PARIS-Office lease-up in the Paris Ile-de-France region is likely to be slightly above 21 million square feet this year, making 2010 an "average but reasonable vintage" for the rental market, according to realtor Knight Frank. Take-up declined to 19 million square feet in 2009 from 26 million square feet in 2008.

"The situation in the Ile-de-France rental market is fairly reassuring but we need to be realistic. For the past 18 months the market has not been driven by companies' increasing need for office space, but by a desire to rationalise their establishments and to reduce real estate costs," Knight Frank said. But this has been sufficient to end the decline in prime CBD rents, which dropped around $169 in 18 months before stabilizing. There are now some signs of upward pressures, with transactions recorded at headline rents of up to $1,079.

The contraction in construction since the start of the financial crisis is likely to lead to a shortage of new property that will become more intense in 2011, and this will also lead to upward pressures on rents. Only 7.8 million square feet of new office space is due to be delivered in 2010, followed by a similar amount in 2011, in contrast to the 2009 total of 14 million square feet. Vacancy rates are expected to stabilize around the current 7% level.

Investment is expected to continue improving in the second half of the year and total $9 billion to $10 billion for the year as a whole, but the improvement is likely to be short-lived. "Many investors will face major repayment deadlines in 2011 and 2012 for acquisitions carried out up to 2007. Some will be confronted with a decline in the value of their assets, sometimes to less than the level of the debt," said Knight Frank. Banks will therefore have to focus on the refinancing of these clients which will reduce their capacity for new lending, and this in turn will mean that they will concentrate on core assets and investors with ample capital buffers. The investment market could therefore dry up again in 2011, Knight Frank predicts.

Allan Saunderson is a managing editor of Property Investor Europe and a contributor to GlobeSt.com.

Instant Insights /

Paris Office Leasing To Hit 21M SF This Year

Related Stories

Recommended For You