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Office rentals dropped in 2013 as a result of low growth and uncertain outlook (down 25% in 12 months). Rise in immediate supply to 3.9 million sqm. Nevertheless, Grade A properties still only account for less than 20% of vacant stock. In this context, rents remain under pressure. Most of the decline in values in Paris CBD has been recorded in 2013. With €11 billion invested in 2013, the investment market maintains its trend for dynamic growth. 30 transactions over €100 million recorded in 2013. The prime yield for the Central Business District fell to between 4.25 and 4.50%.
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The office market in the Greater ParisRegion – 4th quarter 2013
Contrasting performance ofthe leasing and investmentmarkets
Office rentals dropped in 2013 as a result of low growth and
uncertain outlook (down 25% in 12 months).
Rise in immediate supply to 3.9 million sqm. Nevertheless, Grade
A properties still only account for less than 20% of vacant stock.
In this context, rents remain under pressure. Most of the decline
in values in Paris CBD has been recorded in 2013.
With €11 billion invested in 2013, the investment market
maintains its trend for dynamic growth.
30 transactions over €100 million recorded in 2013.
.
The prime yield for the Central Business District fell to between
4.25 and 4.50%.
On Point • The office market in the Greater Paris Region – Q4 2013 Page 2
Office rentals: a strugglingmarket
ImmoStat has just published its figures for 2013 and it is no surprise
that the slowdown experienced at the start of the year is still
ongoing. Take-up in the Greater Paris Region ultimately reached
1.845 sq m, down 25% since 2012. This is the slowest rate of
growth seen in a decade.
Nevertheless, the downturn in activity was not as bad by the end of
the year as during the first three quarters of 2013. In fact, for the first
time in twelve months, quarterly take-up broke the 500,000 sq m
barrier Q4 alone.
The decline in activity of the large segment (>5,000 m²) was notable,
recording a 45% drop in 2013. Finally, 53 deals for properties over
5,000 sq m were completed, representing approximately 655,000 sq
m compared to 73 transactions in 2012 for 1.2 million sq m.
It is primarily major turnkey operations that are missing from the
picture this year, since they account for only 11% of take-up despite
having represented nearly a quarter of volumes rented in 2012. This
high level of activity had largely contributed to the good rental
performance in 2011 and 2012.
Office rentals dropped in 2013 as a result of low growth and
uncertain outlook. The persistent unpredictability of the business
environment has prompted a large number of companies to
renegotiate their leases rather than move, thereby avoiding the
costs of relocation and the widespread repercussions on staff that a
move can have.
Ratio of turnkey transactions in the total take-up(yoy change)
Source: Jones Lang LaSalle
Macro-economic data as at Q4 2013(yoy change)
2013 Yoy change
GDP (3rd quarter) -0.10%
Salaried employment (3rd quarter) -10,734 -0.3%
Business climate (Dec.) 94
Source: INSEE
Greater Paris Region KMI’s Q4 2013(yoy change)
2013 Yoy change
Total take-up 1,844,497 sq m
Immediate supply 3,925,000 sq m
Immediate vacancy rate 7.5%
Prime rent €710 /sq m
Average 2nd hand rent €312 /sq m
Source: Jones Lang LaSalle/ImmoStat/ORIE
24%
11%
2,464,000
1,844,000
0,0
0,5
1,0
1,5
2,0
2,5
2012 2013
In million sq m Turnkeys
Excl. turnkeys
As we indicated several months ago, the sharp dropin large transactions, in particular major turnkeyprojects, has affected the figures for 2013 since theshortfall we are experiencing accounts for more thanhalf a million square metres, down 45% compared to2012.
On Point • The office market in the Greater Paris Region – Q4 2013 Page 3
A handful of sectors are doing well this year
Broken down by region, results vary greatly from sector to another
one, with very few markets doing well this year. In central Paris,
demand has fallen by 19%. All sectors are experiencing a downturn
in the capital, except Paris Centre West (including CBD) which is
bucking the trend with a 4% rise in activity since last year. Despite a
highly complex economic environment, companies have not
remained frozen, since the sector recorded 10 transactions over
5000 sq m (vs. 8 in 2012), the largest being Klesia (~15,000 sq m) in
Rézo, and TGI (~30,000 sq m) in the ZAC Clichy-Batignolles, two
new buildings under construction.
Take-up in the La Défense market was disappointing at 110,000
sqm, a decrease of 34% in 2013. There were only 4 deals for
properties greater than 5,000 sq m (vs. 7 last year), the largest
being ERDF in “Tour Blanche” (~22,000 sq m). In Q4, Egencia
leased 5,600 sq m in “Tour Egée”.
In the Western Crescent, the rental market performed well on the
whole, contrary to the widespread downturn at regional level. First
prize goes to Neuilly-Levallois, which saw a 76% increase thanks to
two major transactions signed at the end of the year in Levallois:
Cetelem (~35,000 sq m) in Q3 and SAP (~28,000 sq m) in “So
Ouest” in Q4. Second and third place are held by the Northern Bend
and Southern Bend sectors, which also had a good year. L'Oréal
took on further office space in Clichy in the “Nuovo” development
(~21,500 sq m), whilst in Boulogne and Issy, several companies are
being seduced by the number of quality premises, the great
accessibility of the area and the attractive rents. Q4 also saw a
particularly high number of major transactions: Banque Postale in
“Bords de Seine 2”, CocaCola in “Noda”, Boursorama in “You” and
Vinci in “In Situ”.
In the inner suburbs and southern outer suburbs, rental activity in
contrast experienced a sharp decline on account of the large
number of major transactions completed in these areas in the
previous year. However 2013 was marked by the following arrivals:
Eiffage (future campus) in Vélizy, Orange in “Eastview” (Bagnolet),
Ericsson in “Hélios” (Massy), HAS in “Green Corner” (Saint-Denis),
Dassault (extending their campus) in Vélizy and Lafarge in “Le
Panoramic” (Clamart).
Number of large transactions > 5,000 sq m(as at 4th quarter of the year)
Source: Jones Lang LaSalle/ImmoStat
Take-up change by surface area(12 months change)
Source: Jones Lang LaSalle/ImmoStat
« So Ouest » - Levallois
35% 35%44% 43% 44% 44% 45% 48% 48% 48%
37% 36%
0,0
0,5
1,0
1,5
2,0
2,5
3,0In million sq m
< 5,000 sq m> 5,000 sq m
On Point • The office market in the Greater Paris Region – Q4 2013 Page 4
Take-up change as at Q4 2013(split by sub-market)
Source: Jones Lang LaSalle/ImmoStat
On Point • The office market in the Greater Paris Region – Q4 2013 Page 5
Available supply shoots up by 9% in one year
The weakening of the rental activity has contributed to the marked
increase in available supply. By the end of the year, office supply
had reached unprecedented levels, with 3.925 square metres
immediately available, accounting for 7.5% of the office stock. This
rise was largely driven by vacancies arising in existing buildings,
whilst there were only limited deliveries of available new buildings in
Q4. The share of new premises account for only around 20% of the
immediate supply, with the proportion of Grade A properties being
even smaller.
The steepest rises were recorded in west of the Greater Paris
region, a market which saw a particularly high number of new
deliveries this year, with La Défense and the Southern Bend leading
the way with ~140,000 sq m and ~60,000 sq m respectively
delivered vacant in 2013. Vacancy rates are therefore on the up:
12.2% in La Défense and 14.2% for the Western Crescent.
In general, supply is more prevalent in the inner suburbs whereas in
the capital itself the vacancy rate remains at 5.1%, despite an
increase. Despite everything, an encouraging sign this year has
been that certain new buildings, which in some cases have
remained vacant for several years, are gradually finding tenants now
that their rents have been revised.
Rents remain under pressure
Prime rents in Paris CBD and La Défense have remained stable this
quarter, at €710/sq m and €530/sq m respectively. Over the past
year, however, CBD prime rents have fallen considerably due to the
lack of any contracts being signed for exceptional levels of rent.
Fewer than 10 deals were signed for over €700, with the maximum
being only €750. However, we estimate that most of the decline in
headline rents was recorded this year. In La Défense, the most
expensive contracts signed were for premises in the “Coeur
Défense” office complex.
As far as incentives are concerned, after a significant upturn in
2012, the figures were more varied in 2013, albeit remaining high
across all sectors. Overall, the market remains well supplied with
supply, and companies continue to have the upper hand in
negotiations.
Grade A ratio in the immediate supply > 5,000 sq m(split by market)
Immediate supply > 5,000 sq m Grade A ratio
Outer Suburbs 468,000 sq m 17%
Inner Suburbs 272,000 sq m 27%
Paris 167,000 sq m 8%
Western Crescent 599,000 sq m 42%
La Défense 373,000 sq m 54%
Source: Jones Lang LaSalle/ImmoStat
Immediate supply and vacancy rate change(by building quality)
Source: Jones Lang LaSalle/ImmoStat/ORIE
Immediate supply as at Q4 2013(split by market)
Source: Jones Lang LaSalle/ImmoStat
24%28% 26% 23% 20% 22%
0%
1%
2%
3%
4%
5%
6%
7%
8%
0,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
4,0
4,5
2008 2009 2010 2011 2012 2013
In million sq m Second hand supplyNew/Refurbished supplyVacancy rate
9%
11%
28%
10%
14%
28% Paris CBDParis (excl. CBD)Western CrescentLa DéfenseInner SuburbsOuter Suburbs
On Point • The office market in the Greater Paris Region – Q4 2013 Page 6
Vacancy rate as at Q4 2013(split by sub-market)
Source: Jones Lang LaSalle/ImmoStat/ORIE
Prime rent as at Q4 2013(split by sub-market)
Source: Jones Lang LaSalle/ImmoStat/ORIE
On Point • The office market in the Greater Paris Region – Q4 2013 Page 7
Outlook
“Looking beyond the figures for 2013 as a whole, the fact that take-
up exceeded 500,000 sq m in Q4 bodes very well for the year to
come. With large companies sustaining their demand and owners
providing true financial incentives for companies, the barriers are
lifting one by one. We therefore expect an upturn of activity on the
market to around 2 million square metres for 2014, although this
remains less than the long-term average”, explains Jacques Bagge,
Head of the French leasing team of Jones Lang LaSalle.
There is still a considerable volume of supply to rent, especially in
the suburbs. Available supply ought to meet and absorb the
demand, especially in sectors where new available supply is high.
The arrival of new projects, in La Défense and in the Southern Bend
sector in particular, should consolidate or even accentuate the
shortfalls currently being experienced. We could therefore see
vacancy rates in certain areas rise even further in the coming
months.
In fact, although speculative office developments remain limited, the
majority of these projects, currently under construction (~800,000
sq m in total), are located in the west of the Greater Paris Region
(~45%).
It is still a tenant's market, and there has been no change in
direction among owners who should remain attentive to the
operational and financial constraints faced by companies. Prime
headline rents should stabilise in 2014, especially in sectors where
there is a limited supply of high quality rental premises, such as
Paris CBD. As for actual rents, they are likely to remain at the lower
end due to the widespread excess in supply and a sluggish leasing
market.
Lease renegotiations should also remain numerous, the strong lack
of confidence does not encourage companies to leave their current
premises.
Projects under construction and available up to 2016(split by market)
Source: Jones Lang LaSalle
20169,000 sq m
TOTAL
2014 - 2016802,000 sq m
2014387,000 sq m
2015406,000 sq m
50,000
100,000
150,000
200,000
250,000
300,000In sq m
Inner Suburbs Outer SuburbsWestern Crescent La DéfenseParis (excl. CBD) Paris CBD
On Point • The office market in the Greater Paris Region – Q4 2013 Page 8
Sustained activity on theinvestment market in 2013
The dynamic growth and stability on the Greater Paris Region
investment market surprised everyone this year, despite the
financial climate and the situation on the leasing market .
After a dynamic 3rd quarter, this year didn't see the usual 4th quarter
“race to the finish” for the investment market, with “only” €2.9 billion
being invested over the final three months.
That brought the total investment figure for 2013 to over €11 billion.
Despite a 9% decline compared to 2012, the market is
demonstrating no less momentum and has not broken its habit of
recording levels of activity.
An even balance of deals either side of the €100 million mark
Following the signature of several major deals in the 3rd quarter, the
end of the year followed suit with a further nine contracts worth over
€100 million each being signed. The biggest transaction, not just for
the quarter but also for the year, was the sale by DOCKS
LYONNAIS of the Greater Paris Region elements of its French
portfolio to ABU DHABI INVESTMENT AUTHORITY (ADIA) for an
estimated €580 million. Another salient deal involved the purchase
by THOR EQUITIES, along with an Israeli investor, of “65-67
Avenue des Champs Elysées” from UBS for €280 million.
Finally, 2013 saw 30 transactions exceeding the €100 million mark,
almost identical to that of 2012, but for a sligthly lower total amount.
No market segment under-performed particularly badly compared to
2012. The Greater Paris Region market has therefore once again
proven a very evenly-balanced sector with investment volumes
divided equally between transactions worth less than €100 million
(49% by volume) and those worth over €100 million (51% in total).
« Passy Plaza » - Paris 16th
Macro-economic data as at Q4 2013(yoy change)
Q4 2013 Yoy change
GDP (3rd quarter) -0.10%
ECB headline rate 0.5
10-year-bond 2.5
3-months-Euribor-rate 0.287
5-year-SWAP-rate 1.26
Source: INSEE / Agence France Trésor / euribor-rates.eu / Jones Lang LaSalle-Thomson Reuters
Greater Paris Region KMI’s as at Q4 2013(yoy change)
2013 Yoy change
Investment volumes €11.075 M
Average investment deal €51 M
Number of transactionsof which over €100m
21630
Prime office yield 4.25 - 4.75
Source: Jones Lang LaSalle/ImmoStat
A dynamic year in 2013, with 2014 looking set to passthe €12 billion mark in the Greater Paris Region
On Point • The office market in the Greater Paris Region – Q4 2013 Page 9
Inner suburbs attract nearly half the capital
Receiving 43% of the total investment amount, central Paris isn't yet
absorbing the majority of the invested amount, although it's not far
off. The inner Parisian suburbs have done rather well this year,
attracting 47% of the capital invested i.e. over €5.2 billion (up 48% in
just one year).
Not counting the DOCKS LYONNAIS portfolio, the three biggest
transactions recorded in 2013 were all within the inner Parisian
suburbs:
- “Eco Campus” in Châtillon,
- “Sequana” tower in Issy-les-Moulineaux (JLL transaction),
- and “Adria” tower in La Défense.
La Défense therefore ended the year on a high with over €900
million invested (6 transactions), making it the best year for this
market since 2007. Underpinning this good performance were three
deals over €100 million. Following the sale by IVANHOE
CAMBRIDGE of the “Pacific” tower to TISHMAN SPEYER
PROPERTIES for €228 million (JLL transaction) and the sale by
TESTA to PRIMONIAL of “Adria” tower for €450 million, SAINT-
GOBAIN followed up by selling Les Miroirs (Buildings A and B) to
PERELLA WEINBERG PARTNERS for €110 million in the 4th
quarter.
Office premises remain on top, but a dynamic year for retail
Although office assets continue to dominate the sector, accounting
for 86% of commitments, retail sales remain dynamic and represent
9% of investment in the Greater Paris Region (-5% in a year). This
year saw five retail transactions over €100 million. Three of them
were only signed in the 4th quarter: the purchase by THOR
EQUITIES of “65-67 Avenue des Champs Elysées” (€260 million),
the portfolio sold by ALTAREA-COGEDIM to ALLIANZ for €190
million, and the purchase of “Passy Plaza” by GENERALI from
EUROCOMMERCIAL PROPERTIES for €150 million (JLL
transaction).
Quarterly investment(in volume)
Source: Jones Lang LaSalle/ImmoStat
Investment split by individual lot-size as at Q4 2013(in number of deals)
Source: Jones Lang LaSalle/ImmoStat
Investment volume as at Q4 2013(by asset class)
Source: Jones Lang LaSalle/ImmoStat
1,44 1,76
3,51 2,68
2,40 3,69
4,77 2,95
12,1211,08
0
2
4
6
8
10
12
14
16
2008 2009 2010 2011 2012 2013
In €Bn Q4Q3Q2Q1
-9%
69%
18%
12% 1%0%< €50 M
From €50 to €100 M
From €100 to €300 M
From €300 to €500 M
> €500 M
On Point • The office market in the Greater Paris Region – Q4 2013 Page 10
A sluggish forward funding market
After an already difficult 2012, the forward funding sale market had
not yet refound its footing by the end of 2013. More than €1.1 billion
was invested on forward funding office sales in the Greater Paris
Region, down 16% since the previous year. Three forward funding
sales were completed in Q4: IVANHOE CAMBRIDGE agreed to
purchase the “Ardeko”* building for €140 million, DeAWM purchased
“In Situ” from VINCI IMMOBILIER/NEXITY for €110 million (JLL
transaction), and FONCIERE DES REGIONS purchased the future
EIFFAGE headquarters in Vélizy-Villacoublay in a deal believed to
be worth an estimated €90 million.
A return of foreign investors, but French investors still
dominate the market
As we predicted, the number of foreign investors increased in the
final quarter of the year, driven in particular by major transactions
such as the sale of the DOCKS LYONNAIS portfolio to ADIA. Six of
the 9 transactions over €100 million in the 4th quarter were signed by
international investors. “The increased foreign activity in the 4th
quarter bears witness to the appeal of the Parisian market for
international investors. Their relatively low rate of involvement since
the start of the year was not a reflection of any lack of interest in the
Parisian market place, rather the result of a lack of opportunities
suited to their investment strategy” explains Stephan von Barczy,
Head of French Capital Markets Group at Jones Lang LaSalle.
Nevertheless, French investors continue to largely dominate the
investment market, accounting for 67% of amounts committed in the
Greater Paris Region. Historically highly active in the <€100 million
sector, this year they have also moved into the major transactions
segment (“Eco Campus”, “Adria” and even the BOUYGUES
Technopole in Meudon-la-Forêt).
Fall in yields in the most active sectors
Buoyed by a persistently strong demand for the best products and
low financing rates, we have seen a slight fall in prime yields for the
most well-established sectors in the Greater Paris Region. For Paris
CBD, therefore, the reference rate for Greater Paris Region slipped
from 4.50-5.00% to 4.25-4.75% in the final quarter of 2013.
Forward funding sale ratio in the total office investment Q42013 (in volume)
Source: Jones Lang LaSalle/ImmoStat
Investment split by nationality as in 2013(in volume)
Source: Jones Lang LaSalle
* although initiated in 2011, this transaction was recorded in 2013 because of its specific legalarrangement.
Prime yields as at Q4 2013(split by sub-sector)
Source: Jones Lang LaSalle
1,05 1,64 1,57 1,92 2,23 1,60 1,61 1,32 0,90 1,10 1,28 1,110
2
4
6
8
10
12
14
Q1
2011
Q2
2011
Q3
2011
Q4
2011
Q1
2012
Q2
2012
Q3
2012
Q4
2012
Q1
2013
Q2
2013
Q3
2013
Q4
2013
In €BnOffices's sales (excl. forward funding sales)
Offices' forward funding sales
On Point • The office market in the Greater Paris Region – Q4 2013 Page 11
Outlook
Once again, the investment market in the Greater Paris Region
proved in 2013 that it could exceed the €10 billion mark without any
need for special tax incentives.
Based on products currently available on the market, products
potentially available for trading during the year and transactions
currently being negotiated, total investment has the potential to
exceed €12 billion in 2014.
In addition, foreign interest in the Parisian market place has not
waned and overseas investors are particularly involved in some of
the major deals underway: the sale of the RISANAMENTO portfolio
and the sale of the “Beaugrenelle” commercial centre.
Finally, as regards funding, although banks continue to dominate the
market, debt funds have effectively deployed a share of their capital
and new insurers have entered the scene. In 2013, competition
between lenders triggered a fall in margins for prime asset funding,
offsetting the rise in rates. This means that assets with a higher risk
investment profile are now able to secure funding.
Consensus forecasts
Up to 2014 Trend Y on Y
GDP (year end)
10-year-bond
3-months-Euribor-rate
Source: Consensus forecasts – December 2013
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suffered as a result of any inaccuracy or incompleteness of any kind in this presentation. We would, however, like to be told of any such errors in order to correct them. These forecasts are generated
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