There has been a global shift to a more balanced hybrid work model over the past 12 months. Many companies want people to return to the office, amid concerns about creativity, productivity and maintaining company culture in a remote environment.

In France, where home working was less prevalent, this shift has been less pronounced but still noticeable. The transition to a more even division between home and workplace has impacted office space take-up over the past two years, demonstrating a preference for smaller, well-connected locations and flexible office solutions.

However, companies are also realising the limits of simply cutting down on office space. Lower occupancy rates on Mondays and Fridays are offset by midweek usage of 70%.

Combined with ongoing economic uncertainty affecting demand and leasing activity, the trend for reduced office space usage looks set to continue for the foreseeable future. Across the Ile-de-France area, this is likely to translate to a total leasing activity of less than 2 million square metres per year in 2024 and beyond.

What are the take-up trends?

Office space leasing in Ile-de-France (Paris area) slowed significantly throughout 2023 – down 17% on the previous year and 14% on the 10-year average.

This decline has affected all segments of the market – particularly the volume and number of transactions for larger spaces (over 5,000 square metres). The average size of major transactions also fell, from 13,500 to 11,100 square metres.

Leasing activity picked up slightly in the last quarter, but overall demand remains lower than usual.

Despite the slowdown, Paris’s central business district continues to be attractive, with leasing levels slightly above the 10-year average. Occupiers are increasingly prioritising high-quality, Grade A office spaces with environmental, social and governance (ESG) certification, facilities for cyclists, and electric vehicle charging stations. This reflects a shift in how companies approach workspace and employee needs.

How is the upgrade to green standards progressing?

In recent years, stringent environmental standards have become integral to the construction and renovation of office buildings.

Despite this progress, only 43% of Paris’s 56 million square metres of office space meets these standards – and some of these buildings may already need to be updated to conform to new standards.

Nonetheless, investor demands to align with ESG objectives mean the greening of office buildings is gaining momentum. Socially responsible investors (SRI) are driving this trend, following the 2020 extension of the SRI label, promoting sustainable finance practices, to include property funds.

These updates to the SRI label have significantly impacted the value-add market segment. Owners of buildings that require major work or fail to meet ESG criteria are faced with a dilemma: invest in costly renovations or withdraw assets from the rental market to avoid SRI scrutiny. This could lead to accelerated sales of non-compliant assets at lower prices, while financially capable owners may prioritise investment in assets with higher potential to meet ESG standards.

How are demand and supply dynamics likely to evolve?

One notable trend in Paris is a reduction in the volume of office space companies are taking on, which has created a growing surplus of available space, particularly vacated second-hand properties. These now make up more than 70% of the available stock in the region.

This surplus raises questions about the viability and future prospects of buildings that may no longer align with the evolving needs of potential occupiers. Landlords and investors will need to reassess their strategies to address this shifting landscape, and consider repurposing or renovation to meet emerging demands.

At the same time, prime rental values in central districts have substantially increased, leading to a slowdown in leasing activity. Inner suburbs that offer a mix of favourable rents and accessibility could become more popular with tenants as a result.

On the supply side, the construction slowdown anticipated beyond 2024 suggests a looming shortage of new office properties. Disparities between index-linked rents and actual market values will necessitate strategic adjustments for Paris-based companies, potentially leading to relocations from central districts and renegotiations in other locations.

As a result, stakeholders must navigate supply-and-demand dynamics while strategically positioning themselves to capitalise on emerging opportunities in the evolving Parisian office market.

What are the challenges and opportunities in the repurposing process?

The ongoing discussion surrounding the conversion of office buildings reflects a number of challenges, such as rising office vacancies, ageing office stock, and a housing crisis characterised by insufficient supply in major French cities – particularly Paris.

Another factor is the legal mandate of “zero net artificialisation” of land. This aims to curb urban sprawl by limiting development to already built-up areas and restoring green and blue fabric. Repurposing office buildings into housing could emerge as a potential solution in this context, attracting attention from investors and catalysing the creation of specialised funds.

However, this transformation faces various technical and political hurdles. The excessive size of some office buildings, for example, could limit repurposing options, as some flats would either lack natural light or need to be huge to reach the perimeter windows. And while national authorities may advocate for use transformation, local municipalities responsible for granting building permits may prioritise office spaces for tax reasons.

One potential avenue is the “renaturation” of poorly located buildings to alternative uses such as urban farming. While politically appealing, this approach has only tentatively been explored in brownfield redevelopment projects, and for a transitional and temporary period.

These transformations signify a complex interplay between regulatory frameworks, market demands and environmental considerations, shaping the future trajectory of urban development strategies.