Despite economic uncertainties, commercial real estate is holding up

The office market in Ile-de-France is holding up despite the prevailing pessimism

The bad news is piling up on the economic front: high inflation, rising bond rates, geopolitical instability, a prospect of near-zero growth or even a recession expected for 2023...

However, the Ile-de-France office market seems relatively preserved for the moment with 1.488.300 m² taken up over the first 9 months of the year (+ 20% over one year and - 4% compared to the long-term average).

For Alexandre Fontaine, Executive Director Ile-de-France Offices: “Business in the small and medium-sized surface area segment remains solid (+6% compared to the ten-year average). The volume of lettings was, on the other hand, a little more disappointing in this 3rd quarter for major transactions. We remain confident, despite everything, regarding the outlook for activity in the 4th quarter, which should be much better given the level of demand expressed and the negotiations in progress. »

Despite the good performance of the tertiary market in Ile-de-France, vacancy is struggling to be absorbed and reached 4,1 million m² on 1 October 2022.

For Alexandre Fontaine, Executive Director Ile-de-France Offices: “This stabilization of the immediately available supply masks diverging trends. On the one hand, vacancies continue to be constrained in the most attractive sectors. On the other hand, upward pressure is being felt in certain tertiary areas, already oversupplied, due to the delivery of new/restructured programs awaiting takers. This dichotomy and this maintenance of high-level vacant supply in Ile-de-France should continue for several more quarters. »

A successful 3rd quarter despite uncertainties

Despite the world of uncertainty in which we currently live, with €7,4 billion invested in commercial real estate, this 3rd quarter remains positive, in line with the 1st half. Nearly €20 billion were traded during the first 9 months of the year. The market was driven in particular by major high-quality transactions, in offices, logistics and retail.

For Nicolas Verdillon, Managing Director Investment Properties: “We observe a discrepancy between the feeling of the sector and the results of the quarter which has just passed, testifying, and it is normal, to the inertia of the market. There was even a phenomenon of acceleration of certain operations to concretize them before the 'reset' of the market, in other words the phase of adjustment, which will doubtless only be really visible within 3 to 6 months. »

Beyond the impact of the energy and geopolitical crisis, it is the soaring cost of money that weighs the most on real estate, not liquidities, which are very present.

While some investors will adopt wait-and-see positions, others will continue to “want to do”, but with returns that meet their expectations of risk compensation and the cost of money.

The current trend in yield rates mechanically partly follows that of long bond rates in order to maintain an attractive spread.

For Nicolas Verdillon: “So the questions are where will the landing zone be and when, with the corollary, what price correction, and in its wake the consequences on 2023 investment volumes.”