Thriving In Smaller Markets
With the rising lease prices in cities such as Amsterdam, Berlin and Paris, companies are faced with a difficult choice. A longer-term office space versus a flexible, low-risk workspace. However, many companies do not have a choice because of the low vacancy rate in these office markets. A very low vacancy rate obliges companies to lease a coworking space. Besides that, the uncertainty of the current economy could eventually cause a rise in the vacancy rate again, influencing the choice of companies for a longer-term or flexible coworking space.
An example of an office space market like that is Paris. The vacancy rate is currently so low that companies cannot afford to lease their own office space. The cause of the vacancy rate is determined by many factors, such as urbanization and the global- or local economy.
Given the current vacancy in Paris City (2.3 percent) and Greater Paris (5.1 percent), it can be quite difficult to make a move with your company. These low vacancy rates also have a price boosting effect. The rise in prices for leasing an office space is one of the reasons coworking is becoming more and more popular in Paris. Let's take a deep dive in the vacancy rates of Paris, the different types of workspaces that are offered and their prices.
The graph (source) below shows that the vacancy rate in Paris City is at its lowest level since 2007 (2.3%), the expectation is that there will be few fluctuations in this ratio during Q3 of 2019 (Q2 2019 was 2.3%). The vacancy rate percentages of the suburbs of Paris and Greater Paris are also declining and nearing the lows of 2007/2008. Given the recent economic growth in 2017/2018 and the delaying effect in the office lease market, the expectation is that these numbers will stabilize or even drop somewhat further.
Prices in Paris vary greatly by area. The most popular region, Paris City, averages €720 per square meter per year. In the first quarter of 2019 there was a peak of €840 per square meter in a WeWork transaction. Given the low vacancy rate, the expectation is that the upward trend will continue for Paris City in Q3 & Q4 of 2019.
The other areas around Paris have a more sideways trend over the years. The lower vacancy rates have a less price-increasing effect here on these areas. The expectation is that the sideways movement will continue in the coming quarters.
In Paris Central Business District (CBD), conventional office space is scarce and at an all-time low vacancy rate of less than 2 percent. In terms of costs, we have calculated that it could only be advantageous to lease a conventional office space for more than fifteen workstations. This has to do with the additional costs involved in a conventional office, such as renovation costs, service charge, office furniture, and high-speed internet. At the moment the price per square meter is on average €720,- m2/year. But as stated above we expect a further rise in prices.
Another possibility is to lease a serviced office through a business center. The big advantage here is that everything is arranged for you, it's turn-key. All preconditions will be taken out of your hands and the entrepreneurs can fully focus on their business. Of course, this will have a different price tag. To have an office at a business center in Paris, you must pull out your wallet. The price range is from about €600 to €1200 per workstation.
The above facts force companies to look for alternatives as well. This results in a growing coworking market in Paris. There are several reasons for this. The price of a coworking workstation is about €300-€400 per month, but the price is not the only advantage of leasing via coworking. Companies can have flexible lease contracts here and can therefore easily scale up and down during economic uncertainty. Employees can also network with like-minded people and other companies. For example, departments of companies can also be hosted by a coworking provider at one of the best locations in Paris. This, in turn, enhances employee satisfaction.
If we consider the entire office market in Paris and surroundings, approximately two percent of this market in 2018 consisted of coworking spaces. Given the strong growth of the coworking concepts such as WeWork and Knotel in Paris, we expect coworking to cover approximately five percent of this market within two years.
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