Commercial property in Europe – A skyscraper too far

Investors are pouring into the market faster than tenants  

AT LA DÉFENSE, Europe’s biggest purpose-built office complex, workers are putting the finishing touches to the Majunga Tower. The handsome 45-floor building (pictured) in the business district west of central Paris is due to open around August. There is only one drawback. The building, currently unlet, will add 63,000 square metres to a park where the vacancy rate already tops 12%. Another big building is scheduled to open in 2014.

Vacancy rates can improve quickly, argues Olivier Gérard, who runs the Paris office of Cushman and Wakefield, a property consultant: these are big spaces for big clients, and relatively few leases will fill a building when firms feel more confident about the future. But only a few strides across La Défense’s wind-whipped main drag, the area’s biggest office block, Coeur Défense, fleetingly owned by now-defunct Lehman Brothers, is being sold again by its financially troubled current owners for a reported €1.3 billion ($1.8 billion) to an American investment outfit, Lone Star.

La Défense epitomises a paradox about Europe’s commercial-property market: a new boom has begun before the previous bust has ended. To generalise broadly across a wide range of property and economies, the mismatch between investors’ enthusiasm and the caution of occupiers has rarely seemed bigger. Investment is pouring back in (see chart), but tenants are not. Outside Britain, Ireland and Germany prime office rents were weak in 2013, says Knight Frank, another consultant.

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