How is the French office real estate market developing?
A market commentary by Anne-Isabelle Carbonniéres, Managing Director Deutsche Hypo – NORD/LB Real Estate Finance Paris.
The French economy is showing only modest development. Uncertainties due to U.S. trade policies and the geopolitical situation, as well as an unstable government and budget debates, are causing companies to postpone investments. This also dampens the demand for office properties.
The city center of Paris is thriving with rising property values and very high rents. In contrast, La Défense, which can be reached from the center in five minutes by RER, is still under pressure and experiencing rental declines. Peripheral locations are particularly struggling. The rental differences are so extreme that there is hope for an adjustment and positive development in the well-connected La Défense.
Paris has an office stock of approximately 55 million square meters with a vacancy rate of about 10%. This represents a 20% increase compared to the previous year. Companies are making efforts to reduce the home office rate and bring employees back to the offices. On the other hand, many firms are reducing their space due to high rents. The trend is “smaller but better.” This leads to situations where some buildings that do not meet requirements and are in unattractive areas may only be left with demolition or sale at land value.
The space take-up in the first half year 2025 has decreased by 12% compared to the previous year and by 25% compared to the 10-year average. Large spaces are experiencing a significant decline (-30%), while the decline for smaller spaces is only 2%. The investment volume in 2024 fell by 27% compared to 2023.
The current financing activity is mostly related to refinancing. Sellers and buyers continue to struggle to find common ground, and the “willing buyer, willing seller” principle can no longer be maintained. The realization of value losses will lead this phase into a new reality. There may be an office revival in prime locations. International investors are currently showing renewed interest in these properties. I am hopeful that office real estate will regain its position as an attractive asset class.