Forecasting is difficult, especially when it concerns the future. With all due respect to Pierre Dac, that's the game everyone is playing at the start of this year. L'IEIF held its traditional forward-looking morning this week, and delivered its convictions, notably on the asset class that's been stirring the headlines most: office space. 45% of the asset allocation of institutional investors in the eurozone, and still more than half the investment volume, famously low as it has been of late.
Market indicators confirm two trends. Firstly, there is an unprecedented gap between the level of demand, which is below the 2 million m2 mark (1.931), and immediately available supply, which is close to 5 million m2 (4.759). At this rate, it would take almost two and a half years to quench the stock, on condition that not a single office building is delivered and not 1 m2 is given back when a user moves.
Secondly, an extremely polarized market is emerging in the Paris region, with an oversupplied periphery - 1st and 2nd ring roads, the Western Crescent, La Défense - and a shortage in the central business district. This is reflected in wildly differing take-up rates. On average, it takes more than five years to market an office building in the 1st or 2nd ring suburbs of Paris, and less than five months for an asset in Paris CBD.
What does the future tell us? That we'll have to deal with a swirling wind. Firstly, from the front, for lessors, who will have to contend with the wall of business failures. Business insolvencies exploded in 2023 and are set to remain high over the next two years. IEIF has calculated that nearly 12,600 defaulting tenants correspond to 916,000 m2 of office space at risk, based on a ratio of 20 m2 per office job.
Of course, this remains theoretical, but it does give an idea of the challenges facing lessors. All the more so as, while office job growth continues, it is slowing down, with 14,000 office jobs created each year in the Paris region... but distributed very unevenly across geographical sectors.
According to IEIF projections, most of these jobs will be created in Paris, generating demand for over 2.5 million m2 by 2030. Taking into account vacancies (-1.165 million m2) and net new space (+1.325 million m2), the level of tension in the Paris tertiary market will persist between now and 2030. On the other hand, the Institute forecasts an explosion in available supply on the outskirts: +80% in La Défense and the Western Crescent, +65% in the inner suburbs and +100% in the inner suburbs.
"The value-creation equation for office investors needs to be rethought", concludes Stéphanie Galiègue, Managing Director of IEIF. Clearly, in some sectors, the result will be very close to zero... if it doesn't turn negative.