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French Property market 2015 - Cushman & Wakefield

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This report outlines market trends in 2014 and provides growth prospects for the investment, office, logistics and retail property markets in France.

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French Property market 2015 - Cushman & Wakefield

  1. 1. 2015 FRENCH PROPERTY MARKET A Cushman & Wakefield Research Publication
  2. 2. 7 INVESTMENT A Cushman & Wakefield Research Publication JANUARY 2015 3 EDITORIAL 5 ECONOMY 19 OFFICES 31 LOGISTICS 39 RETAIL 54 GLOSSARY 2
  3. 3. EDITORIAL EDITORIAL With levels of activity unseen since the crisis began, 2014 was the third-best year ever for the French property-investment market.While French investors continued to dominate the sector,foreign investors also played a significant role,taking part in some of the largest deals ever seen in France. Steady international demand and the constant arrival of newcomers from around the world bore witness to the breadth of international capital flows and to their vital contribution to the rise of amounts invested in France and most European countries. Occupier activity,on the other hand,remains tied to local realities.In 2014,France was the“sick man of Europe” in the eyes of many observers, an image contrasting starkly with the UK’s revitalized economy and with signs of recovery in some of the countries hardest hit by the crisis. Other strictly local conditions included the instability of the French fiscal and regulatory environment,illustrated by the uncertainty surrounding the enactment into law of the ALUR and ACTPE bills.This environment weighed on the development of retailer and corporate real estate projects, further delayed by the stubborn slump in business and by stagnant household consumption. The dichotomy of the French market,where record-breaking investment lives side by side with uneven leasing activity,should persist into 2015. However, several external factors—the sharp decline in oil prices, the weakening of the euro, and the ECB’s policy of quantitative easing—are expected to breathe a little life into businesses and consumers. French domestic policies could also be at a turning point.Because of the extraordinary circumstances under which France has been living since the terrorist attacks of January 2015, and as a result of the national unity that has since prevailed, the government’s approval ratings have risen considerably.The main political parties may now be able to work more closely together to set priorities for putting France back on the right path.Although far from the radical proposals that many had hoped for, measures currently under discussion, such as those in the Macron bill, would undoubtedly improve the image of France held by many foreign decision makers. If the bill passes into law, France will be seen as less resistant to change and friendlier to business,whether the traditional blue chips of the CAC 40 or the numerous startups on view at high-tech trade shows. Although these problems are still far from being solved, France in recent years has rarely enjoyed such a combination of favorable conditions as now.The investment market should continue to do very well in 2015, as investors seek alternatives to low interest rates and unattractive bond yields.All the more reason to believe in a return to confidence more quickly than anticipated,the vital first step towards recovery in the overall property market. Olivier Gérard President A Cushman & Wakefield Research Publication 3
  4. 4. A Cushman & Wakefield Research Publication ECONOMY ECONOMY In 2014,the weakness of the international economy was confirmed by the slowdown in emerging economies and by sluggish business in the eurozone. The BRIC1 countries are no longer the growth engines they once were. China has slowed in recent months. Structural cracks have appeared in Brazil and India, while the Russian economy has been crippled by intervention in Ukraine and the fall in oil prices.Growth has remained elusive in most eurozone countries. Deteriorated by years of economic crisis, the business climate and household morale failed to rally significantly. Unemployment, meanwhile, hovered close to the record high reached in 2013. Such stagnation was in stark contrast to the momentum of theAmerican and British economies.With corporate investment on the rise and household spending up, the United States and Great Britain enjoyed annual GDP growth of 2−3%.The job market also showed significant improvement in 2014, when more than 220,000 jobs were created monthly in the United States. Meanwhile the unemployment rate in the UK reached a six-year low. The uneven, modest recovery begun in 2014 is expected to continue in 2015,resulting in global GDP growth of 3.8%,compared with 3.3% in 2014.2 Business activity should benefit from numerous positive shocks, starting with a sharp decline in oil prices.The price per barrel3 has fallen to under $50 for the first time since 2009. In addition to lowering energy costs for large consumers of oil, this decline could help to boost private consumption in eurozone countries. Furthermore, consumers will benefit from extremely low inflation and from the softening of austerity measures. European exports should get a boost from the weaker euro, the ECB’s accommodative monetary policy of quantitative easing, and the economic momentum of the United States. These elements suggest that growth, estimated at 1.1% in 2015 and 1.7% in 2016, will provide considerable improvement from the recession or stagnation that has prevailed since the beginning of the crisis. However, several risk factors could jeopardize this scenario: uncertainty around the consequences of major elections in Greece and Spain, unresolved conflict between Russian and Ukraine, and a rise in oil prices in the short and medium term. Despite recovery in the third quarter that was better than expected, French GDP growth remained close to zero in 2014. Nonetheless, after three years of nearly flat business activity, a more robust turnaround has appeared on the horizon. Growth of nearly 1% is forecast for 2015, and of 1.5% for 2016. Extremely low inflation and a modest rise in purchasing power should continue to bolster private consumption. Some households will benefit from lower oil prices, while poorer families will receive tax breaks, a consequence of the elimination of the lowest tax bracket. Pronounced recovery in the eurozone and vigorous growth in the US and UK are expected to stimulate French exports. However, the benefits of a weaker euro will be minimized by the eurozone trade structure—seven of France’s ten largest trading partners are European—and by the automatic rise in the cost of imports and the competitive weakness of French companies in certain market segments. Although the future looks somewhat brighter, France’s economic outlook remains cloudy.As in 2014, France is expected to underperform its eurozone partners in 2015, with business activity well under the long-term average. Despite the growing number of government employment schemes and CICE (French tax relief designed to boost competitiveness and job creation) promises to reduce social security costs, unemployment is not expected to improve significantly. Nor is the morale of the French people, sapped by the tragic events of January 2015 and by the growing terrorist threat in France. *Estimate / **Forecast Source:European Commission – November 2014. 1 Brazil, Russia, India, and China. 2 European Commission Economic Forecast, November 2014. 3 Barrel of light sweet crude. FRENCH ECONOMIC ACTIVITY -5.0 -2.5 0.0 2.5 5.0 -5.0 -2.5 0.0 2.5 5.0 2003 2005 2007 2009 2011 2013 2015 E GDP growth (annual %) − left scale Inflation (annual %) − right scale ECONOMIC OUTLOOK (IN %) Source: INSEE GDP INFLATION UNEMPLOYMENT 2014 2015 2014 2015 2014 2015 FRANCE 0.3 0.7 0.6 0.7 10.4 10.4 GERMANY 1.3 1.1 0.9 1.2 5.1 5.1 EUROZONE 0.8 1.1 0.5 0.8 11.6 11.3 UNITED KINGDOM 3.1 2.7 1.5 1.6 6.2 5.7 UNITED STATES 2.2 3.1 1.8 2.0 6.3 5.8 CHINA 7.3 7.1 2.4 2.4 - - JAPAN 1.1 1.0 2.8 1.6 3.8 3.8 5 -5.0 -2.5 0.0 2.5 5.0 -5.0 -2.5 0.0 2.5 5.0 2003 2005 2007 2009 2011 2013 2015 E GDP growth (annual %) − left scale Inflation (annual %) − right scale
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  6. 6. In 2014, property investment in France amounted to €23.8 billion, 57% more than in 2013. After 2007 (€28.5 billion) and 2006 (€24.4 billion), 2014 was the third-best year ever and marked a return to the kind of performances not seen since the crisis began.These excellent results are attributable above all to large deals made by French and international investors with deep pockets.The financial context, with its low yields in the bond market and high volatility in the stock market, was very favorable to property investment.The commercial-property market has benefited from supply—growing but still limited—fed by sales from property-investment firms and by liquidations of real-estate funds (e.g., German open-end funds). Although investors continue to exercise caution, their research criteria have moved beyond core assets. Numerous investors today are searching for value-add asset plays, tenant risk, or secure assets in less-established sectors. INVESTMENT FRENCH PROPERTY MARKET
  7. 7. A Cushman & Wakefield Research Publication JANUARY 2015 AMOUNTS INVESTED Investment in France amounted to €23.8 billion in 2014, 57% more than the previous year’s total and 48% more than the ten-year average.After the first and second halves on 2007, H1 2014 was the third-best half-year ever,with €12.8 billion invested.The second half of the year slowed slightly, with €11 billion invested, though €7.5 billion of that came in the fourth quarter alone. In 2014 there were 416 transactions in France.Although better than the previous year’s 393 transactions, this performance remains relatively modest and is less than the 421 transactions in 2012.The slowdown is attributable to a decline in the number of small operations. In 2014 there were 312 transactions of less than €50 million, compared with 305 in 2013 and 343 in 2012. Medium-sized transactions were stable, at 50 deals in the €50−100 million range, compared with 52 in 2013 and 39 in 2012. However,it is the largest deals that drive the market,and last year was no exception. Transactions of more than €100 million accounted for 68% (54 transactions) of total amounts invested in 2014, compared with 48% (36 transactions) the year before.Transactions of €100−200 million were relatively stable, at 31 compared with 26 in 2013, while transactions of more than €200 million rose significantly,from 10 (totaling €3.5 billion) in 2013 to 23 (totaling €11.9 billion) in 2014.Three transactions of more than €200 million exceeded the €1 billion mark—Cœur Défense as well as the Klepierre/Carmila and Risanamento portfolios—and were some of the biggest ever seen in France.These large deals were made possible by an abundance of raised capital and easier access to debt, with leverage reaching as high as 70%. In addition, this year saw the involvement of numerous types of investors—insurers, pension funds, property- investment companies, listed real estate companies, private-equity funds, etc.—whereas before the crisis the largest deals were done mainly by North American funds. HISTORIC INVESTMENT ACTIVITY IN FRANCE 50% Half of total investment in 2014 (23% in 2013) came from transactions of more than €200 million. 12,2 17,5 24,4 28,5 13,0 7,8 11,0 16,5 14,9 15,2 23,8 0 5 10 15 20 25 30 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2004-2013 average (€16.1bn) 8
  8. 8. INVESTMENT Portfolio disposals also boosted volume. 46 transactions, including seven of more than €200 million, accounted for 31% of the total amount (€7.4 billion) invested in all property-asset classes in France.While a few trophy assets changed hands (e.g., the Étoile portfolio sold by Risanamento for €1.2 billion), portfolio sales often allowed investors to dispose of assets of less interest individually. INVESTMENTVOLUME BY LOCATION Ile-de-France Ile-de-France accounted for 71% of total investment in France in 2014, with €17 billion invested (+53% year on year). Paris is the most desirable market for French investors and virtually the only market in the eyes of foreigners, who have acquired 81% of their French holdings in the Paris region.The large supply of office stock, the presence of numerous corporate headquarters, and the resilient local economy,less affected by the crisis than elsewhere in France, all explain the appeal of the office market in Ile-de-France. Office properties accounted for 77% of total investment in the Paris region in 2014, virtually unchanged from the previous year (78%). Activity in the retail sector also revived considerably, with €3.3 billion invested (+71% year on year). This excellent performance was due to seven transactions in Paris of more than €100 million for several mixed-use buildings (Étoile portfolio, Le Madeleine, 49−51 avenue George V, etc.) and iconic individual assets (Beaugrenelle, Chanel flagship on avenue Montaigne, Benetton flagship on boulevard Haussmann, etc.). Industrial properties accounted for 4% of the Paris region’s overall market, compared with 5% in 2013, despite an 8% rise in investments year on year. Provinces Investment in the provinces amounted to €6.3 billion in 2014, 58% more than the previous year’s total and 75% more than the ten- year average. Once again large transactions and portfolio disposals drove the market, particularly in the retail sector. Boosted by several sales of shopping centers and malls, the retail market accounted for 70% of total investment outside Ile-de-France. Penalized by the weak economy, a sluggish lettings market, and investor prudence, the office market totaled €1.3 billion and accounted for only 21% of total investment in the provinces in 2014 (26% in 2013 and 28% in 2012).The distribution of amounts invested in office properties was very uneven, with the Lyon conurbation claiming almost half (€590 million).This imbalance was attributable mainly to the acquisition of the Tour Incity by the Caisse d’Epargne for more than €200 million,the largest transaction in 2014 outside Ile-de-France. KEY INVESTORS French investors accounted for 66% of total investment in France in 2014 and remained by far the country’s largest investors. The French are active in all segments of the market and were behind 33 of the year’s 54 transactions worth more than €100 million.The largest deal of 2014, the €1.4 billion acquisition by Carmila of a portfolio of Carrefour shopping malls, was also led by French investors. As in 2013, institutional investors (i.e., insurers, private health insurers, and pension funds, all with significant liquidity) led the pack. These institutional investors focused on large new office complexes and construction projects in the Paris region, such as the SFR campus in Saint-Denis (sold to Predica andAviva Investors), CityLights in Boulogne-Billancourt (sold to Cardif), and the A9B building in the ZAC Rive Gauche in Paris (acquired by the CNP). Increasingly cash-rich SCPIs and OPCIs were active in the office INVESTMENTVOUMES BY ASSET TYPE AND LOCATION % in volume/*excluding non divisible portfolios A Cushman & Wakefield Research Publication 7% 10% 9% 23% 32% 26% 70% 51% 61% 64% 21% 26% 0% 20% 40% 60% 80% 100% 2014 France 2013 France 2014 Provinces* 2013 Provinces Office Retail Industrial DEAL ANALYSIS IN FRANCE 9 % in volume, all products 0 2 4 6 8 10 12 €1-15m €15-50m €50-100m €100-200m >€200m € bn 2013 2014
  9. 9. A Cushman & Wakefield Research Publication JANUARY 2015 market, as seen in the acquisition by Primonial Reim of the Grand Seine office building in Paris and of the Ovalie office building in Saint-Ouen, the acquisition by BNP Reim of Bord de Seine 2 in Issy-les-Moulineaux, and the sale to La Française of the Jazz building in Boulogne. However, it was the proportion of other investor profiles that increased the most in 2014. Property-investment firms were active, particularly in the Carmila acquisitions (nearly €3 billion). Private investors were also present, in the acquisition of the Beaugrenelle shopping center by a consortium comprising Apsys, Foncière du Rond Point, and Financière Saint James. Large office tenants, mainly in the public sector as well as banking and insurance, were behind some of the largest transactions on the French market.Acquisitions were made by SMABTP (future headquarters in the 15th ), Caisse d’Epargne Rhône-Alpes (Tour Incity in Lyon), BRED (Urbagreen in Joinville-le-Pont), and the Ministry of the Interior (Garance in the 20th ). Although still a minority in 2014, foreign investors were more active than in the previous year, contributing 34% of total investment in France.Their acquisitions totaled €8.2 billion, up 55% from a year earlier.The French market’s liquidity and the quality and diversity of its assets make it a vital target for all large international investors, as seen in the arrival of diverse newcomers such as the Dutch Syntrus Achmea, the Canadian Oxford Properties,the Korean IgisAsset Management,and the Japanese Mitsubishi. An analysis of investment by nationality confirms the predominance of Europeans (14% of acquisitions in 2014). The Dutch came in first place thanks to two large transactions totaling nearly €1 billion: Wereldhave’s purchase for €850 million of a portfolio of six shopping centers belonging to Unibail-Rodamco, and the sale by Grosvenor to Syntrus Achmea of the Verano portfolio (ground-floor shops in Paris, Toulouse, and Bordeaux). The Germans came in second, mainly in the form of insurers and open- end funds, and focused mostly on large office complexes and mixed-use secure assets in Paris and the inner suburbs (Arc de Seine in the 13th , acquired by Allianz, Les Ateliers du Parc in Clichy, sold to Deka, and 49−51 avenue George V in the 8th , acquired by Pramerica). Nevertheless, the Germans were notable for their disposals, particularly by open-end % in volume, all products, in France PURCHASER NATIONALITY IN 2014 France 66% Europe 14% North America 12% Middle East 6% Asia 2% La France n’est pas le seul marché d’Europe à avoir enregistré d’excellents résultats en 2014. Il en va de même pour de nombreux pays, confirmant l’ampleur des flux de capitaux, la volonté des grands investisseurs internationaux de diversifier leur allocation d’actifs et le statut de valeur refuge de l’immobilier à l’échelle de la planète. 215 milliards d’euros ont ainsi été investis en Europe en 2014,soit une progression de 26 % sur un an. Si les bureaux restent l’actif privilégié (45 % des volumes investis en Europe), les commerces ont, comme en France, connu une augmentation plus importante, passant de 40 milliards d’euros en 2013 à près de 50 milliards en 2014 (+ 24 %).La hausse des volumes a été importante au Royaume-Uni (74,6 milliards d’euros, soit + 15 %) et en Allemagne (40 milliards d’euros, soit + 31 %), permettant à ces deux pays de conserver leur position de leaders du marché européen. Les performances exceptionnelles du marché français lui permettent néanmoins de consolider sa troisième place devant la Suède. Focus sur le marché européen France was not the only country with excellent results in 2014. Many other countries benefited from massive capital inflow, the diversification needs of large international investors,and the safe-haven status worldwide of property as an asset class. In Europe, €169 billion was invested in 2014,* a rise of 22% year on year.While office properties received the most attention (57% of total investment in Europe),retail properties across Europe experienced an even sharper increase, as in France, from €40 billion in 2013 to nearly €50 billion (+24%) in 2014. Investment rose 7% in the UK (€55.3 billion) and 9% in Germany (€30.6 billion), confirming the European-leader positions of these two countries.Thanks to its exceptional performance, the French market took third place, ahead of Sweden. Focus on the European market 10 *In offices, retail and industrial.
  10. 10. INVESTMENT funds, which have enhanced supply. Finally, British investors came in third in France in 2014, thereby confirming their interest in a wide variety of more or less secure assets in various regions.The largest UK transaction was the sale to Hammerson of the Saint-Sébastien1 shopping center in Nancy. UK investors also targeted value-add office opportunities,such as CapWest in Clichy (acquired by a fund managed by Tristan Capital Partners) and several individual industrial assets or portfolios (Phoenix portfolio acquired by MStar, logistics platforms sold to Segro and Standard Life in Ile-de-France and near Marseille). More present than in 2013,NorthAmericans accounted for 12% of investment in the French market and were behind the second- largest transaction of 2014 (acquisition by Lone Star of Cœur Défense for €1.3 billion).The North American players were mainly US private equity funds, whose investment firepower allows them to target large transactions of more than €100 million.These funds sometimes aim for less-established locations and assets ignored by core investors and therefore more difficult to finance, such as secondhand industrial sites (Loren portfolio acquired by Blackstone), speculative forward sales (Influence in Saint-Ouen bought by Tishman Speyer), and large office buildings to be renovated, some with high vacancy rates (Seine Office in the 12th ). Middle Eastern investors, which account for 6% of total investment in France, tend to focus on mixed-use assets in Paris with secure, long-term leases, such as the purchase by the Olayan family of the Étoile portfolio. As for Asian investors, their 2% share underrepresents the growingAsian appetite for the French market. A few new investors in search of core opportunities have turned up in France (IGISAsset Management,Mitsubishi) and could inspire others to follow in the months ahead. OFFICES Amounts invested In 2014,€14.4 billion was invested in office properties,representing 61% of total investment in France,compared with 64% the previous year.This decline was due not to a decline in investor interest, but to the boom in retail. In fact, investment in office properties was 48% higher than in 2013 and 24% higher than the ten-year average (a performance in line with asset and geographical diversification), despite investors’ continued aversion to risk. Several forward sales were recorded and most activity was in new complexes that are mostly secure (A9B in the 13th ) and conveniently located in tertiary sectors that either are large (CityLights in Boulogne), are highly promising (Season in the ZAC Clichy-Batignolles), or have little available space (Influence in Saint-Ouen). The Ile-de-France office market was again the most active by far, with €13.2 billion invested in 2014,representing 91% of the total investment in all French office properties and a rise of 53% year on year. Geographic distribution Of the €6.4 billion invested in inner Paris in 2014,€4 billion went to the central business district (CBD).This 71% rise from 2013 was due largely to the completion of several major transactions (12 worth more than €100 million), including sales of the Sanofi- Aventis headquarters at 54−56 rue de la Boétie,the GrDF offices at 6 rue Condorcet,and the Galeries Lafayette headquarters at 44−48 rue de Châteaudun. Once again and without surprise the CBD benefited from its prestigious supply, central location, and easy access.Always targeted by well-funded French and foreign investors, this submarket and its structurally limited supply enjoyed opportunities created by disposals of mixed-use buildings (Le Madeleine acquired by BlackRock,Étoile portfolio) and redeveloped office complexes (32 Blanche,L’Astorg).In addition,the development of a new district (ZAC Clichy-Batignolles in the 17th ) brought new, % in volume, all products, in France OFFICE INVESTMENT ACTIVITY IN FRANCE 10,2 14,0 18,2 19,5 10,3 5,3 6,7 12,3 10,0 9,7 14,4 0% 20% 40% 60% 80% 100% 0 4 8 12 16 20 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Office investments (€bn) % of sums invested in offices in France A Cushman & Wakefield Research Publication PURCHASER TYPE IN 2014 Properties companies/REITs 26% Investment funds 21% Insurer/pension funds 18% SCPIs/OPCIs 16% Private 10% Owner occupier 5% SWFs 3% Developers 1% 1 75% of the shopping center. 11
  11. 11. A Cushman & Wakefield Research Publication high-quality supply (Strato, Season) and completed the expansion of the CBDbeyonditstraditionalborder.OutsidetheCBD,otherneighborhoods under development contributed to the success of the Paris market.The ZAC Rive Gauche (Paris 13th ) attracted investment of €1.04 billion in 2014 (see Focus opposite), a record amount and 29% higher than the previous record in 2004.This outstanding performance explains the 30% annual increase in investments in Paris Rive Gauche,a market underpinned by the sale to SMABTP of the former Hôtel Pullman (Paris 15th ) and the acquisition by Unofi Assurances of the Atlantique 34 building (Paris 14th ). Beyond inner Paris,the Ile-de-France market was driven mainly by activity of large tertiary sectors in the western suburbs. La Défense turned in its best performance (€1.9 billion invested in 2014) since the beginning of the crisis, with a correspondingly ebullient lettings market. The sale of Cœur Défense,one of the biggest office complexes in Europe,was largely responsible for this result, but several other transactions of more than €100 million also contributed to the business district’s success (e.g., acquisition of the Tour Prisma by Invesco Real Estate on behalf of a Malaysian pension fund, sale to LaSalle Investment Management and Quantum Global Real Estate of theTour Blanche).Other tertiary sectors in the Hauts-de-Seine department stood out, such as the southwestern suburbs, where more than €1 billion was invested. After an excellent 2013, the southwestern suburbs repeated the performance in 2014 thanks to sales of large existing buildings (Bords de Seine 2 and Quai Ouest in Issy-les-Moulineaux) and to investor enthusiasm for the sector’s new stock (CityLights and Jazz in Boulogne). In contrast with the strong rise in office space let in 2014,investment in the western business district (WBD) decreased. Medium-sized transactions (Tour Aviso in Puteaux, Cap West in Clichy, Seine Etoile in Suresnes) were the norm, and there were few deals of more than €100 million (Les Ateliers du Parc in Clichy, acquired by Deka). Northern Ile-de-France was the liveliest market after those of Paris and the Hauts-de-Seine department. Investment totaled €1.3 billion, attributable to the completion of several transactions of more than €50 million in Saint-Ouen (Influence,Ovalie) and Saint-Denis (Spallis,Dyonis). JANUARY 2015 Jazz - Boulogne-Billancourt (92) The ZAC Rive Gauche,whose first buildings were completed at the end of the 1990s, was initially designed to rebalance Parisian economic activity, long concentrated in the western part of the city.Since then this market has enjoyed unfaltering success, mainly through large transactions in the banking, insurance, and public sectors.At present the vacancy rate is a very low 4% (approx.). Notable since 2009 for its steady rental values and the rapid absorption of secondhand office supply, the success of the ZAC Rive Gauche is also due the enthusiasm of large tenants for new construction that pushes the boundaries of the district (e.g., Le Monde’s decision to build its new headquarters near the Gare d’Austerlitz, and the SNI’s letting of the A9B project).The acquisition of the A9B project by CNP was one of the five transactions of more than €100 million in the ZAC Rive Gauche in 2014.The other four include a development project (Panorama acquired by Icade and La Mondiale) and three existing buildings: Arc de Seine acquired by Allianz, Grand Seine bought by Primonial Reim, and the France acquired by Gecina. Focus on ZAC Rive Gauche A9B - Paris 13th 12
  12. 12. A Cushman & Wakefield Research Publication INVESTMENT EXAMPLES OF OFFICE ACQUISITIONS IN 2014 However, it was the sale of the new SFR headquarters that contributed the most investment.This complex was sold for nearly €700 million, thereby becoming the largest deal ever in the northern suburbs. Delivery of the second tranche is scheduled for 2015. This type of transaction also reaffirms investor preference for campuses of high-quality new assets let to large tenants and secured by long-term leases.After significantly boosting volume in the southern suburbs in 2013 (Eco-campus Orange in Châtillon), new campus sales in 2014 contributed again to the performance of certain sectors in the outer suburbs (Carrefour campus in Massy acquired by Predica for approximately 385 million). By contrast, performances of other Ile-de-France tertiary sectors were less remarkable. Investment in the southern suburbs in 2014 declined by 55% year on year, to €403 million, while the eastern suburbs received investment of only €262 million. Elsewhere in France,office-property investment in 2014 was up by 18% year on year, to €1.3 billion, only 8% of total investment in France for this class of property.The Lyon region accounted for 45% of total provincial volume,largely because of the acquisition of the 40,000 m² Tour Incity. Other large transactions, for the most part carried out by SCPIs and OPCIs, were generally in the range of €20−70 million and usually in large French conurbations (acquisitions of the Safran headquarters in Toulouse by Crédit Agricole Assurances, of Europrogramme in Marseille by Primonial, and of Arcuriales in Lille by Swiss Life Reim). *Mixed-use assets 79-81 boulevard Haussmann - Paris 8th PROPERTY LOCATION VENDOR PURCHASER PRICE (€ M) AREA (M2 ) Cœur Défense La Défense (92) JV Lehman Bros Holdings, Atemi, GE Pension Trust Lone Star 1,280 182,000 Étoile portfolio* Paris (75008, 75009) Risanamento The Olayan Group 1,160 76,500 Campus SFR Saint-Denis (93) Vinci Immobilier, SFR Predica / Aviva Investors 680 134,000 Campus Carrefour Massy (91) Colony Capital Predica 380 (est.) 81,000 City Lights Boulogne-Billancourt (92) BNP Paribas Promotion Cardif 375 (est.) 40,000 54-56 rue de La Boétie Paris (75008) Kanam IGIS Asset Management 350 (est.) 21,000 32 Blanche Paris (75009) Carlyle Oxford Properties / Hines 263 21,000 A9B Paris (75013) Kaufman & Broad CNP / DTZ Investors Confidential 23,000 Incity tower Lyon (69) Sogelym Steiner / Dixence Caisse d'Épargne Rhône-Alpes 240 42,300 6 rue Condorcet Paris (75009) Blackstone SFL 230 25,600 Liberté & Coupole Charenton-Le-Pont (94) Natixis Foncière des Regions 162 38,000 Blanche tower La Défense (92) Perella Weinberg Real Estate LaSalle Investment Management / Quantum Global Real Estate 161 25,800 Ovalie Saint-Ouen (93) Aviva Investors / Capital Continental Primonial Reim 100 15,100 Eastview Bagnolet (93) Pramerica HSBC Reim 98 26,900 Jazz Boulogne-Billancourt (92) Eurosic La Francaise AM 70 7,000 46 rue de la Boétie Paris (75008) Invesco Real Estate MEC (Mitsubishi) 35 2,400 13
  13. 13. RETAIL Amounts invested Investment in French retail assets in 2014 amounted to €7.7 billion, an all-time high that smashed the previous record (+60%) established in 2007. Retail accounted for 32% of total investment in France, nearly twice the average performance of the past ten years (18%). This exceptional result reaffirmed the appeal of a class of property with a sterling reputation as a safe haven for investors.The market also saw the arrival of a wide variety of supply from sales by investors aiming to rebalance their portfolios by means of larger assets (Unibail-Rodamco, Klepierre) or classes of property other than retail (Gecina). In addition, the boom of retail investment was also the result of huge restructuring projects in the sector, such as the creation of Carmila and the merger of Klépierre and Corio. Under the circumstances, it is unsurprising to see so many large and very large deals being done. Fourteen transactions of more than €100 million (compared with 7 in 2013) accounted for 78% of total investment in retail properties. Five of these transactions were larger than €500 million, for a total of €4.5 billion, and accounted for nearly 60% of total activity. Asset types The five transactions of more than €500 million were for malls and shopping centers.All transaction sizes considered, this market segment accounted for 72% of total investment in retail assets in 2014.The high proportion was due principally to sales by property-investment firms of individual assets (Beaugrenelle sold by Gecina) and portfolios (acquisition by Carmila andWereldhave of Unibail-Rodamco shopping centers).These deals facilitated asset flow, from large regional shopping centers (Beaugrenelle in Paris, Docks Vauban in Le Havre) to hypermarket galleries (Carrefour portfolio sold by Klepierre to Carmila,Cotentin sold to Ciloger) and smaller sites (Rivétoile in Strasbourg, Côté Seine in A Cushman & Wakefield Research Publication JANUARY 2015 RETAIL INVESTMENT ACTIVITY IN FRANCE 1,2 1,9 2,3 4,8 1,2 1,9 3,6 3,3 3,6 4,0 7,7 0% 20% 40% 60% 80% 100% 0 1 2 3 4 5 6 7 8 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Retail investments (€bn) % of sums invested in retail in France 5 Five transactions of more than €500 million accounted for 60% of total investment in retail properties in 2014. 14
  14. 14. Argenteuil). Investor enthusiasm for value-add assets has not waned,as illustrated by the acquisition by KKR/Seefar of a portfolio of four shopping centers in the Paris region and the provinces (Ivry Grand Ciel, Espace du Palais in Rouen) and the sale to Orion Capital Manager of Domus in Rosny-sous-Bois. Total investment of €1.5 billion in high streets in 2014 was unchanged from the previous year, although the number of transactions increased to 66, compared with 54 in 2013. Unsurprisingly, Paris was the recipient of most investment (82%) in this market segment. Several iconic deals marked the past year and reaffirmed French and foreign investor appetite for core assets in Paris, such as mixed-use buildings in the western suburbs (e.g., the Madeleine building, the Rossini building, 49−51 avenue George V, and mixed-use buildings in the Étoile portfolio). Flagship stores on the busiest and most prestigious high streets remained retailers’ preferred format for enhancing their visibility and image. Demand for flagships was strong in 2014, as illustrated by the sale to Thor Equities of the Benetton store at 51−53 boulevard Haussmann and by transactions in the luxury sector (Louis Vuitton in Saint- Germain-des-Prés, Étoile portfolio). Even in a weakening market, the scarcity of prime retail slots continued to encourage the largest luxury groups to expand their networks by acquiring new boutiques (Chanel at 51 avenue Montaigne).Key high streets were also sought after in the provinces,as illustrated by the acquisition of theVerano portfolio by Dutch asset manager Syntrus Achmea as well as by a few smaller transactions (New Yorker and La Halle on rue Serpenoise in Metz, Armand Thiery on rue Sainte-Catherine in Bordeaux, Sandro on rue Édouard Herriot in Lyon, etc.). In 2014, €590 million was invested in French retail parks, 40% less than in 2013. This decline was due mainly to a drop in sale-and- leaseback operations. Despite investor enthusiasm for retail parks, acquisitions in this property class were also in decline because of a shortage of quality supply.The largest transactions of 2014 included several existing, secure assets, such as the Realis acquisitions in the Croix Blanche zone and several recent (or under-development) complexes located in well-established peripheral areas (White Parc in Orgeval, Saint-Max Avenue in the Creil-Saint-Maximin zone). A Cushman & Wakefield Research Publication INVESTMENT Rivétoile - Strasbourg (67) 15 Avenue des Ternes - Paris 17th (Verano portfolio)
  15. 15. INDUSTRIAL Amounts invested Investments in industrial assets in 2014 amounted to €1.7 billion,or 7% of total investment in France.This annual rise of 13% continued a positive trend that began in 2009.As in 2012 and 2013, portfolio disposals played a crucial role, totaling €1.05 billion (62% of all investment in industrial assets) and 14 transactions, including a few pan-European portfolios.Among the largest portfolios exchanged in 2014 were the logistics sites sold by Foncière des Régions to Blackstone (Loren portfolio) and light industrial premises acquired by MStar fromTamar Capital (Phoenix portfolio).There were seven transactions in the €50−100 million range, totaling €512 million, (e.g., the acquisition by Etche and KKR of the Cloud portfolio and the portfolio of three logistics platforms sold by Internos Global Investors to CBRE Global Investors), compared with four in 2013 for a total of €230 million. Solid performances in the industrial-property market reaffirm the interest shown by the sector’s pure players. Attracted by higher yields, US and UK funds (Blackstone, KKR, MStar, CBRE Global Investors, etc.) were behind the largest deals in 2014.Their activity explains the preponderance of foreign investment (60%) in total investment in industrial assets.NorthAmericans accounted for 32% of total acquisitions,particularly from German funds (SEB Immobilien Investment) and French investors (Foncière des Régions). French players were less active in acquisitions than in sales and accounted for only 40% of total investment, primarily by property-investment firms (Argan, Foncière Atland, Etche), SCPIs and OPCIs (Amundi, BNP Paribas Reim, Corum AM), and private investors. A Cushman & Wakefield Research Publication JANUARY 2015 INDUSTRIAL INVESTMENT ACTIVITY IN FRANCE *Mixed-use asset EXAMPLES OF RETAIL ACQUISITIONS IN 2014 TYPE PROPERTY LOCATION VENDOR PURCHASER PRICE (€M) AREA (M2 ) Gallery Portfolio (56 galleries) France Klépierre Carmila 1,400 − Shopping center Portfolio (6 shopping centres) France Unibail-Rodamco Carmila 931 128,000 Shopping center Portfolio (6 shopping centres) France Unibail-Rodamco Wereldhave 850 202,500 Shopping center Beaugrenelle Paris (75015) Gecina, SCI Pont de Grenelle Apsys, Foncière du Rond Point, Financière Saint-James 700 50,000 High street retail Le Madeleine* Paris (75001) Blackrock NBIM 425 29,700 High street retail Chanel flagship store Paris (75008) Private Chanel 140 600 Shopping center Saint-Sébastien (75%) Nancy (54) Axa Real Estate Hammerson 130 24,000 High street retail Verano portfolio Paris, Bordeaux, Toulouse Grosvenor Syntrus Achmea / BNP Paribas Reim 130 9,400 Shopping center Portfolio (4 shopping centres) France Corio Seefar / KKR 104 55,300 High street retail Rossini* Paris (75009) Inovalis, Pitch Promotion Aviva Investors 98 6,300 Shopping center Domus mall Rosny-sous- Bois (93) Rabo Real Estate Orion Capital Managers 70 62,000 Gallery Grand Cap (extension) Le Havre (76) Immochan Amundi 50 (est.) 13,000 Retail park White Parc Villennes-sur- Seine (78) Codic DeAWM 35 11,600 0,8 2,6 2,1 3,2 1,5 0,6 0,7 0,8 1,3 1,5 1,7 0% 20% 40% 60% 80% 100% 0 1 2 3 4 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Industrial investments (€bn) % of sums invested in industrial in France 16 **
  16. 16. A Cushman & Wakefield Research Publication INVESTMENT EXAMPLES OF INDUSTRIAL ACQUISITIONS IN 2014 TYPE PROPERTY LOCATION VENDOR PURCHASER PRICE (€M) AREA (M2 ) Logistics Loren portfolio France Foncière des Régions Blackstone 380 619,000 Industrial park Phoenix portfolio France Tamar Capital Mstar 103 167,000 Light industrial Cloud portfolio France BNP Paris Reim Etche / KKR 87 (est.) 174,000 Logistics Portfolio Ile-de-France, Lyon Carval Investors IDI Gazeley 83 200,000 Light industrial Portfolio* France Groupe Elis Foncière Atland, Groupe Tikehau 80 267,000 Logistics Maisons du Monde turnkey scheme Saint-Martin de Crau (13) Tristan Capital Partners Segro 69 116,000 Logistics Portfolio Mer (41), Satolas & Saint- Priest (69) Internos Global Investors CBRE Global Investors 59 104,000 Assets and geographic distribution Logistics accounted for €1.1 billion (65%) of total investment in industrial assets in 2014. The logistics market received steady demand for new and recent large platforms located for the most part in large consumer populations and near major roads and transport infrastructure.The four principal markets on the north- south axis (Lille, Paris, Lyon, and Marseille) are the main recipients of this activity (e.g., the acquisition by CBRE Global Investors of a 25,000 m² platform let to Rexel in Saint-Vulbas, and the sale to Goodman of a 20,500 m² logistics platform at the Port of Gennevilliers). Nonetheless, 2014 was also the year of light industrial sites, whose volume grew 72%, a rebound due mainly to several portfolios (Phoenix, Cloud, etc.) and to a few sale-and- leaseback operations (sale by the Elis group of 17 assets totaling 270,000 m²). YIELDS Prime yields fell again in 2014, with Paris office and retail assets paying 4% and 3.5% respectively.Yields also declined for assets in several large tertiary sectors of the outer and inner suburbs (Hauts-de-Seine, northern suburbs). Interest rates also declined at the end of 2014, with three-month Euribor rates averaging 0.08% in December. Yields of long-term bonds (10-year FrenchTreasuries) fell below the symbolic threshold of 1%, averaging 0.92% in December. Even though low interest paid by government bonds and competition among investors combined to accelerate the decline in yields, the return on property assets remains largely superior to that of risk-free assets. OUTLOOK FOR THE INVESTMENT MARKET The economic outlook for France and the eurozone calls for only slight improvement in 2015. Regulatory and fiscal uncertainty incites prudence among investors, particularly occupiers hesitating to embark on real-estate projects. However, the French property- investment market is expected to remain buoyant. Strong demand from investors already present in France, the steady arrival of newcomers, and significant levels of available capital guarantee that 2015 will be a lively year, with volume well above the ten-year average. JANUARY 2014 JANUARY 2015 OFFICES Paris (CBD) 4.25 4.00 Provinces (Lyons) 5.90 5.75 RETAIL Shops 3.75 3.50 Shopping centres 5.00 4.50 Retail parks 6.00 5.75 INDUSTRIAL Logistics 7.25 6.75 Light industrial 8.25 7.75 AVERAGE 5.77 5.43 PRIMEYIELDS IN FRANCE % *Sale and leaseback / **Estimation 17 **
  17. 17. The office market in Ile-de-France recovered slightly in 2014, when take-up was 15% higher than in 2013 but 8% lower than the ten-year average.After a lively first half, market activity faded. Occupiers took longer to make decisions, no doubt wary of the lackluster economy. Other factors came into play, such as the uncertainty surrounding the ACTPE bill and the extent of incentives offered by landlords.Although lease negotiations may have deteriorated, occupiers ultimately managed to upgrade their properties while lowering costs. These factors explain the success of certain tertiary poles in the western suburbs, where there is a supply of high-quality office assets that are affordable and conveniently located. OFFICES FRENCH PROPERTY MARKET
  18. 18. A Cushman & Wakefield Research Publication JANUARY 2015 OCCUPIER DEMAND Trends in take-up In 2014, 2,010,003 m² of office space was let or sold to occupiers 2014, 15% more than in 2013 (1,743,102 m²). This volume is far from the record performances of the mid-2000s and is 8% less than the average of the past ten years (2,179,962 m²).The 9% rise in the number of transactions should not be taken to suggest that market conditions have improved.The 2,213 transactions recorded in 2014 represent the second-worst performance in a decade, better only than 2013.What’s worse,the traditional motor of large transactions seems to have stalled. Only 74 deals of more than 4,000 m² were recorded in 2014, compared with 66 in 2013 and 89 over the past ten years. Large transactions totaled 911,730 m² in 2014 and accounted for 45% of total take-up, compared with 41% in 2013. Except for the project developed by Veolia in Aubervilliers, large turnkey transactions were almost nonexistent in 2014, as in the previous year.Such operations were what drove volume during the period 2009−2012 (Crédit Agricole in Montrouge, Thales in Gennevilliers, Carrefour in Massy, SFR in Saint-Denis, etc.). Sales to occupiers were not enough to revive market activity. Even with the completion of large deals, such as the 45,000 m² acquired by Safran in Châteaufort or the acquisition by SMABTP of its new headquarters in the 15th arrondissement, transaction volume of office assets declined by 14% year on year, mainly because of the collapse of small and medium-sized transactions. The historically low level of interest rates and the safe-haven status of property investment were not enough to compensate the wait-and-see attitude of very small enterprises and SMEs. Smaller companies often face financing problems,which can prove fatal when combined with high prices in real estate in certain parts of the Paris region and with the unreasonable expectations of sellers. Trends in take-up according to supply quality In 2014, occupiers showed an increased appetite for large refurbished office complexes, which allowed many companies to lower costs without compromising on the quality of assets or locations. Such transactions accounted for 24% of total take-up of more than 4,000 m²,compared with 14% in 2013.The success of this type of transaction enlivened several large business sectors in the western suburbs, such as the WBD (Henner at 14 boulevard du Général Leclerc in Neuilly-sur-Seine, SNCF-Geodis in Espace Seine in Levallois-Perret) and La Défense (Dalkia in theTour Europe). TAKE-UP IN ILE-DE-FRANCE (M²) 1 937 638 2 049 452 2 791 622 2 656 443 2 357 403 1 752 665 2 091 864 2 321 082 2 098 351 1 743 102 2 010 003 44% 43% 51% 42% 49% 45% 51% 45% 50% 41% 45% 2 317 2 498 2 893 3 306 2 784 2 314 2 264 2 590 2 271 2 033 2 213 0 500 1 000 1 500 2 000 2 500 3 000 3 500 4 000 0 500 000 1 000 000 1 500 000 2 000 000 2 500 000 3 000 000 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Take-up (m²) Take-up > 4,000 m² (share in %) Number of deals BREAKDOWN OF TAKE-UP ACCORDING TO SUPPLY QUALITY* 64% 61% 69% 67% 77% 65% 66% 66% 67% 73% 64% 12% 21% 15% 27% 13% 23% 15% 11% 15% 14% 24% 24% 18% 16% 6% 10% 12% 19% 23% 16% 13% 12% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 New-Redeveloped Refurbished Second-hand Tour Europe – La Défense (92) 20 *Transactions of more than 4,000 m2 .
  19. 19. The increase in the proportion of refurbished buildings automatically lowered the share of new and redeveloped buildings. Nonetheless new and redeveloped buildings remain by far the most sought after and still account for 64% of take-up of more than 4,000 m² (73% in 2013).Related to the completion of several turnkey projects (Veolia in Aubervilliers, Eiffage inVélizy,etc.),the success of this property type is also due to early lettings of large complexes of more than 20,000 m², such as the letting by the Ministry of the Interior of the Garance building in the 20th and L’Oréal’s letting of Ecowest in Levallois. Several office projects in conjunction with new or continuing urban-development projects have also been successful: the second phase of Le Trapèze in Boulogne- Billancourt (Carrefour Property in Ardeko) and the ZAC Clichy- Batignolles (Klesia in Rezo and Strato), Rungis (Mutuelle Générale in Pushed Slab), and Rive Gauche (SNI in A9B) projects in Paris. Occupier strategies Those counting on recovery of the French economy in 2014 were quickly disillusioned.The absence of growth, estimated by INSEE at 0.4% for the year, brought further job destruction and persistent unemployment to Ile-de-France. Under the circumstances, the low number of expansion projects was unsurprising. Comprising only 6% of transactions of more than 4,000 m² in 2014, the few expansion projects were usually in dynamic sectors such as new technologies (Aldebaran Robotics in Nouvel Air in Issy-les- Moulineaux, Salesforce in Alcatel’s former headquarters on 3 avenue Octave Gréard in the 7th ). Market transactions revealed that the trend was for businesses not to lease additional office space, but to consolidate and streamline sites in order to cut costs and protect profitability. Such transactions accounted for 88% of total take-up of more than 4,000 m² in 2014. However, the cost per work station is by no means the only factor taken into consideration for relocation, as demonstrated by the very small number of relocations outside the center of the Paris region and by the very small number of lettings of large secondhand complexes. Études & Recherche Cushman & Wakefield OFFICES 49% 39% 6% 3% 3% Consolidation Cost-Cuttings Extension Merger Other TAKE-UP (> 4,000 M²) ACCORDING TO REASON FOR RELOCATING 24%Proportion of refurbished office space in total take- up > 4,000 m² in 2014 (14% in 2013) 21
  20. 20. A Cushman & Wakefield Research Publication JANUARY 2015 Companies are applying a more global approach to their real estate, with which they endeavor to raise the productivity of their teams, to improve their corporate image, and to attract the most talented workers. As a result, human factors are taken into greater consideration and human resources plays a larger role.The work space, neighborhood, and convenient access all take on a new importance for the company. Some occupiers have taken advantage of mergers to regroup their teams in Paris (Klesia in Rezo & Strato, Paris 17th , Public System/ Hopscotch at 23−25 rue Notre-Dame-des-Victoires, Paris 2nd ) and others have moved towards the city center (Wolters Kluwer in Colisée IV). By contrast, some companies have gone the other direction, eliminating numerous smaller sites in favor of large office complexes that are farther away but of higher quality, like the new Veolia headquarters in Aubervilliers and the La Mutuelle Générale headquarters in the 13th (Pushed Slab). Decisions by companies to leave the CBD were relatively numerous in 2014 and have become symbolic of a new, opportunistic approach to real estate and to the compromises required by relocation. Moves from prestigious, centrally located neighborhoods were compensated by lettings of efficient, less expensive office space with a desirable address (Groupe Henner and Groupe M in Neuilly, Fimalac/Webedia in Levallois, Fromageries Bel in Suresnes, Euronext in La Défense) and sometimes in Paris (Ministry of the Interior in the Garance building). Take-up according to geographical sector The Paris office market experienced uneven results in 2014. At 676,526 m², the volume of take-up in Paris was 11% higher than in 2013 but 12% lower than the average of the past ten years. Activity was especially erratic in the CBD. More than half of the 11 transactions of more than 4,000 m² completed in 2014 were made in the first quarter of the year.The year began brilliantly with a cascade of decisions made by occupiers wishing to benefit from restructurings and to optimize their office space (Cheuvreux at 55 boulevard Haussmann, Clifford Chance at 1−5 rue d’Astorg). However, this momentum ground to a halt after the first quarter.A few significant lettings aside (Fast Retailing in Louvre Saint-Honoré, Generali at 2−4 rue Pillet-Will), cautiousness once again came to dominate occupiers’ real estate decisions.When confronted with the end of a lease,some companies,including several large Paris law firms (Linklaters, De Pardieu Brocas Maffei, etc.), preferred to renegotiate than to relocate.Furthermore,the slowdown in large properties was not compensated by recovery in activity among SMEs, which are more exposed to economic difficulties. In 2014, SMEs tended not to relocate; transactions of less than 4,000 m² were significantly below the average of the past ten years (−10%). Other sectors besides the CBD suffered above all from a lack of quality office properties. For example, the 7th arrondissement saw only one large transaction in 2014, the letting by Salesforce of Alcatel’s former headquarters at 3 avenue Octave Gréard.Lettings of office space of more than 4,000 m² were almost inexistent in the 7th after the absorption of a few large redeveloped complexes (103 Grenelle, 23−25 rue de l’Université, Laennec, etc.). Such weakness was in contrast with the liveliness of sectors just beyond the city center. Large transactions in a few designated development zones (SNI in ZAC Rive Gauche, Klesia in ZAC Clichy-Batignolles, Pushed Slab in ZAC Rungis) and in certain mainly residential neighborhoods (Ministry of the Interior in the Garance building) not only helped soften the fall in demand in Paris,but also illustrated the office market’s trend to move away from business districts in central Paris. In western Ile-de-France, most activity resulted from relaxed lease restrictions. Large companies took advantage of incentives offered by landlords, which had a relatively abundant high-quality supply to dispose of. 3 avenue Octave Gréard – Paris 7th 140 % 61% 35% 27% 21% 13% - 2% - 6% - 26% - 38% - 42% - 150 % - 100 % - 50 % 0 % 50 % 100 % 150 % LaDéfense ParisRiveGauche NorthernSuburbs WBD Other ParisCentreEst ParisCBD SoutwesternSuburbs EasternSuburbs BoucledeSeine SouthernSuburbs TRENDS IN TAKE-UP ACCORDING TO GEOGRAPHIC SECTOR, BETWEEN 2013 AND 2014 (%) 22
  21. 21. A Cushman & Wakefield Research Publication OFFICES OCCUPIER MOVED TO BUSINESS SECTOR AREA (M²) Ministry of the Interior Paris 20 | Paris Centre Est Public Sector 26,200 Fromageries Bel Suresnes | WBD Manufacturing-Distribution 16,500 Groupe Henner Neuilly | WBD Banking-Insurance 12,800 Fimalac/Webedia Levallois | WBD Communication 12,000 Groupe M Levallois | WBD Communication 12,000 La Française AM Paris 6 | Paris Rive Gauche Banking-Insurance 10,000 Euronext Courbevoie | La Défense Banking-Insurance 10,000 Salesforce Paris 7 | Paris Rive Gauche IT 5,500 Hi Media Paris 12 | Paris Centre Est IT 3,500 Groupon Courbevoie | La Défense IT 3,500 Open Levallois | WBD IT 3,000 OCCUPIERS WHO LEFT THE CBD IN 2014* This trend is particularly visible in theWBD, which had its best year since 2008.Of the 336,830 m² let in theWBD,58% comprised areas of more than 4,000 m².The geographic distribution of take-up was inconsistent, however. Levallois-Perret alone accounted for 43% of the m² let or sold to the sector’s occupiers. With lettings of 145,867 m²,Levallois reached an all-time high.Five buildings of more than 4,000 m² were let: new/refurbished supply allowing long- standing occupiers to modernize their office space and regroup their teams (L’Oréal in Ecowest and So Ouest Plaza), and large refurbished headquarters with competitive rental values attracting companies from other municipalities (SNCF-Geodis in Espace Seine, Fimalac/Webedia in Le Libertis). Other municipalities of the WBD saw significant transactions. In Rueil-Malmaison, Ingerop and Amex Voyages let the remaining available space of Green Office II, and Neuilly had its best year since 2004.The arrival or return of large redeveloped complexes (Groupe M in Silvergreen) and refurbished buildings (Groupe Henner at 14 boulevard du Général Leclerc) attracted large Parisian occupiers to Neuilly. After a very bad year in 2013—the worst in a decade—the La Défense market has also returned to the forefront. With 231,933 m² let in 2014, La Défense almost broke its 2001 record, ending the year at a level similar to those of 2006 and 2008.In 2014 there were thirteen transactions of more than 4,000 m² for a total of 171,925 m²,or 74% of the sector’s total take-up.The SME segment was also lively. Take-up for office assets of less than 4,000 m² increased by 31% in 2014 and reached its highest level since 2007. Discounts granted by landlords played a vital role and explain the rapid absorption of a large, diversified supply that provides opportunities for companies in La Défense aiming to expand (Ernst &Young in First) or to regroup their employees while modernizing their site (KPMG in Eqho, HSBC in Cœur Défense, AXA IM in Majunga). La Défense’s increased attractiveness to occupiers of other business sectors served to heighten the sector’s capacity to retain occupiers.The success of La Défense new offers confirmed the validity of the sector’s renewal plan.For example,Thales’s letting of part of Carpe Diem provides the company with a prestigious, modern site that is both energy efficient and comfortable. La Défense has also attracted companies located in neighboring towns of the Hauts-de-Seine department and in Paris that are looking for flexible, inexpensive, and central locations (e.g., Euronext in Praetorium, Dalkia in the Tour Europe, and Tarkett in the Tour Initiale). Unlike the WBD and La Défense, most emerging districts of the inner suburbs played a minor role in 2014, despite an economic context favorable for occupiers looking to lower costs.The success of La Défense, as well as efforts made by landlords, compromised *Transactions in 2014 23 Carpe Diem – La Défense (92)
  22. 22. A Cushman & Wakefield Research Publication performances in the Boucle de Seine, where take-up was at its lowest since 2005. For the first time since 2000, there were no transactions of more than 4,000 m². Activity came mainly from lettings of office space in rather recent buildings that offer competitive occupancy costs (Front Office and O² in Asnières).All was quiet in the office market of the inner eastern suburbs too, where quality supply is scarce. On the other hand, the northern suburbs performed well. With take-up of 160,643 m² (inflated by Veolia Environnement’s new 45,000 m² headquarters in Aubervilliers), performances were in line with those of the past ten years. However, lettings may slow over the next few months as a result of the limited supply of new office space in Saint-Denis and the absorption of renovated large complexes in Saint-Ouen (Mondial Assistance in Eurosquare II). Take-up by business sector The public sector, banking and insurance, and manufacturing and distribution continued to dominate activity in 2013 and accounted for 75% of total take-up greater than 4,000 m2 in Ile-de-France, compared with an average of 71% for the period 2004−2013. The share of the public sector fell significantly, from 25% in 2013 to 9% in 2014. In its worst performance since 2001, the public sector originated only six large transactions, totaling less than 80,000 m². These transactions were mostly in Paris, which accounted for 80% of public-sector volume, thanks to two transactions of more than 20,000 m²: the letting by SNI of A9B in the ZAC Rive Gauche and the letting by the Ministry of the Interior of the Garance building in the 20th ,another example of the government trend to relocate from the west to the east of Paris. Prior relocations were the Ministry of the Interior to 35,400 m² in Le Lumière (Paris 12th ) and the construction for the Ministry of Justice of a 32,000 m² building in the Parc du Millénaire (Paris 19th ). By contrast, transactions by local governments were inexistent, except for the Région Ile-de-France’s letting of more than 6,000 m² in the Nord Pont building because of the need to relocate employees from theTour Montparnasse.After the municipal elections in 2014,departmental and regional elections may slow public-sector relocations in 2015,despite the State’s need to downsize its property portfolio. The dominant players in the 2014 office market were occupiers in the manufacturing and distribution sector, accounting for 24 transactions of more than 4,000 m² and 38% of total take-up, compared with 22% in 2013.As usual,occupiers in the manufacturing and distribution sector were also behind the largest transactions in Ile-de-France, with four transactions greater than 30,000 m² (including two lettings by L’Oréal from Ecowest and from So Ouest Plaza in Levallois).In 2014,the cosmetics giant also let the remaining available space in Nuovo in Clichy after letting 25,000 m² there the year before.This activity was part of L’Oréal’s strategy to restructure its property portfolio in Ile-de-France, after the construction of a new R&D center in Saint-Ouen in 2012 and the development of a vast logistics platform recently completed north of CDG airport. Like occupiers in the manufacturing-distribution sector,occupiers in the banking-insurance sector saw their share in total take-up rise year on year (from 25% in 2013 to 28% in 2014),while total volume of more than 4,000 m² grew an impressive 50%.Some French banks were particularly active. After beginning expansion work of its Montrouge and Guyancourt campuses in 2013, Crédit Agricole let several more large properties, thereby consolidating its leader position among large occupiers over the past five years (see table next page). The banking sector also stood out in 2014. Several transactions confirmed the status of La Défense as a financial center, including consolidations (HSBC in Cœur Défense) and arrivals of companies previously in Paris and elsewhere (Euronext in Praetorium,Banque de France in Eqho).Except for Groupe Henner, whose decision to relocate from the CBD to Neuilly lengthened the list of departures since 2011 (Allianz and Euler Hermès to La Défense,Apria RSA to Montreuil), insurance companies and private health insurers (mutuelles) remained in Paris in 2014 (Klesia in the 17th, Generali and Covéa in the 9th , La Mutuelle Générale in the 13th), thereby reaffirming their attachment to the Paris market in which they are long-time participants. JANUARY 2015 TAKE-UP (> 4 000 M²) ACCORDING TO BUSINESS SECTOR 9% 28% 9% 10% 38% 2% 4% Public Sector Banking-Insurance Communication Advisory Manufacturing-Distribution IT Services TAKE-UP IN LA DÉFENSE (M2 ) 107 437 214 328 233 349 214 602 232 498 156 106 145 925 108 634 158 804 96 509 231 933 79% 77% 68% 70% 77% 81% 66% 51% 79% 53% 74% 0 50 000 100 000 150 000 200 000 250 000 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Take-up (m²) Take-up > 4,000 m² (share in %) 24
  23. 23. Large consulting and legal firms also continued to favor the CBD (DLA Piper in Laffitte-La Fayette, Clifford Chance at 1−5 rue d’Astorg, McKinsey & Company at 90 Champs-Élysées) and La Défense (KPMG dans Eqho). A few companies reinforced the communications cluster in the southwestern suburbs (Solocal in CityLights in Boulogne) as well as theWBD (Groupe M in Neuilly). RENTALVALUES Prime rental values in Ile-de-France stood at €750/m²/year at the end of 2014, down 1% year on year. This slight decline was due mainly to the small number of transactions for new and redeveloped Parisian buildings (McKinsey & Company at 90 Champs-Élysées, OlivierWyman at 1 rue Euler,Holman FenwickWillan in theAstorg). The growing scarcity of such supply forced occupiers in business sectors with high added value (e.g., consulting, finance, new technologies) to consider high-quality renovated office space, whether for consolidation or expansion, which allowed them to preserve an address in one of Paris’s most prestigious neighborhoods (Clifford Chance in the 8th , Salesforce in the 7th ). Yet the market for prestigious assets is far from representative of the trends observed in the rest of Ile-de-France, where more than ever a diversity of rental values is the rule.Values may vary widely within the same business sector, depending on a given building’s location, its fundamental quality, and the owner’s letting strategy.As a general rule,incentives have played a critical role in tenant-landlord relations, with landlords granting more generous rent-free periods. Occupiers are able to use negotiation tactics to their advantage, widening the gap between headline rents and economic values. Some landlords displayed increasing flexibility in order to retain their tenants. Unless the economy shows more strength, or unless demand increases significantly with faster absorption of supply, these factors will continue to weigh on negotiation terms between landlords and tenants in 2015.The recent adoption of the ACTPE bill should help clarify relations between the two parties,particularly in terms of the sharing of expenses, work, and taxes. AVAILABLE SUPPLY After reaching an all-time high in the first quarter of 2014 (4,426,621 m²), available supply within six months declined to 4,190,958 m² at the end of 2014.The 5% decline in the second half of the year was related to the lack of large complexes on the market and to the completion of several large transactions of more than 10,000 m².The vacancy rate in the Paris region stood at 7.8% at the end of 2014,well below levels of other major European cities (10.1% in Brussels, 11.4% in Frankfurt, 14.9% in Milan, etc.) with the exception of Central London. A Cushman & Wakefield Research Publication OFFICES *Only one transaction during the period. LARGEST OCCUPIERS IN THE PERIOD 2009−2014 M² OF OFFICE LET OR SOLD FOR OWN USE RANK OCCUPIER BUSINESS SECTOR 1 Crédit Agricole Banking-Insurance 2 Thales Manufacturing-Distribution 3 SFR IT 4 France Telecom/Orange IT 5 BNP Paribas Banking-Insurance 6 Carrefour Manufacturing-Distribution 7 SNCF Public Sector 8 BPCE Banking-Insurance 9 L’Oréal Manufacturing-Distribution 10 EDF Manufacturing-Distribution PRIME RENTALVALUES BY GEOGRAPHIC SECTOR (€/M²/YEAR) 753 680 498 488 463 429 310 292 310 257 746 667 511 478 450 426 305 290 287 240 0 €/m² 100 €/m² 200 €/m² 300 €/m² 400 €/m² 500 €/m² 600 €/m² 700 €/m² 800 €/m² Paris CBD Paris Rive Gauche La Défense WBD Southwestern Suburbs Paris Centre Est Northern Suburbs Boucle de Seine Southern Suburbs Eastern Suburbs 2013 2014 SUPPLY ANDVACANCY RATE IN ILE-DE-FRANCE (M2 ) 3413681 3133113 2794676 3290764 4103109 4066053 3720902 3869380 4367965 4190958 57% 54% 54% 56% 58% 58% 57% 57% 57% 54% 25% 20% 25% 30% 27% 25% 24% 23% 25% 25% 7,1 6,5 5,7 6,6 8,0 7,9 7,1 7,4 8,2 7,8 0,0 % 1,0 % 2,0 % 3,0 % 4,0 % 5,0 % 6,0 % 7,0 % 8,0 % 9,0 % 0 500 000 1 000 000 1 500 000 2 000 000 2 500 000 3 000 000 3 500 000 4 000 000 4 500 000 5 000 000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Total supply Supply > 4,000 m² New-redeveloped supply (all sizes) Vacancy rate * 25
  24. 24. A Cushman & Wakefield Research Publication Recent months have done nothing to reduce the large differences among the various tertiary poles in Ile-de-France. While the market in Paris proper remains relatively undersupplied,especially outside the CBD,there are abundant and diverse solutions in a few markets in the western suburbs, such as the Boucle de Seine (vacancy rate of 14.1%) and the WBD (12.2%).Available supply within six months also remains high at La Défense,well above precrisis levels (+234% from levels observed in 2008). This is the result of both releases and deliveries of large new and redeveloped complexes. Nevertheless, La Défense’s 12% vacancy rate is considerably lower than it was at the end of 2013 (14.1%). In La Défense as in the rest of Ile-de-France, a decline in supply quality logically paralleled the faster absorption of new and redeveloped assets in 2014.On a regional scale,the proportion of such assets accounts for only 25% of total available supply within six months, and in Paris intra muros this figure falls to only 14%.Volume of renovated supply was stable (+2% year on year) after the 30% rise between the end of 2010 and the end of 2013. OUTLOOK FOR FUTURE SUPPLY Paris: high-quality supply limited in the short term Unsurprisingly, it is in Paris’s most prestigious neighborhoods that supply is most limited. Since the partial letting of 1 rue Euler, redeveloped supply to 2016 of more than 10,000 m² in the area around Etoile has dwindled to 3−5 Friedland. Once this offer has been absorbed—and given the lack of alternatives in the 7th arrondissement—the most captive occupiers in the 8th arrondissement will increasingly turn to lease renegotiation.The scarcity of redeveloped supply should encourage the absorption of the highest quality secondhand supply in the CBD, primarily the 13,500 m² of Capital 8 and the 15,000 m² released by Clifford Chance in Vendôme- Saint-Honoré. For occupiers less concerned with a prestigious address, other solutions exist,mainly in Paris’s financial district.Two redevelopment projects of more than 10,000 m² will become available in 2015: the 27,000 m² of #Cloud and the 24 Drouot building. However, there should JANUARY 2015 FUTURE SUPPLY TO 2017 1 101 619 443 320 406 713 88 524 1 417 205 0 200 000 400 000 600 000 800 000 1 000 000 1 200 000 1 400 000 1 600 000 1 800 000 2 000 000 2015 2016 2017 Volume of likely future supply > 10,000 m² Volume of secure future supply > 10,000 m² Average take-up >10,000 m² over the past 5 years Average take-up >5,000 m² over the past 5 years 1 101 619 443 320 406 713 88 524 1 417 205 0 200 000 400 000 600 000 800 000 1 000 000 1 200 000 1 400 000 1 600 000 1 800 000 2 000 000 2015 2016 2017 Volume of likely future supply > 10,000 m² Volume of secure future supply > 10,000 m² Average take-up >10,000 m² over the past 5 years Average take-up >5,000 m² over the past 5 years After 750,000 m² in 2013, office deliveries in 2014 in Ile-de- France totaled just over 800,000 m². Slightly more than one- third of total volume was in the WBD and La Défense, while 62% comprised partially or wholly pre-let offices (Majunga in La Défense, Green Office II in Rueil, Pushed Slab in Paris, etc.) and large turnkey campuses (first tranche of new SFR headquarters in Saint-Denis, new Carrefour headquarters in Massy, etc.). In 2015, completions are expected to rise considerably, to near the record level of 2009 (1.3 million m²). However, the market will not be flooded with empty office space. Only 30% of the 1.2 million m² expected this year is still available.This volume includes several large turnkey projects: the Ministry of Defense in Balard, Eole building at Evergreen in Montrouge, renovation for Sanofi in Gentilly, and the second tranche of SFR’s new headquarters in Saint-Denis. In addition, a few large complexes were pre-let in 2014, such as CityLights in Boulogne (Solocal), So Ouest Plaza in Levallois (L’Oréal), and the Garance building (Ministry of the Interior) in the 20th .After 2015, opportunities will become even scarcer. Of the 575,000 m² currently under construction for estimated delivery in 2016, less than 200,000 m² is still available (10 Grenelle in Paris, White in Montrouge, etc.). Focus on construction activity in Ile-de-France 26
  25. 25. A Cushman & Wakefield Research Publication OFFICES be a greater number and range of solutions as from 2016,the result of significant releases by long-standing occupiers of the CBD such as insurers in the Grands Boulevards district (Generali on boulevard Haussmann, Allianz on rue Richelieu) and the public sector in the area around Gare Saint-Lazare (SNCF).Two iconic redevelopment projects under way in the 1st arrondissement, the Samaritaine and the Poste du Louvre, will add to this supply. Concentrated in just a few arrondissements,this significant potential may encourage landlords to stagger their project launches. The quality of certain programs, the overall improvement of the eastern part of the CBD (redevelopment of the Samaritaine, improvement of the Halles neighborhood, shopping center at the Gare Saint- Lazare, etc.) and the shortage of space in western Paris will undoubtedly make the financial district one of the main drivers of the Paris market in the years to come.The CBD will also profit from the maturing of the Clichy-Batignolles sector.The rapid absorption of Rezo et Strato and the early interest shown by occupiers in future supply to 2017 confirm the success expected of this neighborhood by Parisian businesses, despite the postponement to 2019 of the extension of the Metro line 14. The ZAC Clichy- Batignolles may also provide a Paris address to companies from nearby towns such as Levallois-Perret and Neuilly-sur-Seine, where a large supply of high-quality assets was partially absorbed in 2014. As in the CBD,large,high-quality office space remains very scarce in the Paris Centre Est and Paris Rive Gauche sectors. In the 7th arrondissement the shortage of supply could be long term. Other Left Bank arrondissements, by contrast, could return to more- balanced market conditions as early as 2015.In the 15th ,high-quality supply will come to market over the next few years because of opportunities created by redeveloped assets in centrally located sectors (10 Grenelle,43−45 quai de Grenelle) and by the completion of large programs planned around the Maréchaux inner belt (Quadrans). The variety of supply could attract a wide range of occupiers from more or less prestigious neighborhoods of Paris and allow them to consolidate their teams while upgrading their office space.This same approach will also likely lead to the success of new supply gradually developed as from 2016 in the ZAC Rive Gauche, the Austerlitz and Tolbiac sectors (Panorama, Eléments,Austerlitz), and, in the longer term, Masséna-Bruneseau (Duo). The depth of supply in the pipeline for Paris Rive Gauche contrasts with the chronic shortage in Paris Centre Est, where high-quality supply comprises mainly occasional redevelopment transactions in centrally located residential neighborhoods (Parisquare in the 11th, Archives in the 3rd ) as well as new development projects in peripheral arrondissements.Tempo and Parc du Millénaire 4 should benefit from the maturing of large urban development zones, the arrivaloflargeresidentialandretailprograms,andtheimplementation of the Rosa Parks RER E station.Although highly valued by occupiers, the Gare de Lyon district, with its ageing, energy-inefficient office buildings, will not see new supply before at least 2017. La Défense: less supply in the medium term Although La Défense remains one of the best-supplied markets in Ile-de-France, there is little doubt that occupiers will be offered fewer and less-diversified solutions in the medium term.As a result, numerous large transactions, both recent and imminent, are sure to absorb a large part of inventory before new and redeveloped assets can replenish stock (at the end of 2017 at the earliest), and before the marketing of supply such as the 50,000 m² Tour Trinity. Until then, La Défense will likely remain one of the key driving forces of the Ile-de-France office market, mainly because of the availability of high-quality programs,whether new (D2 and the remaining availably supply of First, Majunga, and Carpe Diem), refurbished, or secondhand (Cœur Défense). As long as its lease terms remain attractive, La Défense should be able to retain tenants and lure companies from sectors such as Paris, where supply is scarce, expensive, and relatively inflexible. Some of La Défense’s best available space may also be an alternative for occupiers from established parts of the WBD, such as Levallois and Neuilly, where supply largely dried up in 2014 except for a few quality assets (Alegria in Neuilly). Supply at La Défense remains abundant and diverse, creating competition with Boulogne-Billancourt and Issy-les-Moulineaux even if transactions in 2013 and 2014 reaffirmed that both towns generally command loyalty among occupiers (Solocal in Citylights, Boursorama inYou).However,supply of new and redeveloped office space of more than 10,000 m² is increasingly hard to find in either of those towns. The only three offers that will be available in Boulogne for this category of office asset before the end of 2016 3-5 Friedland – Paris 8th 27
  26. 26. A Cushman & Wakefield Research Publication are the 33,000 m² of In & Out, the 15,800 m² of Kinetik (the first project completed with Ardeko for the second phase of Trapèze), and the 10,800 m² of Cristallin.The lack of supply may seem even more pronounced in Issy, where new and redeveloped stock now accounts for only 10% of the town’s total inventory.However,supply greater than 10,000 m² will be assured in the short and medium term by a few redevelopment projects (Lemnys) and by releases of large complexes (Sequana, former Coca-Cola headquarters). In addition to available supply in Boulogne in theTrapèze sector and on Ile Seguin, there are several potential development projects in Issy (e.g., office towers overlooking the Seine). By attracting large companies within the sector, such deals could provoke releases and further widen the gap with energy-inefficient secondhand assets. Are market conditions favorable to alternatives? The competitive pressure from established markets towards alternative markets is expected to remain intense, at least in the short term. For example, several refurbished or secondhand assets in La Défense (Between, Pacific, etc.) could be made available to occupiers of nearby less established business sectors. Such tertiary poles would provide lower costs as well as a more prestigious address. On the other hand, incentives granted by landlords, the quality of supply, and improved local conditions of certain towns could allow someWBD buildings (Green Office Spring in Nanterre) and Boucle de Seine supply close to La Défense (West Plaza in Colombes, Défense Autrement in La Garenne Colombes) to outperform after a lackluster 2014. Other emerging districts could become more attractive. Some towns of the southern Hauts-de-Seine department enjoy a positive image,significant new and inexpensive supply,and easy access thanks to the extension of the Métro line 4 and tramway line 6.The markets in Montrouge (Fairway, White) and Chatillon (Area Prima) are emerging as potential cost-efficient options for occupiers of more established, undersupplied tertiary sectors nearby, such as Paris’s southern districts and Issy-les-Moulineaux. A few sectors in southern Ile-de-France, farther out but less expensive, should also eventually profit from better accessibility. Bagneux, which saw a couple of large transactions in 2014 (Neopost in Résonance, Sonovision in Aristide), is an example of significant development potential closely tied to the completion of major development projects (ZACVictor Hugo) and to the extension of the Métro line 4. Improved public transportation is a significant selling point. Although far from confirmed, the extension of the Métro line 10 to Ivry-sur-Seine is under study and could encourage long-term development of business sectors on the site of the former BHV warehouses. Other sectors to the north and east could provide in the shorter term a natural alternative for occupiers aiming to cut costs and benefit from proximity to a Métro station.Such is the case for high- quality supply in northern Hauts-de-Seine (Pointe Métro 2 in Gennevilliers) and for certain towns in Seine-Saint-Denis. Bobigny (Ecocité), for example, benefits from the scarcity of high-quality supply in Saint-Denis,where only one new building (Coruscant) will be available by the end of 2015.These towns could also profit from the decline in opportunities in Saint-Ouen, where the future supply of new and redeveloped assets of more than 10,000 m² by 2016 is mainly in the form of a 13,600 m² development project at the former CRIT headquarters just outside Paris. Finally, the eastern suburbs comprise the alternative market with the least supply in Ile-de-France.With the launch of Altaïs Evolution in Montreuil still pending, this sector can offer only one building of more than 20,000 m² (Tour 9 in Montreuil) over the next two or three years. OUTLOOK Given modest economic growth and the numerous possibilities available to companies for streamlining their office space, several trends observed in 2014 are expected to continue in the months ahead. The year 2015 could be one of transition before more significant recovery in 2016. Until then, the increasing scarcity of new and redeveloped stock should whet corporate appetites for large,high-quality refurbished spaces and could even,in sectors with the least supply,begin rebalancing the inequalities between landlords and occupiers. JANUARY 2015 Tour D2 – La Défense (92) 28
  27. 27. A Cushman & Wakefield Research Publication OFFICES 29 THE ILE-DE-FRANCE OFFICE SUBMARKETS Boulevard Périphérique I II III IV V VI VII VIII IX X XI XII XIIIXIV XV XVI XVII XVIII XIX XX Arcueil Gentilly Le Kremlin Bicêtre Cachan Ivry-sur-Seine Villejuif Charenton- le-Pont Vincennes Fontenay- sous-Bois Nogent- sur-Marne St- Mandé Champigny- sur-Marne St-Denis St-Ouen Tremblay- en France VillepinteAulnay- sous-Bois Le Blanc- Mesnil Le Bourget Drancy Rosny- sous-Bois Neuilly- Plaisance Neuilly-sur- MarneMontreuil Bagnolet La Courneuve Aubervilliers Pantin Les Lilas Le Pré- St-Gervais Noisy-le- Grand Villeneuve- la- Garenne Colombes La Garenne- Colombes Bois- Colombes Asnières- sur- Seine Courbevoie Rueil- Malmaison Suresnes Puteaux Clichy Paris Levallois- Perret Neuilly- sur-Seine Saint- Cloud Boulogne- Billancourt Issy-les Moulineaux Sèvres Meudon Châtillon Vanves Malakoff Montrouge Bagneux Roissy- en-France Bobigny Nanterre LaSeine La Défense Gonesse Bezons Southwestern Suburbs Southern Suburbs Western Business District (WBD) Eastern Suburbs Boucle de Seine Northern Suburbs Paris CBD Paris Rive Gauche Paris Centre Est La Défense SUBMARKET TAKE-UP (M2 ) PRIME RENT(€/M2 /YEAR) VACANCY RATE (%) 2014 2013 2014 2013 2014 2013 PARIS CDB 398,636 404,813 746 753 7.9 7.7 PARIS CENTRE EST 121,476 107,321 426 429 6.5 5.3 PARIS RIVE GAUCHE 156,414 97,427 667 680 5.7 5.3 LA DÉFENSE 231,933 96,509 511 498 12 14.1 WBD 336,830 265,934 478 488 12.2 13.4 BOUCLE DE SEINE 36,717 58,929 290 292 14.1 17.1 SOUTHWESTERN SUBURBS 160,312 170,566 450 463 11 10.3 EASTERN SUBURBS 34,637 46,956 240 257 7.7 7.4 NORTHERN SUBURBS 160,643 119,297 305 310 7.2 7.6 SOUTHERN SUBURBS 76,292 131,310 287 310 10.1 9.4 OTHERS SUBMARKETS 296,113 244,040 234 248 5.1 6.0 TOTAL ILE-DE-FRANCE 2,010,003 1,743,102 750 753 7.8 8.2 ILE-DE-FRANCE OFFICE-MARKET INDICATORS Gennevilliers
  28. 28. ” In 2014 in France, 2.24 million m² of warehouse space was leased or sold to occupiers, a slight increase (+3%) year on year. As in 2013, this volume was boosted by in-house logisticians of large distribution retailers aiming to streamline and modernize their supply-chain by means of large-scale turnkey operations. Several such operations fueled the Paris and Lyon markets, which revived considerably after a lackluster 2013. These two markets compensated for the uneven performances of most other logistics centers in France. LOGISTICS FRENCH PROPERTY MARKET
  29. 29. A Cushman & Wakefield Research Publication JANUARY 2015 OCCUPIER DEMAND Occupier strategies Take-up in France rose slightly (+3% year on year) in 2014, totaling 2,240,000 m².This 9% improvement over the ten-year average was the best performance since the beginning of the economic crisis, except for that in 2011. Higher take-up volume also brought a 10% rise in the total number of transactions. The largest transactions played an especially important role. Ten transactions totaling nearly 530,000 m² (and each larger than 40,000 m²) accounted for just under a quarter of total take- up, confirming that consolidation remains a priority for occupiers. By replacing several buildings with a smaller number of large platforms, occupiers are able to lower their total warehouse footprint. The strategy of lowering property costs is not the only factor that explains the trend in the French warehouse market towards larger spaces.When located near major highways, large port facilities, or at the center of catchment areas, such large platforms allow occupiers to optimize their transport costs while reducing the number of trucks on the roads and improving their load rate. More generally these platforms provide significant economies of scale that are not limited to real estate (maintenance costs, salaries, etc.).As seen in 2014 in the development of several turnkey schemes and expansion projects of existing warehouses (Amazon in Lauwin-Planque, Carrefour in Saint-Vulbas, etc.), the larger size of buildings is due mainly to the rapid growth of e-commerce and to improved supply-chain efficiency of in-house logisticians in the retail- distribution sector,resulting in the need for more employees,sophisticated order-processing facilities, larger parking lots, and sufficient maneuvering area for trucks.Occupiers’ desire for modern buildings is also attributable to their need to adapt to changes in regulatory requirements (safety, working conditions,and product traceability),to requirements concerning delivery time, and to the search for greater productivity. * Transactions > 5,000 m² including turnkey and owner-occupied premises but excluding lease renewals. 450,000m² TAKE-UP IN FRANCE (M²) 1500000 2000000 2200000 2600000 2600000 1600000 1760000 2400000 1800000 2170000 2240000 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 0 500000 1000000 1500000 2000000 2500000 3000000 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Take-up in France (m²) Share of Ile-de-France (%) Volume let by in- house logisticians of large food retailers in 2014 in France, compared with 500,00 m2 in 2013. 32
  30. 30. A Cushman & Wakefield Research Publication LOGISTICS Occupier profiles The retail-distribution sector is at the cutting edge of logistics technology and sophistication.Accounting for 45% of total take-up in France in 2014, the sector’s in-house logisticians were behind most turnkey schemes and almost all deals larger than 40,000 m². As in 2013, large distribution retailers were very active in 2014: Socara,E.Leclerc group’s global procurement operation,developed a platform of 106,000 m² in Villette d’Anthon, near Lyon; Lidl built a new warehouse of 40,000 m² in Rousset, near Marseille; and Carrefour announced numerous new leases and development projects as part of its Caravelle logistics-restructuring program. In addition,Carrefour is expected to increase take-up in 2015.Several sites have already been selected in various parts of France (Nîmes, Bourges, etc.).These trends reveal the extent of the streamlining strategies implemented in an environment of slower consumer spending and a price war among retailers. Although designed to better manage the regrouping of fresh, dry, and frozen products, as well as the proliferation of sales channels that have emerged from e-commerce and the rapid growth of click-and-collect grocery pickup, the projects developed for large food retailers also devote significant resources to information systems, automated features, and mechanized processes. Concerned about lowering real estate costs, managing growth of online sales, and encouraging store-network development, other categories of retailers launched major operations (La Foir’fouille in Dourges,C&A near Meaux,Toys“R” Us in Saint-Fargeau-Ponthierry, Orchestra in Lauwin-Planque, etc.). Although industrial in-house logisticians experienced a decline in business in 2014 (15% of total take-up in France, compared with 18% the previous year), logistics service providers enjoyed significant business growth and accounted for 40% of total take-up in 2014, compared with 30% in 2013 and 34% in 2012. The operations of logistics service providers comprised not only large development projects carried out on behalf of general service providers (FM Logistic in Entraigues-sur-la-Sorgue), but also numerous new leases of cross-dock facilities (UPS in Savigny-le- Temple, Geodis near Nancy, etc.). The growth of online sales boosted e-commerce logistics,as seen in operations carried out by some of the sector’s major players:Alpha Direct Services in Evreux, Rhenus Logistics near Chalon-sur-Saône, and Kiala in Savigny-le- Temple.Logistics providers were nonetheless hurt by the economy and saw trading volume decline.The precariousness of their service contracts is reflected in the increasingly frequent use of short-term leases intended to lower the risk of letting buildings that logistics providers may not be able to occupy in the long term. REGION CITY TENANT AREA (M²) Rhône-Alpes Villette d’Anthon (38) Socara (Leclerc) 106,000 Ile-de-France Serris (77) Auchan 52,000 Ile-de-France Saint-Fargeau-Ponthierry (77) Toys “R” Us 48,000 Champagne Troyes (10) Petit Bateau 44,000 Nord-Pas-de-Calais Wattrelos (59) La Redoute 42,000 PACA Rousset (13) Lidl 40,000 Nord-Pas-de-Calais Lauwin-Planque (59) Orchestra 40,000 Ile-de-France Moussy-le-Neuf (77) Carrefour 36,800 Ile-de-France Villenoy (77) C&A 32,000 PACA Fos-sur-Mer (13) Tempo One 24,000 Bourgogne Sevrey (71) Rhenus Logistics 22,500 KEY LEASE TRANSACTIONS IN 2014 TAKE-UP ACCORDING TO OCCUPIER PROFILE Logistics service providers 40% In-house logisticians (retail distribution) 45% In-house logisticians (manufacturing) 15% 33
  31. 31. Take-up according to geographical sector The four principal markets along France’s north-south axis (Lille, Paris, Lyon, and Marseille) accounted for 68% of volume of warehouse space let or sold to occupiers in 2014 in France, compared with 58% in 2013.This rise conceals significant differences between geographical sectors. In contrast with the decline in the Lille and Marseille markets, Paris and Lyon enjoyed a strong rise in business activity. These two markets accounted for 50% of all warehouse space let or sold in France in 2014, compared to just 28% in 2013. Nearly 700,000 m² was let in the Paris conurbation in 2014, a staggering 59% more than in 2013, which was the weakest year of the decade yet.Volume let was further inflated by the completion of large turnkey projects, such as Auchan in Serris, C&A near Meaux, and Toys “R” Us in Saint-Fargeau-Ponthierry. First launched in 2013, these projects account for 38% of all warehouse space let or sold in the Paris region, if smaller, early-stage projects (Relay France and DHL in Roissy, Dachser inWissous, etc.) are also taken into account. Illustrating the advantages of conveniently located buildings with operating permits, leases of large existing buildings also enlivened the market and allowed the absorption of new space that had never been occupied (Carrefour in Moussy-le-Neuf) as well as of secondhand assets placed on the market (ID Logistics in Saint-Witz).The geographic distribution of take-up confirmed the dominant position of major logistics centers in the Paris region. After a glum 2013, the northern suburbs were awarded the largest share (48%) as a result of numerous transactions at and near CDG airport (Marly-la-Ville, Moussy-le-Neuf, and Saint-Witz). Southern Ile-de-France accounted for 30% of take-up in 2014.With nearly 50,000 m² in Saint-Fargeau-Ponthierry,Toys “R” Us took the lion’s share,but several medium-sized warehouse spaces were also let by logistics providers. In the eastern suburbs, Marne-la-Vallée continued to attract more and more interest.Conveniently located and with abundant land opportunities, this region was chosen by Auchan for its 52,000 m² platform designed to service more than 40 hypermarkets and drives. Like theToys “R” Us project,Auchan’s development project illustrates the trend of in-house logisticians to set up operations further afield, well away from conurbations. With 420,000 m² let or sold to occupiers in 2014, take-up in the Rhône-Alpes region doubled in 2014 year on year and was 21% higher than the ten-year average. This excellent performance is attributable mainly to the development of a platform of more than 100,000 m² for Socara inVillette d’Anthon.The project, the largest in 2014,represented one quarter of all warehouse space let or sold in the Lyon region in 2014. While not record breaking, the total number of transactions was greater than in the previous year.Most transactions were for existing buildings in the Rocade Est sector. Because of a scarcity of available high-quality supply,markets in Lille (220,000 m² let, an annual decline of 13%) and Marseille (190,000 m² let, an annual decline of 46%) were quiet in 2014, with relatively few transactions. However, take-up was boosted at the end of the year by a few operations larger than 40,000 m².These transactions served to confirm the vital importance of in-house logisticians of the retail-distribution sector in both regions (La Redoute with 42,000 m² inWattrelos,Orchestra with 40,000 m² in Lauwin-Planque, and LIDL with 40,000 m² in Rousset, near Marseille). Although the slowdown in business was especially pronounced in Marseille, statistics for 2013 were skewed by a platform of more than 100,000 m² developed for Maisons du Monde in Saint-Martin-de-Crau. At just over 700,000 m² in 2014, compared with 950,000 m² in 2013, take-up outside the four principal markets on the north- south axis fell by 26% year on year. These poor results can be explained mainly by the sharp decline in turnkey projects for in- house logisticians (such projects had boosted business in 2013).A few large deals were nonetheless finalized, including a new 50,000 m² platform developed for Carrefour in Bourges and a new 44,000 m² site launched for Petit Bateau in the Aube Logistics Park inTroyes.Generally more attractive in terms of taxes,development costs, and available land, secondary markets continued to benefit from in-house logisticians’ one-off consolidation and expansion projects.Volume let to logistics providers was stable year on year and continued to sustain traditional crossroads such as the Centre region. Because of the wide variety of demand, this market turned in an excellent performance in 2014. More than 110,000 m² were let in 2014 as a result of the development of a few turnkey projects for in-house logisticians (Carrefour in Bourges) and several new leases by service providers (Girard Agediss in Mer, DHL in Meung- sur-Loire, etc.). Brittany also distinguished itself through projects carried out by various large distribution retailers (Carrefour and Intermarché near Rennes, Scarmor/Leclerc near Saint-Brieuc). A Cushman & Wakefield Research Publication JANUARY 2015 TAKE-UP ACCORDINGTO GEOGRAPHICAL SECTOR IN 2014 Ile-de-France 31% Rhône-Alpes 19%Nord-Pas-de-Calais 9% PACA 9% Bretagne 5% Centre 5% Normandie 4% Bourgogne 3% Other 15% 34
  32. 32. A Cushman & Wakefield Research Publication LOGISTICS RENTALVALUES Rental values in 2014 were stable overall, with prime rent slightly more than €50/m²/year in Ile-de-France. However, the overriding need of tenants to lower property costs continued to dictate negotiation (or renegotiation) terms with landlords, even though incentives (mainly rent-free periods) stabilized. The current context gives a premium to assets that are well adapted to occupiers’ streamlining and enhancement strategies and that meet increasingly strict regulatory standards. However, rental values remain extremely diverse and can vary widely even within the same market, depending on a building’s location and intrinsic quality,and on the type of transaction (e.g.,product available on the open market, turnkey).The decline in quality of existing supply and the shortage of land in several well-known areas also explain the upward price pressure in certain micromarkets with little available space. In addition, and in line with observations over the past few years, the price of land continues to rise, slowing the development of large platforms near major conurbations in the short and medium term. AVAILABLE AND FUTURE SUPPLY The slight rise in take-up did not correspond to a decline in available supply in 2014.Totaling just over 3 million m² in France, of which nearly half is in Ile-de-France, availably supply was stable last year. Leases of existing buildings,fairly numerous in Paris and Lyon,helped to absorb some of the supply,but releases continued to compensate for declines in stock.Several occupiers opted for fewer sites in favor of bigger platforms, both new and recent. Consequently the quality of available supply continued to deteriorate.The almost complete absence of speculative schemes revealed not only investor timidity but also a trend towards development of custom-designed buildings that are adapted to the increasingly specific and sophisticated needs of occupiers. The scarcity of land opportunities, illustrated by difficulties in developing new projects in certain areas along the north-south axis, is an encumbrance to future supply. This is especially the case in dense urban areas,where occupiers’ need for more volume requires larger sites that are rare in the inner suburbs. In addition, other segments (housing, offices, etc.) competing for the same space are more attractive to neighbors and municipalities.The trend towards relocating logistics to more distant sectors, often far from the centers of large cities, is expected to continue, particularly in the form of large multimodal parks such as the Parc des Bréguières in Arcs-sur-Argens in the Var region or the recently announced 600,000 m² e-commerce logistics park on the former military base (BA 103) in Cambrai. Such parks meet occupier needs by providing vast land opportunities,pooled expenses and services,and the latest safety and sustainable-development standards. While the conversion of former industrial sites or obsolete buildings can provide real-estate opportunities, redevelopment remains largely determined by location. Certain sites that enjoy existing infrastructure are ideally placed to service large catchment areas. They may also justify significant investment for decontamination, refurbishment work, and integration of new environmental standards and regulations. However, the future is more uncertain for obsolete buildings or sites whose location is less than ideal.This is all the more true because higher taxes (fees for business creation, TSB,1 etc.) weigh increasingly on the development of new real- estate projects, especially in Ile-de-France. In addition to problems related to available land and slow administrative procedures, fiscal uncertainties continue to compromise the sustainability of the logistics sector in Ile-de-France.In the longer term,it is the markets located just outside the Paris region (Oise, Loiret, etc.) that will benefit the most from these conditions. 1 Office tax (TSB): annual tax on facilities used for offices, retail, storage, and parking. PRIME RENTS FOR LARGE WAREHOUSES (€/M²/YEAR) 35
  33. 33. A Cushman & Wakefield Research Publication OUTLOOK FORTHE FRENCH MARKET In 2015, the logistics-warehouses market will remain challenging. The economy may have improved slightly,but the scarcity of available high-quality supply, the shortage and prices of land in some key sectors, and strong fiscal pressure will combine to slow take-up. Activity will remain steady mainly where occupiers are carrying out streamlining and improvement projects, such as those of in-house logisticians in the retail-distribution sector. Such development projects for large, modern distribution platforms are expected to provide relative stability for the letting of warehouse space. JANUARY 2015 36
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  35. 35. Revolutionary new ways of shopping and the rapid growth of international newcomers have prompted many retailers to adjust their positioning and to continue expanding under various forms.Household consumption remains persistently weak, while retailers’ development projects for new and refurbished stores involve significant cost cutting. By choosing sites and locations that provide optimal visibility, high visitor numbers, and the best value for money, most retailers have increased their relocations while readily closing the least profitable stores. Now under way for several years, the polarization of the retail property market continued to widen in 2014, further deteriorating negotiation conditions between landlords and retailers. Other factors also came into play, such as the uncertainty surrounding the content and adoption of the ACTPE bill governing artisans, retailers, and very small enterprises. RETAIL FRENCH PROPERTY MARKET

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