high of 180,000 sqm. According to the first figures, 2019 looks to be in line with the previous year, still waiting for the rebound.

It is mainly the lack of large-scale transactions that has penalised the business district. The market for large transactions (>5,000 sq. m) is in sharp decline, as are intermediate transactions (2,000 to 5,000 sq. m). Against all expectations, it is the small and medium-sized spaces that are doing well, positioning themselves as an alternative to the high prices and lack of supply in the CBD and the Western Crescent.

Opportunistic rental values, awaiting correction

Whilefirst-hand rents are stable, ranging from €460 to €500/sq.m/year excluding VAT, second-hand rents are between €430 and €450/sq.m/year excluding VAT, an increase of more than 10% over the previous year.

This paradoxical situation reflects the market cycle in which the business district finds itself. While awaiting major deliveries in 2019 and 2020, the supply of first-hand properties is at an all-time low; landlords have increased their rents by positioning themselves as an alternative to new buildings, which will reach "prime" values of between €500 and €550 per square metre per annum excluding VAT.

With the upcoming deliveries, these values should adjust.First hand rents will probably include more accompanying measures, while second hand rents should mechanically adjust downwards.

An immediate offer on standby

Since 2015, transactions at La Défense have concerned the existing stock (60% of take-up). Over the quarters, supply has gradually eroded, until reaching a new ten-year low with approximately 160,000 sq.m available immediately.

Due to the lack of supply, the vacancy rate in La Défense is 4.9%, below the Ile-de-France average (5.3%). This situation should not last, however, given the expected deliveries, but also the competition from other neighbouring sectors: Péri-Défense, including the commune of Nanterre (arrival of Technip, Vinci Campus, Groupama Campus, etc.), which offer a better spread of supply, particularly in terms of intermediate and small surfaces.

Towards a new cycle

The La Défense district should enter a new era this year, with the gradual arrival of several new generation buildings. Between now and 2022, no less than 450,000 m² of new or restructured space should be delivered throughout the business district: Alto (51,000 m²), Trinity (49,000 m²), Landscape (70,000 m²)...

The multiplication of options in the near future, in addition to the individual qualities of the towers and the rent for their presentation, will give future users a choice, and will allow them to integrate into their selection criteria that are no less essential for the recruitment and retention of staff, such as accessibility by public transport or by soft mobility.

Despite intrinsic constraints (large buildings, scarcity of mid-sized supply, contrasting image, etc.) and external constraints (Brexit, US/China trade war, political and social situation), supply and demand for commercial real estate should remain steady, supported by strong structural factors such as new working methods (flex office, coworking, digitalisation, etc.) on the one hand, and on the other hand the delivery and continued development of new space, driven by the restructuring of certain assets whose obsolescence should encourage owners to transform them.) on the one hand, and on the other hand the delivery and continued development of a supply of new space, driven by the restructuring of certain assets, whose obsolescence should encourage owners to transform them. Not forgetting the transfers resulting from the Brexit, which have been limited until now, but which could intensify as the 31 October deadline approaches.

Anticipation is, more than ever, the key word for users who wish to carry out a property project!

 

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