Overview of the Office Market at La Defense Harvard Case Solution & Analysis

Overview of the Office Market at La Defense Case Solution

Paris is the most popular and capital city of France. It is densely populated with about 12 million inhabitants. The population totals the 18% of the total population of France. Paris is known for having the largest office market in Europe. Paris is situated at around 53 million square meters. Paris is one of the transparent property markets in the world. It is the third largest city after Tokyo and New York.

Approximately 10 – 12 billion Euros are spenteveryyear in the Real estate of Paris. The La Defense contributes about 5.5% to 6% of this investment. La defense is foremost business hub or district of the Paris. Moreover,La defense is the largest business purpose built district in Europe. There are 18 complete Skyscrapers of 72 steel and glass buildings in La Defense. The 3.5 million square meters is home for 2,950 businesses and companies with more than 180,000 daily workers.

La defense is home for major industrial companies, finance houses, insurers and advisory groups. The figures below have the latest vacancy rate of La defense of 12% whichillustrates the occupancy rate of 88%, we have assumed 100% of the vacancy rate for the case. The prime rent of La defense is about 520 Euros per square meter and a prime yield of 5.5% to 6%.

The decline of 43% in the take up of the La Defense market was observed in 2015. The decline was compared with the market’s strong capabilities in 2014. The 2014 year was memorable year for the real estate holders asthey nearly broke the records in the rental market.

The size of the transactions can be observed at a decreasing phase. In the year 2014, 57% of the transactions were greater than or equal to 20,000 square meters, whereas no huge transactions tookplace in year 2015. Furthermore, 37%of the transactions made in year 2015 were of area between 5,000 to 20,000 square meters. The 48% of the transactions made in year 2015 were of medium areas that conclude area between 1,000 to 5,000 square meters and the remaining 15% transactions are considered as small areas transactions that range less than 1,000 square meters.

The vacancy rate for the La defense is approximately 12%. A dramatic raise is observed in year 2013 whereas, it was less than 6% in year 2012. The huge vacancy of approximately 12% in 2015 wasdue to the winding down of the businesses.

The 36%comprises of the new or redeveloped areas in the available supply in the LaDefense that is decreasing as compared to previous year’s 45%. The regional lack of quality supply can becomean opportunity which couldempower the original profits in terms of potential and efficiency for A class offices.

The increasing rent of approximately between 520 to 540 Euros per square meter is considered as a sign for the users relying on saving cost or small business consumers. The incentives are still high in La defense whichmake it high value for the real estate businesses which mayprobably decline in the near future.

Comment on the proposed acquisition price

The net initial is the actual net rent of the leased area. Most of the times it is misunderstood with the net operating income. It is used as a substitute of the cash flows in case the property is fully leased and the operating charges and expenses are covered by the occupants or renters itself.

The net initial yield of the office tower in the La defense is observed as 650 euros per square meter which sums up to a total of 21,825,000 euros including 19,500,000 euros from office space plus the 2,325,000 from the parking and technical area...................

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