Office: Europe review and Paris deep dive

At the European levelsTake-up approaching 2022 peak, with German, UK and Dutch markets particularly activeHowever, vacancy has not stabilized yet…… particularly in Bottom Tier 1 locations, highlighting a deepening of the polarization topic (see our previous study Don’t throw performing office districts with the bathwater, from July 2024 for more detailsPrime yields are stabilizing around 5.2% in Europe… but the fair-value might decompress further next year as LT Govt yields are still on the riseAt the Paris Region levelVacancy is rising and should exceed 10% by year-end, while incentives are also rising to a record high of 28.4%, with ImmoStat’s figures as of Q3-25 confirm the trendNegative net absorption is largely reflecting occupiers’ trend to downsize their office footprintWe updated our scoring grid for Paris Office sub-markets:we continue to prefer Paris CBD, Centre West and 5-6-7 based on low supply absorption and robust liquidity,we remain UW in Peri Defense, Norther Inner Rim and Paris 18-19-20,we upgrade our view on La Défense to OW : increase in take-up, lower supply absorption…while we are lowering our recommendation on Southern River Bend to UW, based on a significant increase in vacancy and a much softer take-up dynamic. Furthermore, arbitrage strategies might drive further demand into La Défense at the expense of Southern River Bend as rents are often comparable while commute dynamics to CBD are very different.