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Sales of office buildings at La Défense on the outskirts of Paris have collapsed this year as the property downturn hits a business district conceived by the late French president Charles de Gaulle to rival the City of London and Wall Street.
The value of transactions at Europe’s biggest purpose-built business district slumped to roughly €15mn ($16.4mn) this year, down from an annual average since 2020 of between €500mn-€1bn, according to Pierre-Yves Guice, chief executive of the state-owned business park.
Guice said the drop was triggered by higher interest rates, a fall in valuations of older office blocks and potential buyers choosing to renovate rather than make new purchases.
“There’s been a collapse [in investments], which we hope is transitory,” Guice said in an interview. “The consensus that we hear today is that it will not really pick up in 2024 but in 2025,” but he added that the rental market has proved far more resilient.
Best known for its signature “Grande Arche” building, La Défense has proved a success with developers erecting dozens of skyscrapers and some of France’s biggest companies setting up offices there.
With some 4mn square metres in office space, it is more than twice as big as London’s Canary Wharf and still home to big offices used by the likes of Société Générale and energy groups Engie and TotalEnergies.
Like Canary Wharf, however, La Défense faces a post-Covid reckoning as businesses reassess their office needs as more staff work from home, and some are drawn to more central locations in Paris, where supply is more limited.
La Défense’s vacancy rate is hovering at about 14 to 15 per cent, Guice said, above historical lows of 5 per cent. While the pandemic hit demand, vacancies were also down to newer tower blocks being built since 2020, which typically take several years to fill, he added.
New building projects are now scarce, although Total has commissioned a €1bn, 228-metre-high skyscraper. The company’s existing offices in La Défense are among buildings brokers had sought buyers for over the past 18 months but struggled to sell, according to two people familiar with the discussions said. Total declined to comment.
La Défense does not publish annual results. It draws revenues from renting and selling land and buildings, managing activities like parking and has funding from local authorities that collect property taxes.
Since the pandemic, La Défense has been trying to reinvent itself to attract new businesses or even students. Other plans include regeneration projects designed for multipurpose use and to be more environmentally-friendly.
One project awarded last week to developer BNP Paribas Real Estate will be a low-rise complex with student housing, a climbing wall and a food hall as well as offices. It is designed to be reconverted easily into more housing if needed.
“The current environment means we have to be more prudent and develop projects that can be modifiable,” said BNP Paribas Real Estate’s large project specialist Carole de Matharel.
Guice said the rental market had proved more resilient. Despite changes in working habits wrought by the pandemic, in 2021 and 2022, La Défense leased more than 200,000 square metres in new rentals, considered a benchmark for a “normal” year. Rental business was slower in 2023 but not brutally so, Guice added.
While some clients like consultancy EY are leaving La Défense for smaller premises in central Paris, the business district said it was succeeding in attracting names that had historically not considered the area, including luxury groups such as LVMH’s Christian Dior couture and its rival Kering.
Olivier Taupin of commercial real estate advisory Cushman & Wakefield said he was “very optimistic on La Défense” from a rental perspective. He added, however, that the size of leases signed had shrunk since the pandemic.
Buildings are now split between many more tenants, with some drawn to La Défense for cost reasons. Leases there were broadly stable this year at about €430 per square metre, compared with more than double that near the Arc de Triomphe in central Paris, according to Cushman & Wakefield.
In other peripheral areas around Paris, office rents are much lower still, at between €100 to €150 per square metre in some cases, but buildings are struggling to find tenants.
“The price gap has never been so high” between central Paris and the periphery, Taupin said.
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