Knight Frank takes stock of the markets in 2022 and provides some outlook for 2023.
Offices in Ile-de-France: recovery at two speeds
16% increase in take-up
The year 2022 ended on a positive note with 616.000 m² of offices rented or sold to users in the 4th quarter, an increase of 26% compared to the previous quarter.
For Guillaume Raquillet, director of the Offices agency at Knight Frank France: “This volume brings to 2,19 million m² of offices marketed in 2022, a result 16% higher than that of 2021 and very close to the ten-year average. Numbering 62 in 2022 compared to 56 in 2021 and 22 in 2020, office leases of more than 5.000 m² directly contributed to the good performance of the Ile-de-France market. Representing a volume of nearly 710.000 m², i.e. a 25% increase over one year, these nevertheless play a less decisive role than before the outbreak of the health crisis, confirming the impact on the consumption of office space in the teleworking and corporate real estate rationalization policies. »
In 2022, the average surface area of leases greater than 5.000 m² was thus reduced by 13% compared to that of transactions signed during the ten years preceding the Covid-19 epidemic.
Paris QCA impresses
For Guillaume Raquillet: “While rental activity is slow to pick up in several sectors of Ile-de-France, the attractiveness of the central business district has almost never been so high. 462.000 m² were thus marketed there in 2022, i.e. only 6% less than the historic record of 2006! »
A strong sign of attractiveness, the CBD has also benefited from the demand from companies established on the outskirts which, moving to the capital, offset the higher level of real estate costs by the sometimes drastic reduction in leased areas.
Finally, while demand for offices from tech companies slowed significantly in the second half, Paris continued to benefit from demand from coworking operators.
2022 was also a good year for educational real estate. Thus, driven by the constant increase in numbers, business schools and large private groups have continued their expansion in Ile-de-France with 5 operations of more than 5.000 m² identified in the region, including 4 in the Western Crescent and La Defense.
Renewed activity in the West
In the West, Neuilly-Levallois is one of the markets that has best resisted the health crisis. In 2022, the latter even achieved one of its best performances, with 152.000 m² of offices taken up, an increase of 39% compared to the ten-year average. La Défense is also doing well. 208.000 m² of offices were marketed there in 2022, a significant part of which came from companies from other tertiary hubs, such as the West with ARKEMA (previously based in Colombes) or the CBD.
For Guillaume Raquillet: “Paris and certain tertiary sectors in the West have been able to capture demand from users ready to change geographic sector. In the rest of the region, business transfers were much rarer, and take-up was made up overwhelmingly, if not exclusively, of endogenous user movements. »
2023, year of the surge in the inner ring?
Their still limited ability to attract and the limited number of large transactions (10 in 2022 compared to an average of 14 each year between 2010 and 2019) explain the mediocre performance of the inner ring sectors, particularly in the South and East whose volumes placed in 1 were 2022 and 17% lower than the ten-year average. The balance sheet is much more honorable in the North with 39 m² leased.
Could the year that has just started reverse the trend and put the inner suburbs back in the spotlight?
For Guillaume Raquillet: “In times of economic crisis, real estate is an effective lever for reducing costs, which companies do not hesitate to use by opting for offices offering the best value for money. While strong economic turbulence is expected in 2023, the inner suburbs markets could therefore benefit from renewed interest due to their very numerous opportunities for new offices, perfectly connected to the new Grand Paris metro lines and to rents. competitive. »
The historically high immediate supply
At the end of the 4th quarter of 2022, immediate supply totaled 4,3 million m² in Ile-de-France, an increase of 6% over one year and a historically high volume. The dynamism of rental activity observed in certain tertiary sectors did not therefore compensate for the significant releases of space and deliveries.
For Guillaume Raquillet: “In 2021, 1,2 million m² of offices had been delivered in Ile-de-France, an almost record volume inflated by the deliveries initially planned for 2020 but postponed due to the first confinement. In 2022, deliveries decreased but remained significant, totaling 900.400 m², 50% of which have not yet been leased and which will therefore compete directly with the buildings to be delivered in 2023.
The vacancy rate is now 7,7% compared to 7,3% a year ago and 5% before the outbreak of the health crisis.
Significant share of uncertain projects
Although 2023 will be much less supplyy than 2022 with "only" 770.000 m² of new-restructured offices to be delivered (of which 70% are still available), the respite will only be short-lived since the accumulation of operations expected in 2024 and 2025 could amount to 2,6 million m². However, half of this volume is made up of projects not yet launched, a certain number of which should be postponed, resized or quite simply canceled in the tertiary sectors suffering from already high vacancy. This is the case of the 1st North Ring and the 1st South Ring which, by combining projects under construction and to be launched, total nearly one million m² to be delivered by the end of 2025, 83% of which are still available. .
Office transformations: varied outlets
The past year has confirmed the boom in changes in use, with an admittedly limited but growing number of operations, in certain towns in Hauts-de-Seine in particular, and an increase in the average size of office space transformed.
For Guillaume Raquillet: "While we speak more frequently of office transformations, the outlets are more varied than housing alone, including managed residences and hotels, teaching premises and urban logistics sites for which the needs are high and the interest of investors more and more marked. »
Retail in France: between expansion and rationalization
Consumption Threats
In 2023, household consumption is expected to stagnate under the effect of still high inflation and the deterioration of the economic situation. The decline in purchasing power, the deterioration of the labor market and the pension reform project should also accentuate the social risks.
For Antoine Salmon, Director of the Rental Retail Department at Knight Frank France: “Inflationary pressures could ease as the months go by and economic activity pick up again in 2024 and 2025. Until then, the French will tend to arbitrate their spending in favor of essential goods such as energy and food products. »
The decline in purchasing power and the migration of consumers to discount stores have for some years favored the expansion of low-cost chains: between 2019 and 2022, the cumulative number of stores of six major discount chains (ACTION, STOKOMANI, CENTRAKOR, GIFI, B&M AND NORMAL) thus rose from 1.540 to just over 2.000 in France, an increase of 33% over the period.
For Antoine Salmon: “Discount stores are not the only ones to develop. Expansion plans remain dynamic in other areas, particularly restoration: of some 170 significant development projects identified by Knight Frank in 2022, almost a third relate to restoration, driven by the success of restoration fast and of the franchise model. »
Between expansion and rationalization
Among the dynamic sectors, let us also mention that of mobility, which will benefit in 2023 from the extension of national aid for the purchase of a bicycle, medical or sports and leisure. On the other hand, quick commerce, very active in 2021, has stopped its development. The number of dark store openings has fallen sharply: of the approximately 220 premises in existence in France at the end of 2022, only about forty opened in 2022, almost all of them in the first half.
While it remains highly exposed to household arbitrage, the clothing sector retains a central place in the retail real estate market. A few major brands, for example, have strong ambitions, such as PRIMARK or MANGO.
However, the fashion sector remains heckled, and moreover experienced in 2022, with the disappearance of CAMAIEU, the largest liquidation recorded since the start of the Covid-19 epidemic. So far, failures have been relatively limited. However, some of the brands that have been taken over remain fragile.
For Antoine Salmon: “In 2023, the impact on the retail market of the various charges weighing on retailers will be significant. These will weaken certain players and push retailers, a very large majority of which do not benefit from the ILC cap, to further renegotiate their real estate costs. More generally, the next few months will see an acceleration of rationalization operations, which will undoubtedly result in an increase in the number of closures linked to the desire of the brands to reduce the wing by shedding the least efficient stores. »
The store retains a central role
For Antoine Salmon: “The store retains a central place in distribution strategies. However, faced with the increase in costs and the rise in the share of online sales, the trend of "less but better" is gaining in importance, encouraging certain brands to concentrate their investments on a smaller number of stores, more suitable new consumer expectations and the phygitalisation of commerce. »
In this context, the role of flagships remains decisive. In an increasingly globalized and competitive market environment, the store is indeed an essential lever for loyalty, customer knowledge and differentiation, which also makes it possible to offer an offer that goes well beyond the mere sale of products. .
Major maneuvers in the center of Paris
For Antoine Salmon: “In 2022, 38 luxury boutique openings were recorded in the capital, five more than in 2021 and nine more than in 2020. Emblematic projects have notably been inaugurated, such as that of Cartier in 13 rue de la Paix, Dior at 30-32 avenue Montaigne or even Chanel at 21 rue du Faubourg Saint-Honoré. This trend will continue in 2023 and 2024, following the example of the expected openings of SAINT LAURENT on avenue des Champs-Elysées and avenue Montaigne, or of GUCCI and ALEXANDER MCQUEEN on rue Saint-Honoré. »
The increase in the number of arrivals of new foreign brands also testifies to the attractiveness of the Parisian market. Of the 44 listed in France in 2022, 30 have set up in the capital compared to 26 the previous year, in various sectors such as new mobility, decoration, beauty, catering and above all clothing (BROWNIE, ARKET, STUSSY, MACKAGE, GANNI, etc.).
For Antoine Salmon: “The solidity of the Paris retail market is also illustrated by the evolution of commercial vacancies. Between the end of 2021 and the end of 2022, the average vacancy rate of the 12 major axes analyzed by Knight Frank has lost nearly two points, the most significant decreases concerning rue du Faubourg Saint-Honoré and rue Saint-Honoré , rue des Francs Bourgeois, boulevard Saint-Michel and rue de Rivoli. »
This positive observation can nevertheless be qualified: during the last six months, the commercial vacancy has indeed stabilized (- 0,5 point) and sometimes remains high, as on the avenue de l'Opéra or the boulevard Saint-Michel .
Commercial complexes: the confirmed end of major projects
For Antoine Salmon: “All formats combined, just under 350.000 m² of new commercial complexes were delivered in 2022 in France, i.e. a drop of 37% over one year and 42% compared to the average for the five years preceding the health crisis. Made up of 60% of creations ex nihilo, the volume of new m² opened in 2022 is even 14% lower than the low point of 2020, which had seen the postponement of several projects due to the outbreak of the Covid-19 epidemic. »
While shopping center openings increased slightly over one year, volumes of new retail parks fell by 41% compared to 2021.
For Antoine Salmon: “The year 2022 seems to mark a new milestone in the history of edge commerce. As for other assets, the ecological emergency and the evolution of lifestyles thus impose the transformation of the real estate stock, even if all the sites are not mutable due to sometimes significant constraints. »
Investment in commercial real estate: the market awaits its correction
Sudden dropout in the 4th trimester
For Antoine Grignon, Director of the Investment Department at Knight Frank France: “The sums committed on the French market totaled 25,4 billion euros in 2022, i.e. a volume 4% lower than that of 2021 and very close to the ten-year average. »
However, after increasing in each of the first three quarters of 2022, volumes fell sharply at the end of the year with 5,1 billion euros invested in France in the 4th quarter, i.e. a drop of 54% compared to at the same time in 2021.
The decline in activity is particularly evident in the major operations segment. Thus, of the 65 transactions over 100 million euros recorded in France in 2022, only 13 were in the 4th quarter of 2022 for a volume of 2 billion euros. 24 had been recorded in the 4th quarter of 2021 for a volume almost three times greater. Unusually, only a minority of large deals at the end of 2022 were signed in Ile-de-France. In addition, although activity there also slowed down in the 4th quarter, the province held up better in 2022 with just under 10 billion euros invested, a volume almost stable over one year.
Offices: less good performance since 2013
Offices gathered 13,6 billion euros in 2022 against 16,2 billion a year earlier. It is also their worst performance since 2013. While they collected on average 67% of all volumes invested on the French business investment market for ten years, their share fell to 54 % last year.
Of the 10,6 billion euros invested in the Ile-de-France office market in 2022 (-17% over one year), it is in the peripheral sectors that the fall has been the strongest. This is the case in the inner suburbs, where the sums committed last year reached just under 1 billion euros, a volume 1,5% lower than that of 56 and 2021% lower than the ten-year average.
The solidity of the Parisian market contrasts with the slowdown observed in most of the outlying sectors. Paris is thus increasing its share in the volumes invested, accounting for nearly 60% of the sums invested in offices in Ile-de-France in 2022 against 45% on average for ten years. In the central business district, investment volumes were 8% higher than in 2021.
Finally, after a sluggish third quarter, 3 ended on a positive note for the office market in the regions. Volumes started to rise again in the 2022th quarter thanks to the finalization of several significant transactions, in Lyon in particular. Over the whole of 4, just over three billion euros were invested in regional tertiary markets, i.e. a drop of 2022% over one year.
Third best year ever for businesses
For Antoine Grignon: “5,7 billion euros were invested in the French retail market in 2022, an increase of 16% compared to the ten-year average and the third best performance in its history after 2014 and 2019. This result is due to a high number of large transactions, 16 over 100 million euros having been recorded in France in 2022 compared to only four in 2021.
All retail formats contributed to the very good result for 2022. For retail parks, the past year was even historic, with 1,5 billion euros invested, an increase of 78% compared to the average. ten-year.
For Antoine Grignon: "Retail business parks will continue to benefit in 2023 from their "triple A" positioning: Attractiveness of returns for investors shaken by the new financial situation, Attractiveness of occupancy costs for brands accelerating the rationalization of their real estate in order to preserve their profitability, and finally attractiveness of prices for consumers whose purchasing power has been eroded by inflation. »
Shopping centers collected 1,3 billion euros, a high amount further inflated in the 4th quarter by the sale of a portfolio of malls for just over 100 million euros and the sale to MRM by ALTAREA of shopping centers from Flins-sur-Seine in Yvelines and Ollioules in Var.
Finally, the end of the year was duller for the shopping streets. This market segment still collected 2,1 billion euros in 2022, or 38% of the volumes invested in retail in France against 44% on average for ten years. 2023 is already shaping up to be a good year, with several major transactions expected in some of the capital's most prestigious areas.
Industrial: a decline to be put into perspective
In 2022, the market for industrial premises did not follow the positive trend of the retail market. With nearly 6 billion euros last year, the sums invested in the industrial real estate market thus fell by 14% compared to 2021. The drop must nevertheless be put into perspective: the result for 2022 is the second best in history and exceeds the ten-year average by 79%.
As in 2021, logistics played a driving role last year, illustrated in the 4th quarter by the sale by RENAULT to ARGAN of its 153.000 m² platform in Fouchères in the Yonne, emblematic of the interest in dirty operations. and leaseback. Despite a drop in online sales since the end of the health restriction measures, the importance of e-commerce also continues to support investor interest in assets dedicated to last-mile delivery. In 2022, investor enthusiasm for data centers also increased and will continue in 2023 given the growing needs for data storage.
What prospects for 2023?
“Since the end of the 2nd quarter, a correction in prime yield rates has certainly been recorded, with a compression of 25 to 50 basis points for the best located offices and Parisian businesses, and 100 basis points for the best logistics warehouses. However, activity will only really regain fluidity on the condition of an even more frank adjustment of values and a reconstitution of the real estate risk premium” indicates Antoine Grignon. As the financial, economic and geopolitical context remains very uncertain, it is difficult to predict when this recovery could occur. But if market conditions became more favorable in the second half of 2, this would probably not be reflected in the total volumes invested before 2023 given the increased selectivity of investors and the lengthening of trading periods. Moreover, "when it does occur, the recovery will no doubt be very uneven, benefiting primarily the asset classes that have suffered the most marked decompression, those responding to investors' diversification strategies as well as the most adapted to user demand and efficient from an environmental point of view,” concludes Antoine Grignon.