Outlook 2024: transition time for the French office market

It is a time of transition rather than collapse for the French office market, experts agreed at Real Asset Media’s European Outlook 2024: Focus on France briefing, which took place recently in Paris.

“There has been a lot of negativity about the office sector but there are positives too,” said Benjamin Cartier-Bresson, head of Paris office, Berlin Hyp. “The office market in Paris will go up, because corporates are paying very high rents in the CBD and some cannot afford it. So there could be renewed appetite for offices outside the first ring. Values will go up again, if not to the levels seen in the last ten years of ultra low interest rates.”

Following the pandemic and economic slowdown, the office sector has seen declining demand, falling prices and higher vacancy rates. So there is concern, as the asset class has been and continues to be dominant. The typical real estate portfolio of French institutional investors is heavily skewed to offices, which take up 55% of the total on average.

“I am bullish on the French office sector because things are moving quite rapidly, but you need to be granular,” said Gautier Beurnier, country manager France, head of transactions, CBRE Investment Management. “On average, the French are back in the office for 3.5 days a week and vacancy rates in the Paris CBD are around 2%.”

The office market is increasingly polarised, with modern, ESG-compliant assets in the CBDs commanding high prices and lower-quality stock at risk of becoming stranded.

The worst-performing market is La Défense, which is seeing high vacancy rates and is attracting the interest of opportunistic investors from the US.

This time of transition could lead to sub-sectors coming to the fore, areas outside the CBD and also outside Paris.

“We tend to forget about regional cities because Paris is so dominant with its millions of square metres of office space,” said Irène Fossé, director research and strategy, AEW France. “But Lyon is a strong and well-diversified office market: it’s ten times smaller than Paris but it’s the same size as Amsterdam, for example, and Lille is also a good market, the same size as Dublin.”