Zoom on the crisis in the French commercial real estate market

The outbreak of the Covid-19 health crisis at the beginning of 2020 — as well as the subsequent sudden return of high inflation, and the change in monetary policy in mid-2022 — has led the French non-residential real estate market into an ongoing crisis, the extent of which is currently difficult to determine. 2023 saw a sudden and very steep drop in investment volume. This downturn intensified in H1 2024: -51% in 2023 and -46% in H1 2024. There has also been a concurrent decline in take-up, (-16% in 2023 and -5% in H1 2024), accompanied by an increase in immediate office supply that has reached unprecedented levels.

Added to these flagging indicators are questions about a possibly profound market restructuring taking place. This is mainly due to lower demand for office space with the increase in remote working, as well as the cost impacts of green policy-based regulatory constraints, and the obsolescence of a significant amount of office stock.

In the past 40 years, the French commercial real estate market has gone through five major crises, each affecting the rental and investment markets to different degrees. “Crisis” comes from the Greek “krisis” and the verb “krinein” which means “to sift, sort, or separate grains”. Crisis, despite their brutality, should also be regarded as a pivotal moment, redefining the fundamental conditions of both the present cycle and the eventual market rebound.

In order to better appreciate the contours of the current crisis, we have chosen to take a look in the rearview mirror: how has the commercial real estate market responded to the different economic cycles since the beginning of the 1990s? What lessons can we draw from these responses to shed light on the current predicament?

This re-examination should allow us to take a step away from the fog of the present. Most critically: are we witnessing a natural rebalancing between supply and demand, or a genuine market paradigm shift?