Paris office market welcomes minor Brexit boost during difficult time

La Defense, Paris' financial district, has been among the office submarkets in the city hit hard by the COVID-19 pandemic.
Source: Frédéric Soltan/Corbis via Getty Images

2020 will live long in the memory, but not in a good way. Among the many things COVID-19 managed to ruin in the strangest of years was a record-breaking hot streak in the Paris office market.

After the best year on record for office investment and another strong leasing performance in 2019, the Greater Paris office market sank in 2020. Investment fell by 36% to €9.4 billion in the first three quarters of 2020 compared to the same period the year before, according to real estate services firm Knight Frank. The region's leasing market fared even worse, seeing its worst quarter on record in the second quarter, its worst third quarter on record, and the likely prospect of the worst year for leasing on record, Knight Frank said.

Amid such gloom, one of the few glimmers of light was the relocation of some companies' operations to Paris from London due to Brexit. U.S. financial services giants JPMorgan Chase & Co. and Goldman Sachs Group Inc. were among the more significant players to announce deals in the Paris office market as they adjust to the implications of the U.K.'s departure from the European Union.

"This [relocation] is only a small share of all lettings activity," David Bourla, partner, chief economist and head of research at Knight Frank said in an interview. "But at a time when demand has fallen so dramatically, the impact of Brexit is more important."

Companies have been forced to relocate some or all of their operations from London to cities in the EU to retain access to the political and economic bloc's single market for goods and services. The U.K. left the EU on Jan. 31, 2020, after which it entered a transition period that gave it access to the EU's single market and customs union until Jan. 1, 2021. The U.K. and the EU struck a trade deal on Dec. 24, 2020, which allows tariff-free trade of goods to continue between the two.

Brexit beneficiaries

The Greater Paris region, or Île-de-France, is among the leading beneficiaries of Brexit-related relocations, according to a March report by Knight Frank. Paris had attracted 82 definite, potential and actual relocation projects as of March 1, 2020, second only to Dublin which has attracted 117.

Paris caught up and then overtook third-place Luxembourg as a favored relocation destination for businesses, the report said. German financial hub Frankfurt had been close behind Paris in the rankings at the end of 2018, but now sits in fifth place. Amsterdam is the fourth-most popular relocation destination.

JP Morgan's expansion in Paris was announced in January 2020 when it revealed that it was buying a seven-story, 6,600 square-meter building in the center of the city from BNP Paribas. The building is close to its Paris headquarters in Place Vendome and will house up to 450 staff.

Developer SFL revealed in June 2020 that Goldman Sachs had signed a 12-year deal for 6,500 square meters of space in an office building close to the Arc de Triomphe.

The deals were among the largest in the city in 2020 in terms of floorspace and were also signed at record high values, according to Bourla.

Such Brexit-related deals are not a "market defining factor," but they do give the Paris office market a boost, said Tristam Larder, joint head of offices and portfolios in the Europe, Middle East and Africa region at real estate services firm Savills.

"It's all about confidence," he said. "It gives more confidence that Paris is well-placed to capture [Brexit-related business] and it attracts investors because there is an even better story on the occupational side."

Overblown Brexit predictions

While the full impact of Brexit has yet to be felt, many earlier predictions about the scale of company relocations due to Brexit appear to have been overblown. In 2017, the CEO of the London Stock Exchange forecast that up to 230,000 jobs in London's financial services sector alone could be lost if post-Brexit operations were unclear.

A recent survey by the Financial Times of 24 major international banks and asset managers found that the majority had increased their London headcount in the last five years. France's BNP Paribas SA, Switzerland's UBS Group AG and Japan's Mitsubishi UFJ Financial Group Inc. are just some of the major international banks to have boosted their U.K. employee numbers in recent years rather than shifting a large number of jobs to EU cities.

Paris' financial sector is now estimated to gain between 3,000 and 3,500 new roles as a result of Brexit relocations, a fraction of the 100,000 jobs the sector already has, Bourla said. The figure is significantly lower than the 10,000 new jobs projected by some shortly after the EU referendum in 2016.

Still, the symbolism of such jobs relocating to Paris may well prove to be more important than their number, Bourla said. "It's important in terms of international visibility, but not necessarily in terms of the direct economic impact."