High demand from large corporations for central Paris office space will put further pressure on low vacancy levels and push rents higher through 2018 as France's economy builds on its strongest year of growth in 10 years, according to local industry analysts.

In 2017, France's gross domestic product growth reached 2.4%, levels last seen in 2007, according to the latest figures from Eurostat. The International Monetary Fund expects growth to remain stable at 1.9% in 2018. Increased business activity is creating jobs and boosting demand for office space across the French capital.

The fourth quarter of 2017 saw a record office leasing transaction volume of 854,000 square meters for the Paris region, according to a report by real estate services firm Colliers International. This took total take-up for the year to 2.6 million square meters, the best performance since 2007. Transactions above 5,000 square meters, usually by large corporations, amounted to 43% of the region's total take-up, according to the report.

Central Paris had a "really good year" for large office space, representing 41% of the overall region's total take-up in 2017, Arnaud Violette, general manager for business development at Colliers International, France, said in an interview, resulting in a vacancy rate of 3%. "So we have a lack of office [space] in inner Paris right now," Violette said.

Competition for space in the highly prized central Paris business district is likely to heat up as the year progresses, according to Magali Marton, head of research, France, at real estate services firm Cushman & Wakefield. Deals in the Paris central business district for the highest-quality properties have already been recorded at €800 per square meter, she said, and the expectation is that values could reach €850 per square meter in 2018 thanks to increased demand among large corporates amid short supply.

The listed landlord best-placed to take advantage of the favorable conditions in central Paris is TERREÏS, with Société Foncière Lyonnaise and Gecina not far behind, according to Vladimir Minot, real estate equity analyst at Invest Securities. However, this is already reflected in their share price valuations, he said. "If you look at the price to cashflow multiples, [real estate investment trusts] like Gecina, Terreis and Fonciere Lyonnais are trading a bit over 25 times the profit while REITs [with more assets outside central Paris] like Foncière des Régions or Icade are trading close to 15 times," he added.

The lack of supply in the center of the city is benefiting other submarkets in the Paris region, Colliers said it in its report, with the Western Crescent recording a comparable volume of transacted space to Paris' central business district, and the largest growth in transaction volume from 2016.

Paris-based businesses also face the prospect of greater competition for space from corporations and European agencies relocating part or all of their operations from London as a result of Brexit. In October 2016, Bloomberg reported that Bank of America signed a lease for 9,300 square meters in a building in Paris' 8th arrondissement, enough to accommodate 1,000 workers. Other major financial institutions, including Citigroup, are also reported to be considering relocating jobs to Paris, as companies make plans to maintain access to the European Single Market.

Marton said the more peripheral areas of Paris could continue to benefit if supply remains tight in the center of the city and rents begin rising. "We know that the large corporates are quite keen to stay in Paris if they have enough money, because in terms of accessibility [and] quality of life it's good. But we know that some of the corporates are not rich enough to pay €500, €600, €700 per square meter. So from a business point of view it could make sense to have maybe part of your staff working in what we call the inner or outer suburbs," Marton said.

Beyond the welcome headlines, though, such moves will not affect the local office market, Minot said. "All that is positive, but does it have a huge impact on the take-up? If you [have] 10,000 employees come to Paris, [it's] quite marginal compared to [total] Paris office stock and to the [total] take-up."

However, the medium to long-term impact of Brexit on the Parisian economy could be more profound, Violette suggested. The effect of Brexit uncertainty on London's French population, which is the largest beyond France itself, could see thousands of highly skilled workers return home, many of whom work in the financial sector.

"We have witnessed a lot of French people coming back from London, and especially to Paris," said Violette. "It's something more [for] the long term; it is something that is going to structure Paris as a financial hub [for] fintech."