Lyon: The commercial real estate market is showing stability

While the commercial real estate market in the Aix-Marseille metropolitan region recovered in the third quarter, the Lyon market has been slowing down since the first half of the year, as confirmed in the third quarter. In the last3 months,49,100 square meters were occupied, with demand reaching around167,350 square meters in380 transactions since the beginning of the year. This volume reflects a27% annual decrease and remains18% below the ten-year average. "The Lyon market continues to face the wait for major companies due to the economic situation, directly impacting the occupied area. However, we observe market stability in the PMS and Mid Market segments, which remain active," says Stefan Julien, director of JLL Lyon's office department.

Since the beginning of the year, around60,000 square meters have been occupied, which represents36% of the total demand, and the PMS sector continues to show dynamism in the face of a more challenging economic situation. The large deal segment, while still feeling the absence of very large deals (>10,000 square meters), remains active in the <10,000 square meter range, where demand remains, especially for new/reconstructed properties, which make up almost half of the total demand. It should be noted that reconstructed buildings account for34% of new commercial areas, which is a symbol of the current regeneration process in Lyon. Furthermore, the activity of educational institutions, which make up18% of the demand with29 movements, confirms the strong student life activity in the Lyon Metropolis.

343,000 square meters are available. On the real estate market in Lyon, supply significantly increased in the third quarter, totaling343,000 square meters, which is13% more than last year. Due to a large number of constructions, this increase is particularly noticeable in new properties, accounting for36% of the total supply. In this context, the vacancy rate rose to4.5%, with4.4% on average within the city. "Supply is increasing, but rental rates remain stable," adds Stefan Julien. Prestigious rates are strengthening, especially for operations according to the latest standards in the Part-Dieu area, where they reach350 euros/square meter/year for refurbished properties. In a more challenging economic situation, demand for office spaces remains supported in the Lyon market. With380,000 square meters of offices under construction,60% of which are still available, Lyon has the opportunity to meet a wide range of needs and requirements of local players in the field of the environment. These opportunities, meeting user needs, combined with the strength of Lyon's economic structure, indicate the market's strong ability to recover in the future.

Summer is out of trend in the French market.

While the French investment market continues to face several major challenges in an unstable environment due to rising interest rates, the Lyon region has experienced quite an active summer.

With over 3.4 billion euros invested in the regions, Lyon remains a leader among regional metropolises, attracting 16% of volumes outside the Île-de-France region. "All segments of transactions have been affected by the overall decline in activity, but deals ranging from 15 to 40 million euros have proven to be the most resilient, decreasing by 27% compared to the same period in 2022, totaling nearly 193 million euros by the end of September. In the last three months, four new deals have been registered, including the acquisition of the 'Cours Midi' building by the GROUPAMA GAN REIM group in the Confluence area. The most significant decline is observed in transactions under 15 million euros (-53%), with 72 deals amounting to 183 million euros since the beginning of the year, while last year during the same period there were almost twice as many deals - 108.

The office market in Lyon has shrunk by 45%.

The office market in Lyon recorded €288 million in investments by the end of the third quarter, representing a 45% decrease in volume compared to last year amid a reduction in the average deal size. Commercial spaces continue to be in demand in the Lyon market, attracting a quarter of the volumes and showing results that are slightly down compared to last year (-10%), but exceeding the average over the past 10 years by 133%. However, the majority of investments were made in the first half of the year through various asset parks acquired by ARC EIFFEL INVESTISSEMENT, THEOREIM, and PAREF. During the summer, the Lyon region revived after a prolonged first half in the logistics market, thanks to the sale of the "Camelia" portfolio, which includes 2 warehouses in Angers and Saint-Quentin-Fallavier. The share of funds invested outside of Lyon is increasing quarter by quarter, reaching 60% of activity by the end of September (compared to 35% throughout 2022). The Northern Isère and Coteaux sectors account for 28% of activity, supported by the sale of industrial assets. The Northwest Lyon area also stands out due to 2 acquisitions made by MIDI 2I in Dardilly ("Air 44" and "Mini Parc 2.0"). Overall, volumes within Lyon are defined by the "WELINK" operation, while the number of deals remains very limited in the city due to a lack of opportunities. While an average of €640 million was invested in the fourth quarter over the past 10 years, the Lyon investment market is unlikely to see a notable year-end finish as usual. Currently, investors are in a wait-and-see mode. "Given the historical level of the ECB's base interest rate and its impact on 10-year government bonds, prime office yields in Lyon continue to decline and are in the range of 5.00% to 5.25% by the end of the third quarter," emphasizes Gilles de Fontaine. He concludes: "The phase of price adjustment continues alongside investor expectations, which is indeed affecting the performance of business activity in Lyon in the next quarter, but the expected correction of valuation levels by the end of 2023 will offer new liquidity for sellers in a market that remains healthy."