2019-09-16-TransactionalServicesProposalDechertParisFINAL

Market Context

Understanding the market context is of course critical to establishing a realistic real estate strategy. Almost all major law firms are concentrated in the core Paris CBD, a situation which we do not see changing. Unlike New York, or Central London, the Paris CBD does not offer high-rise space. In addition a significant proportion of the office stock is accommodated in either historical buildings, or behind historical facades. To this extent the Capital 8 building is an exception. This leads to a structural deficiency of high-quality modern space. It also makes for an agreeable working environment, which attracts a wide range of users - from professional services to high tech/web companies. The Paris CBD resists well even in periods of economic recession, whilst the last two to three years have seen demand rising sharply. The CBD market has been put, somewhat artificially, under even greater pressure since 2017 due to the intense activity of co-working providers, notably WeWork but also Kwerk and IWG plus a myriad of local operators. These companies have been particularly active in the pre-letting market, soaking up future supply. After a period of declining landlord incentive packages, the last 12 months have seen rising head- line rents. Given the shortage of space, including looking forward into 2020 and even 2021, we expect this trend to continue. A substantial proportion of the 2020 supply of prime space is already pre-let, with landlords favoring single tenants for building, which renders pre-letting of part only of newly-renovated buildings difficult. Annex 1 provides further information on market conditions. Cushman & Wakefield carefully tracks future building deliveries, at the same time anticipating tenant departures in order to identify future supply. As indicated above, we have already identified a number of credible, single-occupier properties offering 40 - 50 000 sq ft that would be ready for occupation in 2022. We include a selection of such properties in Annex 2.

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