Quality, Centrality, Accessibility: the QCA is expensive!

Quality, Centrality, Accessibility: the CBD, or Central Business District, remains the playground of the luxury, financial and legal sectors, not to mention the headquarters of many listed companies. Recently, this sector has also opened up to new players such as technology companies and, above all, coworking centres which, by placing the criteria of centrality and efficiency of buildings at the heart of their projects, find themselves competing against traditional occupiers, generating a scarcity of supply and price inflation.

High demand for places, immediate supply struggling

In 2018, despite a slight fall in take-up over one year (-5%), the CBD ended its^4th year above the 450,000 sq.m placed mark. This euphoric and unprecedented situation is leading to a contraction in available supply. Within this tense market, there is however a dichotomy between the Etoile and Centre-Opéra sectors. The former is experiencing a slight downturn (-15%), while the latter is showing an increase of around 20%. As regards large transactions (> 5,000 sq. m), 13 signatures were recorded in 2018 for a total of around 100,000 sq. m, of which an ever-increasing share was for coworking players.

The year 2018 saw the available supply halved, with only around 90,000 sq.m of vacant space left. The one-year supply is estimated at 230,000 sqm, mainly in the Etoile sector. The market is particularly tight for space between 1,000 sq. m and 5,000 sq. m: only a few dozen offers at present, spread over the various sectors. In the end, it is the small areas that make up the majority of the stock, despite a fall in supply over the last year.

Historically low vacancy rates... and high rents

In this context of lack of available and future supply, the vacancy rate in the QCA has reached its lowest level for 20 years, at around 1.5%, compared with almost 5% in the Ile-de-France.

Under these conditions, competition between users logically leads to an increase in rental values. Rents have thus returned to their 2007 peak. Average rents for new or restructured first-hand properties now stand at €700/sq.m/year excluding VAT, and even €750/sq.m/year excluding VAT in the Etoile sector. Finally, the prime rent, the benchmark for luxury buildings, is now more than €840/sq.m/year excluding VAT. This inflation does not stop there: boosted by new market values, second-hand rents are increasing. They are now between €575 and €600 per square metre per year excluding VAT.

Another consequence of the market situation is the low negotiation margin and therefore the low accompanying measures, which currently vary between 10 and 18% depending on the surface area and condition of the buildings.

A restrained start to the year, but in line with recent performances

At the start of 2019, we can observe a slight drop in take-up in the CBD. A sign of the times? The only transaction of more than 5,000 sq. m was signed in favour of a coworking player.

However, the marketing of new and restructured space remains high despite the lack of supply, and users are not hesitating to position themselves upstream on the latest generation of buildings. There are two reasons for this. Companies are increasingly concerned about the transformation of working methods. And they have taken on board the importance of their real estate in the current hunt for talent, to convince them to come... and to encourage them to stay.

Finally, it should be noted that unlike other sectors of the capital, the CBD benefits from a strong endogenous nature. Thus between 55% and 60% of transactions carried out in the CBD concern users who were already in the sector.

Despite rising rents, shortage of supply and economic variables, the commercial property market should hold up, thanks in particular to fundamental transformations - new ways of working, digitalisation, but also to the restructuring by their owners of certain obsolete assets, encouraged by the circumstances. While the Brexit effect has been limited so far, transfers could soon intensify as the end of the year approaches.

More than ever, anticipation remains the key word for users who wish to carry out a property project.

Our teams are at your disposal to discuss these trends. To find out more about our real estate transaction and negotiation services or our expertise, please consult our services pages or contact us!