Declining, although resilient, the office real estate market in Île-de-France continues its transformation after the upheavals caused by the Covid pandemic. Teleworking, now long-term, is combined with other structuring factors, such as the drop in the number of entrants to the job market, estimates Christian de Kerangal, the general director of the Institut de l'Épargne Immobilière et Foncière. (IEIF). Explanations.
Actu-Juridique: How is the office real estate market doing, and more precisely in France?
Christian de Kerangal : The level of transactions is slowing down but not collapsing for office real estate, both in the large regional cities and in Île-de-France. Numerically, in 2023 we are going from 1.9 million m² of transacted offices in the Paris region to around 1.8 million m² this year. In reality, the drop is especially significant if we compare with pre-Covid data where we had an average level of transactions in Île-de-France which averaged 2.3 million m².
AJ: Is this due to the teleworking effect which accelerated significantly during the pandemic?
Christian de Kerangal : This is indeed one of the reasons which helps explain this decline but it is not the only one, nor necessarily the most structuring. Teleworking has remained at significant levels since the pandemic. The Ministry of Labor estimates that employees who have access to teleworking – or 30% of them – do so on average 2.3 days per week. This is obviously not without consequences on office occupancy rates, which are in clear decline. As a result, companies are logically reducing their surface area, particularly to save money and adapt to this new reality. From 2020, within the Institute of Real Estate and Property Savings (IEIF), we anticipated that the impact of teleworking would lead to a drop in transactions for the Ile-de-France office real estate market of the order of 15%. Today we are slightly above. Also, the level of growth being low, construction or relocation projects in office real estate are affected. Added to this is another fundamental element: the slowdown observed for almost ten years now in the growth of the active population. The population is aging and the number of entrants to the market is struggling to keep pace with exits. Until around 2015, we were experiencing annual labor force growth of 2 to 3%, today we are between 0.5% and 1% per year. And this trend, according to INSEE scenarios, should last until 2040 before decreasing. However, in fact, if the number of workers grows much less, additional demand will be limited. However, the supply of offices has struggled for years to adjust to this demographic slowdown. We are therefore left with a supply that is sometimes poorly calibrated and a surplus of available space. Finally, structurally, many companies have been seeking, for twenty years now, to simply reduce their real estate space. We are no longer in the era of expansion as in the 1980s or 1990s. This follows an underlying trend, linked to the rationalization of costs. But real estate represents the 2e or 3e expense item in businesses.
AJ: So we are at the end of an era and on the threshold of a new one?
Christian de Kerangal : Yes, it seems that this is the end of the tertiarisation of the economy, particularly in Île-de-France. Not that there will no longer be a need for new construction or restructuring, but it will no longer be on the scale we knew before. Furthermore, certain office assets will have to be transformed for other uses, in particular housing for which there is significant demand.
AJ: Do these observations affect the entire region equally?
Christian de Kerangal : No, absolutely not. Since the Covid crisis, we have observed a refocusing of the market towards the heart of the urban area, more particularly towards inner Paris, and a few other municipalities close to the west of Paris (Neuilly-sur-Seine, Levallois-Perret, Boulogne, Issy-les-Moulineaux). The vacancy rate in Paris is on average 5%, which is low. As a result, the level of rents continues to increase. On the other hand, the vacancy rate is much higher, around 20-25%, in certain sectors to the north or south of Paris.
AJ: How do we explain this concentration towards Paris?
Christian de Kerangal : Companies have understood that employee expectations have evolved. They, beyond easy access to transport, are also extremely attentive to the urban fabric in which they carry out their activity. Many of them appreciate having restaurants around their workplace, but also bars, a more developed cultural and sporting offer, etc. In fact, monofunctional areas where there are only offices, more numerous in the Parisian suburbs, are much less attractive in this respect.
AJ: What about the La Défense district?
Christian de Kerangal : This is obviously an atypical case. La Défense is a district which suffers from both its cold and tarmaced image, but has a critical mass and exceptional accessibility by public transport. It remains, for large groups in particular, the place where it is necessary to be established, as a guarantee of success and power. In the future, however, the La Défense district will have to respond to several challenges to remain attractive as well. Either it reinvents itself by offering a more pleasant experience for those who come to work there with more restaurants, places to socialize, mixed uses, or the vacancy rate could continue to increase to the point of affecting the future of the neighborhood. There is also a major challenge for La Défense linked to adaptation to climate change.
AJ: Listening to you, we can guess that all of these observations will still apply in the years to come?
Christian de Kerangal : Yes, we are facing fundamental trends. Growth is not expected to experience a significant rebound in the short or medium term. Companies should therefore not change their outlook regarding their real estate space needs and, above all, the working population will no longer experience an increase as before. These are therefore realities that will impact the market for a long time. There are now two priorities. The first, for office parks that are still attractive, is to continue to be so by meeting the expectations of employees and societal developments. For others, it's about reinventing yourself in the urban fabric. Rehabilitation, restructuring, demolition, diversity and intensification of uses, each district faces different challenges and the questions posed to public authorities, investors and the entire real estate chain are very numerous.
AJ: In this regard, is the gradual realization of the Grand Paris Express metro not happening at the wrong time?
Christian de Kerangal : The Grand Paris Express remains a structuring project for the urban area. It already makes it possible, and will make it possible even more, to revitalize certain neighborhoods around stations, beyond historically attractive areas. However, it seems obvious that it alone will not resolve regional imbalances. In the future, it is likely that we will observe an archipelago of the region with very attractive neighborhoods in the middle of areas that will be less so.
