Focus: Paris' La Defense seeks revival with smaller, greener offices

Unibail-Rodamco-Westfield SE

28/06/2024 07:00

By Mathieu Rosemain
       PARIS, June 28 (Reuters) - Paris's La Defense business
district is betting that modernising more than 300,000 square
metres (3.2 million sq. ft) of offices into greener and more
flexible work space will lure back companies and ease record
high vacancy rates.
    With brutalist architecture and modern skyscrapers
dominating the skyline to the west of the Arc de Triomphe, La
Defense is considered Europe's largest purpose-built business
district. As in commercial city areas elsewhere, offices emptied
during the pandemic and deals collapsed. The vacancy rate jumped
above 15% from less than 10% pre-pandemic, far higher than the
2% vacancy rate in central Paris, according to property agents.
    Many of its towers are dated and environmentally unfriendly,
but it would be too expensive to demolish or convert most of
them for other uses. 
    The head of Paris La Defense, the public body that runs the
area, told Reuters the plan was to renovate in the next few
years for tenants wanting less, but greener, space. The plan
will start with 300,000 sqm, almost a tenth of La Defense's
entire footprint. 
    One selling point is that average rents of about 550 euros
($588.61) per sqm are half those in supply-squeezed central
Paris, agents estimate. Before the pandemic, central districts
were about 40% more expensive than La Defense.
    There are tentative signs of improving demand. Vacancy rates
slipped from a record of nearly 16% last year to 15% in early
2024.
    French IT services company Sopra Steria  SOPR.PA  has moved
into eco-friendly offices in a 1970s building that was
reconfigured two years ago. It now boasts a Parisian-style
restaurant-filled interior street.
    "If you want to attract the best talent, you have to have
very modern, very functional premises that facilitate teamwork,”
Sopra Steria's Chief Executive Cyril Malarge told Reuters. "You
want to make sure  people  want to stay in the office as long as
possible." 
    It will not be easy to fill cavernous offices. 
    Aymeric Le Roux, an executive at property agent Savills,
said newer buildings remain easier to rent than older sites,
citing the rapid leasing of Unibail-Rodamco-Westfield's (URW)
 URW.PA  Trinity tower.
    Some big projects have been axed. URW said in February it
was pausing the planned twin towers "Sisters" project.
    France's upcoming snap election could further rattle
confidence if it produces a eurosceptic, far-right government. 
    "There are fewer big corporates taking on leases," Savills'
Le Roux said. 
    "But it's not as bad as it looks," he added, with today's
tenants wanting cutting-edge buildings that "the stock in
 central  Paris is not offering" at scale.
    
    URBAN PARK
    The concept of La Defense, today home to CAC 40 companies
including Vinci  SGEF.PA  and Societe Generale  SOGN.PA , dates
to the 1950s when plans were drawn up for a business district to
replace run-down housing and small factories in the area. The
first skyscraper topped out in 1966. The metro, shopping centres
and the vast office complex of Coeur Defense followed. 
    Supporters say La Defence has weathered previous downturns
and can do it again. 
        Paris La Defense now selects property projects on their
energy and environmental credentials and is turning the main
concrete public esplanade into a five-hectare urban park to be
opened in 2027.
        Lower-carbon and some renewable energy is used to meet
part of the local power needs, and building management systems
automatically switch office lights out at night and maintain
temperature control.
    "We're starting from a neighbourhood model that is extremely
energy-intensive, extremely monofunctional," Paris La Defense
CEO Pierre-Yves Guice told Reuters from his office overlooking
the area. 
    "Despite what people may say, our ideas are still very
rational, very adaptable to the needs of companies, and we can
accommodate both large and small companies," he said.
    That gives it an edge over central Paris where buildings are
smaller, many of them from the 19-century and built of brick,
limiting the use of more energy-efficient building materials. 
        La Defense will soon house France's tallest skyscraper,
the 242-metre tall The Link, which opens next year to house
long-time La Defense resident TotalEnergies  TTEF.PA .
    The cost of renovating 300,000 sqm of offices to modern-day
green standards will reach hundreds of millions of euros,
experts estimate, shouldered mostly by big developers such as
URW and Vinci. 
    To attract younger workers and companies, developers are
building more apartments and transforming some older buildings
into student housing or trendy hotels.
    That resembles efforts in other cities hit by a downturn
like London's Canary Wharf.
    The challenge for La Defense now will be catering to smaller
firms and the big companies wanting less space. Luxury groups
Kering  PRTP.PA  and LVMH's  LVMH.PA  Christian Dior  DIOR.PA ,
for example, recently shifted parts of their back offices there.
  
    Typical buildings in La Defense have been occupied by one or
two companies but that could rise to 10 to 15, said real estate
agency JLL France's Yannis De Francesco.
    "It's a completely different way of marketing from the one
we used to have and, incidentally, it takes a little longer,
because you have more contracts to sign," he added. 

($1 = 0.9344 euros)

 (Reporting by Mathieu Rosemain
Editing by Tommy Reggiori Wilkes, Susan Fenton and David
Gregorio)
 ((Mathieu.Rosemain@thomsonreuters.com; +33 1 8098 1239; Reuters
Messaging: mathieu.rosemain.thomsonreuters.com@reuters.net;
Twitter: https://twitter.com/MathieuRosemain))