Research Report March

Transcription

Property
Market Trends
FRANCE
marCH - 2015
2
Property Market Trends - France - March 2015
TABLE OF CONTENTS
INTRODUCTION
4Main trends
5
Summary data table
THE ILE-DE-FRANCE OFFICE RENTAL MARKET
8Submarkets
10
Growth in take-up
17
Vacancy rates have trended higher
22Headline value averages have been
relatively stable
The FRENCH INVESTMENT MARKET
262014 among the three best years since 1995
28A rise in single-asset sales valued
at over €100 million
30An active year for both retail and office
asset sales
32A recovery in speculative investments although
these remain highly concentrated in terms of
location
33Domestically listed property companies
and SCPIs have been the most active players
35Overall rise in investment volumes
throughout France
37
Prime yields have trended lower everywhere
CONCLUSION
This report has been written by Catella based
on information from MBE Conseil and Catella Property.
The assessment was concluded on March 2015.
This report is based on information that we believe is
reliable. Whilst every eff ort has been made to ensure its
accuracy, we cannot off er any guarantee that it contains
no factual errors and accept no responsibility for any
liabilities that may arise as a result of such errors.
Photo credits: Paul Maurer, Gregory Copitet,
Jean-Marc Lavigne, Cyrille Dubreuil, Sacha Lenormand,
Luc Perenom, Francois Renault.
Legally responsible publisher: Monique Benisty
Design by: www.thalamus-ic.fr
Translation by: David Hayhurst
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your request to: [email protected]
MAIN TRENDS
MAIN TRENDS
> The French economy has remained in an overall
“state of convalescence” in 2014. The country is
yet to experience even the moderate growth now
underway in other major economies such as Britain,
Germany or the USA . Instead, annual GDP growth
has been only 0.4%, compared to the 0.8% forecast
in early 2014.
> Domestic consumption, long the primary engine of
French economic growth, has been too low to provide
enough impetus for any real upturn. Investment activity
has still been generally subdued, reflecting a hesitant
mentality on the part of most businesses due to the
very fragile recovery. (A lack of confidence which,
moreover, has only worsened during the year.) When
combined with overall weak demand from emerging
markets - or indeed, weak demand on a global level
- the year has provided few positives for the French
economy.
> F ortunately, indicators for 2015 look more
auspicious. The positive effects of the Tax Credit
for Competitiveness and Employment (CICE) and
the French government’s Responsibility Pact should
become more evident and, when combined with
lower oil prices, should grant French companies most of which have endured razor-thin margins of
late - some hope of recovery in terms of business
investment. Furthermore, some “relaxation” of
monetary policy by means of quantitative easing
(QE) by the ECB could more thoroughly mitigate
the effects of the ongoing crisis. The expected fall in
interest rates and a weaker Euro should also restore
some competitiveness to French companies and could
cause a slight growth in inflation, thereby reducing the
French economy’s present debt burden. Economists
are predicting stronger growth in 2015 of around
1%: a rate which would be constrained by a still very
restrictive fiscal policy. It looks likely that it will only be
in 2016 at the earliest that one can hope for a more
dynamic economy to boost job creation.
4
> The Ile-de-France region has fared better than the
national average. Employment increased by 0.2%:
a 1.6% rise from its 2009 low-point according to
CROCIS. This has allowed for a slight rebound in office
market take-up, particularly from the private sector.
> The Ile de France rental market has seen take-up
rise by 15%, with 2.15 million square meters being
commercialized. While this may be considered
satisfactory, these volumes are still below the historical
average over the previous ten years. Nevertheless,
the fundamentals regarding take-up are more
encouraging than in 2011 and 2012. Large-surface
commercialization activity has returned both to
growth and to its historical role as the primary driver
for the overall Ile-de-France office market. This has
been mainly due to a sharp recovery in take-up from
the private sector. Moreover, take-up in the smalland medium-surface markets has been more robust
than had been widely predicted, given economic
conditions in general, especially in the fourth quarter
of 2014. This would suggest a more positive outlook
overall on the part of business leaders, reflected in
their willingness to take more risks regarding their
relocation choices.
.
> Despite satisfactory performance levels regarding
take-up, the vacancy rate rose slightly in 2014. This
has been especially evident in most of the outlying
suburbs, but not in the East District or in the Paris
Secondary Business Districts. However, this trend
should be short-lived, with levels of supply deliverable
or vacatable within one year being on a downward
trend (-12%).
> While supply available within one year in the form
of new and refurbished surfaces remains high, future
levels will continue to decline. The intense degree of
pre-letting seen in the past three years, combined
with low levels of both investment and speculative
financing, has led to a gradual drying up of future
supply. This could well result in a severe shortage of
new buildings in some areas, especially between 2016
and 2017, depending on the extent of the ongoing
economic recovery.
> The evolution of average headline rents is again
disconnected from the general economic conditions.
Headline rents for new buildings have fluctuated very
little throughout the region since 2008, with the
exception of the Paris CBD: the only submarket to
have seen major adjustments in recent years. These
adjustments have again been seen for economic
rents, with owner-offered incentives becoming more
common, especially in oversupplied submarkets and
with asking values gradually returning, most notably
in La Défense, to a closer level to values currently
being agreed.
> The investment market has been exceptionally
dynamic. Investment volumes have risen by 41% over
2013, to €25 billion. As a result, 2014 has been the
third-best year for the investment market since 1987.
> The most noteworthy development has been the
remarkable number of transactions valued at over
€200 million. These have been exceptional for both
portfolio and single-asset sales, together accounting
for over 40% of overall investment volume for nonresidential real estate in France.
>O
ffices and commercial properties have benefited
most from investment growth, accounting for 87%
of investment volume in 2014.
>G
eographically, investment focus has changed little
from 2013. Paris - especially the Paris CBD - and
regional French cities have gathered 60% of total
investment influx.
> Despite a still-dominant position on the part of
investment funds and growth in their investment
volumes, listed property companies, (SIIC or
otherwise), along with SCPIs and private investors ,
have regenerated the investment market in 2014 by
greatly increasing their activity.
> Prime yields in the office market have trended
downwards throughout 2014, mainly due to a steady
drop in bond yields, which intensified in late 2014
due to the quantitative easing policies adopted by the
European Central Bank. Despite lower prime yields,
risk premiums have begun growing again, allowing the
property market as a whole to maintain a competitive
advantage over the bond market. The continuation
of this easing of monetary policy in 2015 for at least
another year should result in prime yields maintaining
their downward trend.
SUMMARY DATA TABLE
Office market in Île-de-France in 2014
TOTAL STOCK
SQ.M
TAKE UP
SQ.M
VACANCY RATE
%
TOP RENT
€/SQ.M/p.a
PRIME YIELD
%
Paris CDB
8 632 500
West CDB
6 834 770
466 800
5,70%
750
3,90%
575 556
11,60%
550
5,00%
Paris secondary BD
3 763 700
Emerging North
2 392 900
165 000
4,60%
519
4,80%
121 000
12,20%
350
East Districts
5,25%
1 581 500
55 000
7,80%
270
5,80%
South Districts
1 591 450
60 000
10,30%
395
5,30%
Boucle Nord 92
1 480 600
27 000
15,00%
275
6,70%
Greater Paris
55 528 900
2 154 000
7,30%
Source: MBE Conseil / Catella Property / CBRE / Immostat
Property Market Trends - France - March 2015 5
01
The Ile-de-France
Office Rental
Market
Despite a still-underwhelming economy - with overall growth yet to exceed 0.4% and
below-par job creation - the Ile-de-France office market has been relatively robust in
2014. Take-up has grown by 15% from the previous year, returning to its 2010 level of 2.15
million square meters. Moreover, large-surface commercialization activity has returned
to its former role as the main driver for overall market growth. This size category has
grown by 26%, stimulated by strong growth in private-sector demand and by a return to
market prominence on the part of La Défense. Take-up for small and medium surfaces
has also been healthy, growing by 8%. However, vacancy rates have also continued to rise,
driven by numerous surfaces being placed back on the market after renovation, as well as
by a higher rate of releases in some areas. Overall, the vacancy rate in Ile-de-France has
climbed to 7.3%, but remains close to equilibrium levels when taken as a whole. Although
economic rents are still the only such values to have experienced meaningful adjustment,
some submarkets, notably La Défense and other parts of the West CBD, have begun to
see declines in average headline values and a significant adjustment in asking values.
01 | RENTAL MARKET
SUBMARKETS
Ile-de France office stock: 55.5 sq.m in 2014
Airport
Roissy
Charles de Gaulle
Railway C
ARGENTEUIL
Railway B
COLOMBES
Boucle Nord
du 92
Railway A
A
Emerging North
86
BOBIGNY
PANTIN
La Défense
East district
NANTERRE
Paris
CBD
PARIS
VINCENNES
West
CBD
Railway A
FONTENAY
SOUS-BOIS
IVRY-SUR
SEINE
BOULOGNE
BILLANCOURT
ISSY-LESMOULINEAUX
VILLEJUIF
CLAMART
A 86
ANTONY
Railway B
Paris CBD
Stock: 8.6 million sq.m
Paris Secondary BD
8
CRÉTEIL
South district
Other West CBD
La Défense
Railway C
Airport
Orly
Emerging North
South district
Boucle Nord 92
East district
With a total stock of more than 55.5 million square meters,
the office market in the Ile-de-France region is among the
best organized and most “readable” in Europe, as well as
being among the most diversified. Office stock is largely
centered around the Line A of the RER regional railway
network, which forms the transportation backbone for
the Île-de-France office market as a whole. Away from
the main business districts (ie. all of the Paris business
districts, the West CBD), suburban areas are currently
organized primarily around the main transportation
networks: namely, the “Périphérique” main Paris ring road
and the A86 secondary ring road for road traffic, as well
as the various metro, RER and tram lines. The ongoing
public transport infrastructure projects - especially the
Grand Paris Express “regional super metro” scheme should not fundamentally change the overall complexion
of the market, at least in the short term. Some projects
will improve accessibility to already mature business
districts in cities and areas like La Défense, BoulogneBillancourt and Issy-les-Moulineaux. Others, such as the
Emerging North and South districts, will also benefit
from improved transport services. Once these new
infrastructure projects are fully in place, better public
transport service could gradually do much to move the
“center of gravity” of suburban markets toward locations
situated further from the Périphérique - especially Clichy,
Saint Ouen, and Montrouge - or areas which today are
considered as secondary locations, especially the Pleyel
district of Saint Denis.
> The Paris Central Business District (Paris CBD),
with a stock of 8.6 million sq.m (16% of the total
in Île-de-France), the Paris CBD has maintained its
status as the prime business district in the region.
This submarket has the highest rental and market
values - as well as the lowest yields - and is also the
most consistently active office submarket.
> The West CBD, which includes La Défense, is the
second most developed market. It also incorporates
the cities of Neuilly sur Seine, Levallois-Perret,
Boulogne-Billancourt, and Issy-les-Moulineaux.
Office stock amounts to nearly 6.8 million square
meters - about 12% of the total in Île de France - of
which more than half is located within La Défense.
An exceptionally high amount of deliveries of new
and refurbished buildings in 2014 - especially in La
Défense and Neuilly-sur- Seine - has helped to boost
the overall stock quality in the area.
> The Paris Secondary Business Districts consist of
three major clusters of office stock. In addition to the
Front de Seine and Montparnasse districts, the district
formed by the Gare de Lyon, Bercy and Paris Rive
Gauche cluster has been the most dynamic market
in terms of new development in recent years. These
three secondary districts now have a combined stock of
3.8 million square meters. This should continue to expand
in the coming years, particularly in the Austerlitz Sud and
Tolbiac Chevaleret districts, where several speculative
projects will be delivered in the short-to-medium terms.
> The Emerging North submarket is evolving as a natural
extension of both the Paris CBD and the West CBD.
It consists of the cities of Clichy, Saint-Ouen and SaintDenis. Its rapidly developing office stock is currently
estimated at about 2.4 million square meters and
continues to demonstrate high growth potential, most
notably in the areas set to benefit sooner from improved
public transport infrastructure.
>T
he East District, centered around the suburban city of
Montreuil, has been the site of many major transactions
and subsequent developments in recent years. This
submarket had a stock of 1.6 million square meters
in 2014.
> The South District extends from Vanves through
Montrouge to Ivry-sur-Seine. This area extends beyond
the inner suburbs, and includes cities such as Châtillon,
where most commercial development has occurred
near the Châtillon-Montrouge metro and tramway
stations. Office stock in this submarket currently totals
1.6 million square meters.
> Finally, the “Boucle Nord” area of Hauts de Seine
includes the cities of Asnières, Colombes, Bois-Colombes,
La Garenne-Colombes and Gennevilliers. This area has
greatly matured in recent years, with available stock in
2014 measuring 1.5 million square meters, and should
continue to expand. This district is currently divided
into two sectors. The cities of Colombes, La GarenneColombes, and Bois-Colombes in the western sector are
closer to La Défense and have the higher rental values.
The eastern sector consists of Asnières and Gennevilliers.
01 | RENTAL MARKET
Growth in take-up
Take-up has grown by 15%
Take-up has been up by 15% in 2014 with a year-end
total of 2,154,000 square meters. While this result is
satisfactory, 2013 saw take-up levels deteriorate sharply,
thereby limiting the scope of the recovery. Take-up is
still below its historical average over the last ten years of
close to 2.3 million square meters annually. In returning
to its 2010 level, 2014 take-up has reflected a market
that, while out of crisis, is now only slowly recovering.
Take-up in Ile-de-France: 1996 - 2014
Thousand sq.m
Trend
3 000
2 500
2 000
1 500
1 000
500
0
1996
1997
1998
1999 2000
2001
2002
2003
2004
2005
2006
2007
2008 2009
2010
2011
2012
2013
2014
Source: MBE Conseil/Immostat
Take-up in the below
< 5,000 sq.m market
climbs 8%
While the increase in take-up has been driven by a net
recovery in large-surface transactions, activity in the
small and medium markets also grew by 8%: a good
result considering the overall economic and employment
conditions in France.
Take-up in Ile-de-France by size category
3 200
3 000
> 5 000 sq.m
Thousand sq.m
< 5 000 sq.m
Trend
2 500
2 000
1 500
1 000
500
0
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Source: MBE Conseil/Catella/Immostat
10 Property Market Trends - France - March 2015
Take-up transactions involving small and medium
surfaces directly correlate to employment rates, with
cycles historically following the same trends closely.
In 2014, overall employment growth in Ile-de-France
stood at 0.2%, outperforming the national average.
This slight improvement has allowed transactions in
the small- and medium-surface markets to resume
growth. However, the level of take-up for surfaces of
less than 5,000 sq.m has stayed well below that seen
in years of strong economic performance, confirming
our impression that the market is only now emerging,
tentatively, from crisis conditions and that major
improvement will take time.
Take-up and employment in Île-de-France
1 800
Thousand sq.m
Transactions > 5 000 sq.m
Employment growth in Greater Paris %
4
(moving average)
1 500
3
Transactions < 5 000 sq.m
2
1 200
1
900
0
600
-1
300
-2
0
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
-3
Source: MBE Conseil/Catella - Immostat - Crocis (for employment) - *: yearly variation calculated on the Q3 2014 for employment
Large-space transactions, a market that had collapsed in
2013, have resumed their role as the motor for market
growth. These have increased overall by 28% compared
to 2013, reaching 860,000 square meters. While this is
an improvement over their historical long-term average
(1992-2014), it is still 7% lower than their average over
the past ten years.
Over 5,000 sq.m market grows
by 28%
Transactions of over 5,000 sq.m by size category
Thousand sq.m
5 000 à 10 000 sq.m
10 000 à 20 000 sq.m
> 20 000 sq.m
1 300
1 040
780
520
260
0
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Source: MBE Conseil/CBRE
In the 5,000 to10,000 sq.m range, take-up has generally
been stable compared to 2013. Thirty-three transactions
totaling 228,000 sq.m have been completed, compared
to 32 totaling nearly 222,000 sq.m the previous year. La
Défense alone has accounted for nearly 30% of deals
in this size range.
+2%
in the 5,000 - 10,000 sq.m range
Transactions have risen significantly in the 10,000 to
20,000 sq.m range. Eighteen transactions have been
finalized in 2014 for a total of 238,000 sq.m, compared
to 15 for a total of 213,000 sq.m in 2013: an increase
of 12%. The private sector has accounted for 100% of
take-up activity in this size category. Most transactions
have occurred in the outlying suburbs, in the West
CBD excluding La Défense, and in the Emerging North,
particularly in Saint-Ouen and Clichy.
+12%
in the 10 - 20,000 sq.m
category
01 | RENTAL MARKET
... up by 60%
in the 20 - 40,000 sq.m range
More transactions for
second-hand surfaces...
... and for buildings now under
construction
The strongest growth by size category in 2014 has
been for spaces over 20,000 sq.m. This has been
most apparent in transactions of over 40,000 sq.m, of
which there were none at all in 2013. 2014 has seen
three such deals, totaling 131,000 sq.m. A total of
13 transactions in the over 20,000 sq.m range, totaling
395,000 sq.m, represents a 60% growth over 2013.
However, the second-hand market has seen the
strongest growth. Deals for such properties, whether
renovated or being presented in their current state,
increased by almost 149% compared to 2013: a year
in which the second-hand market saw a major decline.
The outlying suburbs, La Défense and the Paris CBD
have seen the strongest second-hand activity growth.
The arrival on the market of renovated larger surfaces
has been a main factor in this renewed level of appeal.
Nevertheless, take-up in newly-delivered buildings
has remained problematic. In 2014, it has been down
4% after the slight rebound seen in 2013. Of the ten
rental transactions involving new buildings delivered in
2014, totaling 135,000 sq.m, six were deals concerning
towers located in La Défense. Outside of La Defense, the
other four deals mostly involved the remaining spaces in
buildings that have been partly pre-let, the exception being
in the Strato Building in the ZAC Clichy-Batignolles. Even
though the amount of new buildings with immediately
available surfaces of over 5,000 sq.m remains high, market
absorption has still been both problematic and very slow.
The robustness of the large-surface market has also
boosted pre-letting activity. This has grown by 14%,
with 19 such deals being agreed, totalling 320,000 sq.m.
However, turnkey projects have proved far less attractive
after their record performance levels of 2011-12.
Only four such projects have been concluded in 2014,
totaling 76,000 sq.m. All have been for surfaces smaller
than 25,000sq.m.
Take-up in the over 5,000 sq.m range by building status
Second hand offices
Thousand sq.m
New Available
Pre-letting
Turnkey projects
1 500
1 200
519
900
381
22
180
600
232
345
300
0
218
250
195
129
329
289
2010
128
281
141
76
320
135
330
132
2011
2012
2013
2014
Source: MBE Conseil
Public vs. private-sector transactions
for surfaces over 5,000 sq.m
Private Sector
Public Sector
Thousand sq.m
1 400
1 200
781
1 000
753
800
548
600
400
446
200
0
2012
135
108
2013
2014
Source: MBE Conseil
The major growth in demand for large surfaces has
come from the private sector. Conversely, take-up
activity on the part of the public sector has continued
to decline in this category. This now represents only
13% of take-up in the over 5,000 sq.m range: down
from 20% in 2013 and from 36% in 2012. The very
limited public-sector involvement in 2014 has been in
the form of nine transactions, totaling 108,000 sq.m.
A major boost in
private-sector activity
Interest from the private sector, on the other hand,
has increased by 37% compared to 2013, accounting
for take-up of 753,000 sq.m. Despite not seeing the
very high commercialization levels of 2006 and 2007,
private-sector take-up in 2014 has exceeded the historical averages of the past ten years. Against the current
economic backdrop, this trend clearly shows that 2014
has been a year when the office market has emerged
from crisis.
01 | RENTAL MARKET
While the banking/financial services sector has
confirmed its return as the primary consumer
for large surfaces, (a trend that started in 2013),
insurance firms, other service industries and the
cosmetics and luxury goods sector have all been major
players in stimulating large-surface activity in 2014.
The insurance sector, after two years of decline,
has increased its take-up of large surfaces in 2014
by 219%, accounting for 122,700 sq.m. Insurance
firms have mainly been interested in surfaces of over
10,000 sq.m. The two largest transactions have been
the turnkey agreement by SMABTP in Issy-les-Mou
lineaux for 24,000 sq.m, and Covéa’s renting of 22,200
sq.m in the Tivoli Building in the 9th arrondissement
of Paris.
Other service industries have also been particularly
ac tive , engaging in six transac tions tot aling
109,000 sq.m: up 324% compared to 2013.
Two other service-sector companies have been
behind two of the largest deals of the year: Veolia
Environnement’s leasing of 45,000 sq.m in a building
in the ZAC du Canal in Aubervilliers, and Solocal’s
renting of 32,000 sq.m in the Tours CityLights in
Boulogne-Billancourt.
The cosmetics/luxur y goods sec tor has also
experienced a record year for commercialization
activity, with nearly 81,000 sq.m taken up. This has
been mainly due to three major rental deals involving
L’Oréal: 38,000 sq.m in the Ecowest building; 30,000
sq.m in So West Plaza in Levallois-Perret, and an
expansion of 12,650 sq.m in the Nuovo Building
in Clichy.
Among other service sectors, the accounting and
consultancy sector also saw a banner year, with
take-up activity up by 37% over 2013. However,
this was largely due to KPMG’s leasing of 40,000
sq.m in the Tour Eqho in La Défense. Other deals
finalized involving this business sector tended to be
in the 5,000 to 10,000 sq.m range.
Ten largest consumers of large surfaces by business sector: 2013 vs. 2014
2013
2014
Bank/Finance
Insurance
Other services
Audit/Advice
Other industries
Public
Administrations
Cosmetics/
Luxury industry
Electronics/IT
Advertising/
Communication
Transportation
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
m2
160 000
Source: MBE Conseil
Selected major transactions (over 5,000 sq.m) in Ile-de-France in 2014
SIZE
(sq.m)
ADDRESS
TOWN
SUBMARKET
STATUS
Covea
22 231
Le Tivoli
Paris 09
Paris CBD
Second Hand
Second Hand
TENANT
Clifford chance
10 500
1 rue d'Astorg
Paris 08
Paris CBD
Dla piper
6 000
Rue Lafayette
Paris 09
Paris CBD
New
SNI
21 900
Lot A9B
Paris 13
Paris Secondary BD
Second Hand
Region Ile de France
5 767
Atlantique Montparnasse
- Nord Pont
Paris 15
Paris Secondary BD
New
Ministere de l'Intérieur
24 280
Le Garance
Paris 20
Other Paris
Second Hand
Mutuelle Generale
13 172
Pushed Slab
Paris 13
Other Paris
New
KPMG
40 468
Tour Eqho
La Defense
La Défense
New
Axa investment managers
26 000
Tour Majunga
La Defense
La Défense
New
HSBC
23 444
Cœur Defense
La Defense
La Défense
Second Hand
Thales
10 245
Carpe Diem
La Defense
La Défense
New
L'Oreal
38 000
EcoWest
Levallois-Perret
Other West CBD
New
Solocal
32 665
CityLight
Boulogne-Billancourt
Other West CBD
New
L'Oreal
30 000
So Ouest Plaza
Levallois-Perret
Other West CBD
New
Second Hand
Aldebaran Robotique
12 022
Nouvel Air
Issy-les-Moulineaux
Other West CBD
Groupe M
10 917
Silvergreen
Neuilly-sur-Seine
Other West CBD
New
Webedia
7 883
Le Libertis
Levallois-Perret
Other West CBD
Second Hand
Veolia
45 000
Zac du Canal
Aubervilliers
Northern inner
suburbs
New
Bel Fromagerie
16 500
Le Boma
Suresnes
Outer suburbs
Second Hand
Freyssinet
11 868
Eko
Rueil Malmaison
Outer suburbs
Second Hand
Dassault Systems
11 623
Velizy Campus
Velizy
Outer suburbs
New
Source: MBE Conseil /CBRE
After an exceptionally long crisis period, La Défense
has undeniably made a major return to prominence.
This has been evident both in overall take-up and in
transactions involving large surfaces. 235,000 sq.m were
commercialized in La Défense in 2014: up 124% from a
year earlier. La Défense has seen its market share match,
or even exceed its long term average. This has been
true both in overall transaction volume (with a market
share of 10.9% in 2014 compared to 9.6% between
1991 and 2014) as well as for its market share regarding
large surfaces: 19.6% in 2014, compared to a 1991-2014
average of 14.8%.
Apart from La Défense, all the other submarkets have
generally benefited from the recovery of growth in
take-up. All submarkets within Paris have seen substantial
take-up growth: +12% in the Paris CBD; +31% in the
secondary business districts - with growth not confined
to Paris Rive Gauche as in much of the recent past, but
also evident in the Montparnasse area. Other submarkets
have seen a growth average of 15%, evident both in the
5th, 6th and 7th arrondissements and in the Paris North
East areas. However, with the exception of La Défense,
the West CBD has not experienced the same type of
growth. Take-up has stabilized, although it remains high,
following the major increases seen in 2013.
A major comeback
by La Défense
01 | RENTAL MARKET
Transactions in Ile-de-France: 2013-2014
Thousand sq.m
700
Paris: +17 %
2013
2014
Suburbs excluding business districts: +6 %
600
500
+11 %
400
+ 5%
+12 %
300
+15 %
200
+123 %
+14 %
+25 %
Bo
Su
uc
le
N
bu
rb
s
or
d ut
So
ing
Em
er
g
Ea
gin
g
h st gN
gin
er
Em
Em
er
or
th
BD
tC
er
W
es
O
th
La
Dé
fen
se
is
rP
ar
th
e
O
da
Se
co
n
Pa
r
is
Pa
r
is
ry
CB
BD
D
0
-36%
0%
ut
er
+34 %
O
100
Source: MBE Conseil/Catella/Immostat
In La Défense; in the rest of the West CBD, and within
Paris, the adjustment of rental values, (including economic values), has led companies to relocate - preferably
to more mature business districts - at the expense of
the outlying suburbs. The latter have clearly suffered
in 2014 due to this phenomenon.
All the outlying suburb submarkets have experienced
mixed results in 2014. While overall take-up has improved compared to 2013 with a growth of 11%, these
areas have under-performed when contrasted with
their take-up levels between 2007 and 2012. In the
Emerging North, the sharp increase in take-up has
mainly been due to the long-delayed deal by Veolia
Environnement in Aubervilliers. After several years
of waiting for the lifting of certain preconditions, the
necessary building permit has finally been granted. The
East and South districts experienced no transactions
of over 5,000 sq.m in 2014. Due to the rental values
adjustments that have been made in La Défense, the
Boucle Nord has seen its overall attractiveness wane.
Vacancy
rates have trended higher
After four years of stability from 2009 to 2013,
immediate supply has returned to growth. However,
this has remained very measured. Immediate supply
at the end of 2014 stood at 4,024,000 sq.m, up 2.5%
from 2013. The vacancy rate has therefore risen
from 7.1% at the end of 2013 to 7.3% at the end of
2014. This increase has occurred despite the growing
volume of rental transactions, due primarily to a high
rate of deliveries of new buildings. These deliveries
include several office towers in La Défense, some
of which were only partly commercialized at their
point of delivery. The vacancy rate rise has also
been due to the arrival on the market of some
second-hand buildings that were either renovated or
were presented in their current state. This growth
in second-hand supply is directly connected to the
high number of spaces vacated after the exceptional
amount of pre-lettings in 2011 and 2012, with their
arrival on the market depending on the delivery
dates for the new buildings.
Overall growth
in vacancy rates
Ile-de-France vacancy rates by area
%
Paris
Greater Paris
Suburbs
15
12
10,4
9
6
3
0
9,2
8,8
4,7
2,4
7,3
7,4
8,2
6,5
6,9
5,7
7,3
4,9
5,1
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Source: MBE Conseil/Immostat
This increase in the vacancy rate, however, has been
higher in Paris than in the suburbs. In the latter, the rate
has only gone up by 0.1 percentage point, to 8.2%. In
the capital, however, the vacancy rate has increased by
0.3 percentage points from 4.8% at the end of 2013,
to 5.1% at the end of 2014.
While the vacancy rate differs depending on each
Parisian submarket, there has been an increase in
immediate supply nearly everywhere within the city.
While the Paris CBD as a whole has seen the rate
stabilize at 5.7%, the 8th arrondissement has seen a
sharp rise in vacancies, exceeding its equilibrium point
in growing to 6.4% for the first time since 2010.
Stability in the Paris CBD
01 | RENTAL MARKET
Vacancy rates by submarket
December 2013
%
December 2014
16
15
12,4
12,2
12
10,7
10,3
7,8
8
7,9
5,7
4,6
4
Rise in vacancy rates in the
Paris Secondary Business
Districts
In the Secondary Business Districts of Paris, immediate
supply has resumed growth due to a substantial rise
in releases of spaces between 3,000 and 5,000 square
meters, especially in the 14th and 15th arrondissements.
s
rb
bu
Su
er
ut
O
Bo
uc
le
N
ou
Em
er
gin
gS
ing
er
g
Em
or
d
th
st
Ea
th
gN
gin
er
Em
W
es
er
th
or
tC
BD
se
fen
Dé
La
O
Pa
r
is
Se
co
n
Pa
r
da
is
ry
BD
CB
D
0
Source: MBE Conseil/Immostat/CBRE
Consequently, there has been an overall vacancy rate
increase from 3.7% at the end of 2013 to 4.6% at the
end of 2014. While this increase technically signifies a
market nearing equilibrium, these secondary districts
are still in overall shortage.
Despite a sharp increase in take-up - nearly reaching
the area’s historical highs - La Défense’s vacancy rate has
dipped only slightly: 12.4% at the end of 2014 compared
to 12.6% at the end of 2013. The rate fell sharply from
Q3 2014 when it reached 13.1%. La Défense’s vacancy
rate will not decline significantly before some point in
2015, provided that the area continues to confirm its
renewed appeal to businesses. The absorption of new
supply could be quite rapid in La Défense if rental values
remain at the level they have reached in 2014. However,
any return to a balanced rental market will clearly depend
on the absorption rate of second-hand supply, which
alone accounted for nearly 7.5 points of total vacancy
in late 2014. Values for second-hand spaces, particularly
in renovated buildings, will most likely have to decline
in order to alleviate the current excess supply problem.
If this is the case, the vacancy rate will then gradually
return to equilibrium levels.
In the rest of the West CBD, the overall vacancy rate
rise has been very slight, from 10.6% at the end of 2013
to 10.7% a year later. However, the situation has varied
widely among the various West CBD cities. Vacancies
have declined in Boulogne-Billancourt (13.1% in Q4 2013
to 11.5% in Q4 2014) and in Levallois-Perret (12.4% to
9.2% over the same period). However, the vacancy rate
has risen over the same period in Issy-les-Moulineaux
(8.4% to 9.3%) and most remarkably in Neuilly-sur-Seine,
where it has more than doubled from 6.4% to 13.8%.
This development in Neuilly-sur-Seine is largely due to
the delivery of three refurbished large-surface buildings:
the New Time (14,600 sq.m), the Alegria (13,200 sq.m)
and the 164 Peretti (5,100 sq.m). There has also been
more immediate availability for surfaces of between
1,000 and 3,000 square meters.
In the suburbs, outside of the business district submarkets,
vacancy rates overall have also been only slightly higher.
The exception has been in the East District, where the
rate has dropped by 0.8 points to 7.8% at the end of
2014. The Emerging North has seen a year-on year rise
from 11.5% at the end of 2013 to 12.2%. This is largely
due to increased supply in the over 3,000 sq.m category
in Clichy, and a similar rise in the 1,000 to 3,000 sq.m
range in Saint-Denis. The South District has also seen
a rate increase over the same yearly period, from 9.5%
to 10.3% at the end of 2014, due to a major growth in
availability for surfaces over 5,000 sq.m in Montrouge.
Vacancy rates have remained stable, but high in the more
mature areas of the Boucle Nord area in Hauts-de-Seine
(ie. the cities of Asnières, Gennevilliers, and Colombes).
In the outer suburbs, the vacancy rate has increased from
7.5% at the end of 2013 to 7.9% a year later.
However, overall vacancy rates look set to fall in 2015 in
Ile-de-France. The amount of supply deliverable or releasable within one year was down nearly 12%, indicating the
likelihood of vacancy rates beginning to trend downward.
This decline is expected to be especially evident in La
Défense where no deliveries of new or refurbished
buildings are scheduled for 2015 - or, indeed, until the
end of 2017 at present. Imminent trends in vacancy levels
will depend primarily on whether there is any growth
in take-up for existing buildings, for which demand has
been poor since 2012. This trend has been quite similar
to the take-up slowdown seen in late 2013, which led to
the slight increase in vacancy rates in late 2014.
A slight drop in vacancies
in La Défense
Stability in West CBD,
but a rise in Neuilly
and Issy-les-Moulineaux
A rise in vacancy rates
in the suburbs
Vacancy rates look set
to fall in 2015, especially
in La Défense
01 | RENTAL MARKET
Supply available within one year in the Greater Paris Area
Thousand sq.m
Immediate supply
To be delivered or vacated within one year
5000
1 083
1 251
1 061
938
3 925
4 024
2013
2014
1 115
831
4000
1 082
888
979
937
3000
2 963
1 360
973
1 025
2 503
2 423
2006
2007
3 604
3 609
3 585
2009
2010
2011
2012
3 000
2 770
1 222
3 626
2 644
2 745
2000
1 333
1000
0
2001
2002
2003
2004
2005
2008
Source: MBE Conseil/Catella Property/Immostat/CBRE
Guaranteed future supply
limited, both in volume
and geographically
New or refurbished supply available within one year
in the over 5,000 sq.m range is still substantial, despite a slight decrease of 23,000 sq.m from the end
of 2013. Total supply (ie, immediate supply, plus that
available within one year) has reached 955,000 sq.m
and this still rather high level could lead to a short-term
increase of the vacancy rates if take-up for existing
buildings remains as poor as over the past two years.
However, the amount of ongoing construction projects
scheduled for delivery in the near future is far lower
than in most recent years. Only 172,000 sq.m of new
space is currently set for delivery in 2016 and less than
50,000 sq.m is scheduled for 2017. If the latter figure
rises slightly over the course of 2015, the volume of
deliveries scheduled for 2016 should remain roughly
equivalent to that seen at the end of 2014. These very
inadequate delivery volumes compared to the potential
demand should allow for very significant absorption of
supply available within one year, and lead to a major
drop in the vacancy rate in 2016.
Future supply for new buildings in the Greater Paris Area
Project
1,000 sq.m
Application Filed
Building Permit Granted
Under construction
Available
1400
1200
1000
800
600
400
200
0
Immediat
1 year
2016
2017
2018
2019
2020
Project
Source: MBE Conseil/Catella Property/CBRE
The buildings currently under construction for a 201617 delivery will also only be available in a limited
number of locations. No new or refurbished buildings
are scheduled for La Défense in this period. Very few
(total space: 19,600 sq.m) will be on offer in the rest
of the West CBD, apart from the space that remains
uncommercialized by L’Oréal in the Ecowest Building
in Levallois-Perret. In both of these submarkets, which
were oversupplied in 2014, the 2015-16 period should
witness a return to equilibrium, provided that transactions in the second-hand market are at a strong level,
and also that take-up remains at least as active as in
2014. The delivery situation is also very restricted in
the Paris CBD, with only a single large surface currently under construction: a 10,400 sq.m building at
121, avenue de Malakoff. Deliveries in 2016-17 will be
mainly located in the Other Paris areas, including the
16,800 sq.m Ilot Bédier in the 13th; the 22,500 sq.m Le
Millénaire 4 Building in the 19th and the 12,800 sq.m
Cœur Marais Building in the 4 th arrondissement, in
the South District, where two buildings are currently
under construction in Montrouge, (despite the current
oversupply): the 21,600 sq.m White Building and the
15,000 sq.m Silvae Building. Other deliveries will occur
in the outlying suburbs, including in Nanterre, Marne
la Vallée and Bagneux.
Beginning in 2017, other projects sold to / or developed
by investors could also arrive on the market. This figure
currently stands at 615,000 sq.m of space concerning
projects with issued permits and 145,000 sq.m involving
those with permits still pending.
Regarding 2018 and onwards, the delivery situation
looks even more uncertain. The extent of future
deliveries, in addition to currently announced projects,
will be determined by the evolution of the economy,
the overall health of the rental market and any changes
in real estate financing conditions.
Projects that are not currently backed by investors
should also provide a very large amount of supply:
more than 2.2 million square meters, by current estimates. However, if some of these projects can be
pre-leased, they have very limited chances of being
launched speculatively. Several could be delayed, and
some planned projects may be terminated if building
permit validity periods expire. Due to this situation,
we have not factored such projects into our graph.
01 | RENTAL MARKET
Headline value averages have been
relatively stable
Paris CBD has seen a small
increase in rental values
The evolution of headline rents has remained relatively
disconnected from overall macroeconomic conditions,
and in particular from the fact that corporate margins,
already thin for several years, have fallen to a record low.
Adjustments in 2014 have occurred for economic rents,
with discrepancies from headline values mainly being
due to more incentives, such as rent-free periods or
additional maintenance work, being offered by owners.
This discrepancy now stands at between 25% and 30%
in the suburbs (especially in La Défense) and between
15 to 20% in Paris for new buildings. It is lower, but still
evident for second-hand rental values, ranging from
10 to 15%. Headline values for new buildings in the
Paris CBD have increased on average by 2% in 2014,
reaching €666 / sq.m. / year Top values have been stable
from 2013, at €750 / sq.m / year. Average values in the
second-hand market have risen by 5% to €556 / sq.m /
year, with the median remaining stable from 2013 at
€450 / sq.m / year. This increase is due to the finalization
of some large-surface rental agreements in renovated
buildings at over €550 / sq.m / year, the most notable
example being Covea’s deal in the Tivoli Building for
22,230 sq.m at €580 / sq.m / year.
Evolution of weighted average rental values for new buildings
€/sq.m/p.a
750
0
Paris Secondary BD
West CBD
Suburbs
666
519
500
250
Paris CBD
344
269
221
163
465
322
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Source: MBE Conseil
…and in the Paris Secondary
Business Districts
In the Paris Secondary Business Districts, rents have
rebounded from the 2013 downturn, returning to levels
more consistent with the historical evolution of values in
these areas. Average rents for new non-high-rise buildings
have risen to €519 / sq.m / year. Transactions concluded
for second-hand buildings have averaged 6% higher, due
to rental agreements made for renovated properties at
€480 / sq.m / year.
In the West CBD, headline values have been stable at
€465 / sq.m / year, due to several large-surface deals
concluded in La Défense. However, there has been a
significant decline in average values in La Défense for
new surfaces, which have gone from €523 / sq.m /
year in 2013 to €477 / sq.m / year in 2014, a decline
of more than 9%. Second-hand values have increased
very slightly in the West CBD, from €384 / sq.m / year
in 2013 to €392 / sq.m / year in 2014. The finalization
of some transactions involving renovated surfaces in
La Défense have seen average values rise to €415 /
sq.m / year. However in this over-supplied submarket
- particularly for second-hand buildings - a downward
adjustment of second-hand rents seems necessary for
the market to return to equilibrium.
Averages have been
stable in the rest
of the West CBD,
but down in La Défense
Evolution of weighted average rental values for second-hand buildings
Paris CBD
€/sq.m/p.a
600
Paris secondary BD
West CBD
Suburbs
556
500
400
386
300
246
200
232
430
392
225
151
100
13
12
14
20
20
11
20
20
09
20
10
08
20
20
20
07
20
06
4
05
20
20
0
01
02
20
03
20
20
20
00
7
6
98
19
99
19
19
9
19
9
3
94
19
95
19
19
9
19
9
2
0
Source: MBE Conseil
In the suburbs, the average values for new buildings
have also increased, from €280 / sq.m / year to
€322 / sq.m / year. The second-hand market has
seen a more moderate rise in 2014 to €225 / sq.m
/ year from €202 / sq.m / year in 2013. Headline
averages have been driven higher by the terms agreed
by Veolia for 45,000 sq.m in Aubervilliers at €350
/ sq.m / year, and by American Express for 5,500
sq.m in the Green Office Building in Rueil-Malmaison
for the same amount. Average values for new surfaces have ranged from €282 / sq.m / year in the
outlying suburbs to €347 / sq.m / year in the inner
suburbs, and from €200 / sq.m / year in the former to
€273 / sq.m / year in the latter for second-hand
spaces.
Optimal stability
in the suburbs
However, no sustained upward trend in rents should
be expected in the short or medium term. Any
significant and lasting rise in rents in Ile-de-France
will only likely occur when corporate margins have
regained their pre-crisis levels. While it is presently
very difficult to predict how long it will take for
these margin levels to recover, it would be unrealistic
to think that this might happen before 2017-2018.
02
The French
Investment
Market
While 2014 has been a year when the rental market is only slowly emerging from crisis
conditions, the investment market has experienced a remarkable year in more ways than
one. €25.5 billion have been invested in the non-residential French market. This has been
over 44% higher than in 2013, representing the third-best result in the past 20 years.
This dynamism has been exceptional in both the number and the worth of investments
valued at over €500 million. These top-level transactions were concluded for both offices
and retail properties, resulting in an increase in the market share of these products as a
proportion of overall investment.
In terms of actors, although investment funds have continued to be responsible for the
highest spends, domestically-listed property companies (SIIC or otherwise), SCPIs and
private investors have been the players contributing the most to volume growth. The last
major phenomenon of 2014 has been the overall reduction in prime yields, regardless of
product type or location.
Property Market Trends - France - Mars 2013 25
02 | French Investment Market
2014 among the three
best years since 1995
€22.5 billion invested
in French non-residential
market
After the stable investment volumes of the past three
years, spends have increased by over 44% from 2013,
reaching €25.5 billion and making 2014’s performance
the third-best in the past 20 years.
Furthermore, it is likely that 2014 will be the best year
of all time in terms of the proportion of equity invested
in real estate. France has remained the third-largest
European market in terms of investment volume, but
is still behind Great Britain (€70 billion) and Germany
(€40 billion).
Volumes invested in the non-residential French real estate market: 1998-2014
Trend
€ billion
35
30
25
20
15
10
5
0
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Source: MBE Conseil/Catella Property
As has been evident since the beginning of the financial
crisis, the vast majority of investors in 2014 have sought
secured assets. Such “core” assets have accounted for
nearly 55% of the amounts invested in single-asset and
portfolio sales valued at over €50 million.
Investment strategies
(Single-asset and portfolio transactions valued
at over €50 million)
Core
Core +
Opportuniste
Rendement
- The resumption of financing by banks, during a period
of very low interest rates in which “loan-to-value” ratios
have also been very favorable.
- Finally, IRR targets for most major funds have decreased
from 20-25% to 15-18%.
18 %
22 %
55 %
This trend regarding opportunistic investments is expected
to intensify in the coming months, especially if core products
become scarce, and even more due to the fact that many
investors are choosing to adopt alternative strategies
depending on given situations and market opportunities.
5%
Purchases by opportunistic investors, which have increased
steadily in the past two years, have accounted for 22% of
the amounts invested in assets worth over €50 million in
2014. This increase can be explained by the combination
of several factors:
- An increase in asset portfolios that are incorrectly valued
in terms of tenancy schedules, thereby preventing their
positioning as part of the “core” market.
Single-asset sales have been up by 34%, amounting to
nearly €17.8 billion. This has made 2014 the second-best
of the past 20 years after 2007, which remains the topperforming year in this asset category.
Unlike in the previous year, portfolio sales have grown
strongly: up 72% from 2013, representing 31% of total
investment volume. Portfolio sales accounted for 47
operations with spend totaling €7.7 billion. Although this
is less than in the 2006-07 record years, it is one of the
highest seen since 1995.
Portfolio vs. single-asset sales
€ billion
30
Portfolios
Single Asset Transactions
25
20
15
10
5
0
2008
2009
2010
2011
2012
2013
2014
Sixty percent of portfolio sales have involved retail assets:
(shopping centers: + 24%; street boutiques, arcades and
retail parks: +35%). Foncière Carmila has accounted for
65% of the volume invested in retail asset portfolios in
three transactions: the purchase of the Klépierre portfolio
(ie., 80 Carrefour arcades, with the French share worth
€1.3 billion), the concomitant purchase from Carrefour
of its hypermarkets, (the prime revenue generator for
these arcades) for €680 million, and the acquisition of a
portfolio of six shopping centers sold by Unibail for nearly
€880 million. Unibail has also sold a second shopping center
portfolio to Wereldhave for €850 million.
Office portfolio sales have accounted for 22% of total
portfolio transactions. The most notable among these
have been the Risanamento portfolio bought by the
Olayan Group for €1.16 billion, as well as five other
office portfolios sold in France, including the SIIC de Paris
portfolio purchased by CNP for approximately €300
million. Warehouse sales have accounted for 8% of the
portfolio investment market, the largest deal being the
acquisition by Blackstone of the Loren portfolio from
the Foncière des Régions, of which the French share is
an estimated €380 million.
One of the most remarkable developments in 2014 has
been both the number and the worth of many largesurface transactions involving single-asset and portfolio
investments.
Regarding portfolio sales, 76% of the overall spend has
involved transactions valued at over €200 million. Eight
transactions in this value range were finalized for a total
worth of nearly €5.9 billion, of which five were valued
at over €500 million.
2013
€ million
6 000
A rise in portfolio sales,
concentrated on office
and retail properties
Excellent performance levels
for both single-asset and
portfolio sales
2014
+92%
5 000
4 000
3 000
2 000
+220%
1000
0
-87%
< 5 M€
+18%
5 - 10 M€
+90%
10 - 20 M€
20 - 50 M€
76% of volume in the form
of eight transactions
-30%
+9%
50 - 100 M€
100 - 200 M€
>= 200 M€
and €100 million. Eleven transactions were concluded
in this latter value range, related to sales of clinics, warehouses, street boutiques or light industrial premises,
totaling €850 million.
The average size of portfolio assets valued at over
€200 million has increased significantly from €380 million
in 2013 to €736 million in 2014. There has also been a
significant increase in portfolios valued at between €50
A rise in single-asset sales valued
A new record for sales
of assets valued
these in 2014, three were valued at over €500 million.
Offices have proved the most attractive assets in this value
category, accounting for 76% of total investment volume.
The very large inflow of capital into real estate in
2014 has led to a search for products valued at over
€200 million - and even of over €500 million. Of
the €17.75 billion invested in single-unit assets, 36%
have concerned transactions exceeding €200 million
for a total of €6.4 billion. While this figure does not
exceed the record high reached in 2007, it approaches
historical records and is the second-strongest
performance since 1995.
Most of these transactions were conducted by foreign
investment funds - 51% of the buyers in the over€200 million range - particularly by US (45%), Asian (18%)
and Norwegian (12%) funds. Insurance companies have
also been active in this size segment. They were involved
in seven transactions, accounting for 35% of sales valued
at over €200 million.
Sixteen transactions worth over €200 million were
concluded in 2014, compared to eight in 2013. Among
Volumes invested in non-residential property
7 000
+46 %
€ million
2013
2014
+171%
6 000
5 000
+21%
4 000
+7%
-13%
3 000
+7%
2 000
+22%
1000
0%
0
< 5 €M
¯ 15%
5 - 10 €M
10 - 20 €M
20 - 50 €M
50 - 100 €M
100 - 200 €M
>= 200 €M
Source : MBE Conseil/Catella Property
Assets valued at between €100 and €200 million have
also been very attractive. The volumes invested in this
range have increased by 21% compared to 2013, with
€3.93 billion invested in 29 transactions, accounting for
22% of the annual total.
These assets have mainly been office spaces, but have
also included retail properties and shopping centers. The
office market has again been the focus of the vast majority
(88%) of capital invested in this price range, with SIIC-listed
properties, investment funds and insurance companies
being the most active investors in this price range.
However, assets valued at €50 to €100 million, the most
attractive sector in 2013, have seen a 13% decline in 2014.
The relative lack of supply in the face of continued strong
investor demand largely explains this trend. €3.2 billion
has been invested in this price range in 2014, compared
to €3.6 billion in 2013.
In total, transactions valued at over €50 million have been
up 46% compared to 2013, accounting for 76% of total
single-asset acquisitions in France this year.
Single-asset sales valued at less than €50 million have
trended slightly upwards in 2014. These have risen by 7%
compared to a year earlier, especially in the €10 to €20
million (+22%), and €20 to €50 million (+7%) ranges.
Unlike in 2013, however, office rather than retail property
sales have provided the impetus for growth in this asset
price range in 2014.
Sales in €100 to €200 million
range up by 21%
Decline in assets in the €50
to €100 million range
The under €50 million
market remains relatively
stable
Major investment transactions in France
Property
Carrefour Porfolio (86 Assets)
Cœur Défense
Portefeuille Risanamento 8 Actifs
Portefeuille De 6 Centres
Commerciaux
CC Beaugrenelle - Paris 15
Campus SFR- Saint-Denis
Le Madeleine - Paris 01
Portefeuille Loren (Part
Francaise)
Tours Citylights (1 Et 3)
Boulogne -Billancourt
Campus Carrefour - Massy
Submarket
Seller
Buyer
Price
(€/sq.m) Yield
AREA
France
Klepierre
Carmilla
West CBD
Hold
Lonestar
Paris CBD
Risanamento
France
Unibail
Rodamco
Wereldhave
202 500 m
850
5,50 %
Gecina
Apsys/Madar/
Financiere St James
45 000 m2
690
4,70 %
SFR/Vinci
Predica/Aviva
134 000 m2
680
Paris CBD
Blackrock
Norges Bank
32 000 m2
425
France
Fonciere des regions
Blackstone
550 000 m2
380
Warehouse
West CBD
Ge Real Estate/BNP
Paribas
Cardif
40 000 m
375
Office
Paris Secondary
BD
Emerging
North
1380
Type Of
Property
Retail
190 000 m2
1280
Nc
Olayan Group/Chelsfield 70 000 m2
1160
Nc
2
2
Outer Suburbs
Colony Capital
Predica
80 579 m
32 Rue Blanche - Paris 09
Other Paris
Orosdi
Oxford Property
Group
6 Rue Condorcet - Paris 09
Office
Office
Shopping
Center
Shopping
Center
Office
4,50 %
Office
350
6,00 %
Office
2
20 000 m
263
4,75 %
Office
2
2
Other Paris
Blackstone
SFL
24 970 m
230
4,80 %
Office
Paris Secondary
BD
Union Investment
Allianz
2
25 405 m
217
5,27 %
Office
Other Paris
Sefricime
AG2R La Mondiale
22 320 m2
205
En
Blanc
Office
Region
Constructa
CDC - Caisse
d’Épargne
35 000 m2
Provence-Alpes-Corse
177*
6,00 %
Office
Les Ateliers Du Parc - Clichy
Emerging
North
Catalyst Capital
Deka
33 000 m2
155
6,10 %
Office
Peugeot Business Park - Poissy
Outer Suburbs
Kan Am
Primonial
48 396 m2
135
7,50 %
Office
Portefeuille Monsieur Bricolage
France
Icade
Tikehau Capital Partner 145 000 m
126
6,80 %
Retail
49 Avenue George V - Paris 08
Paris CBD
Investisseur prive
Pramerica Real Estate
Investors
5 265 m2
120
4,50 %
Office
61 Rue De Monceau - Paris 08
Paris CBD
Areal Bank
Immobiliere Dassault
6 655 m2
112
3,60 %
Office
Pointe Métro 1 - Gennevilliers
Outer Suburbs
Hines
Northwood
Investors
23 754 m2
102
8,13 %
Office
Source: MBE Conseil / Catella
* Estimation
Arcs De Seine - Paris 13
Le Season - Paris 17
Tour La Marseillaise - Marseille
2
An active year for both
retail and office asset sales
A 45% growth
in the still-dominant
office market
Investors have clearly favored offices and retail property assets, which alone have accounted for over
87% of the amounts invested in 2014. Investments
in health-related facilities (ie., clinics and retirement
homes), have been the diversification product of the
year for institutional investors (domestically-listed
property companies, SCPIs and OPCIs), growing by
73% from 2013.
Combining single-unit and portfolio sales, officerelated investments have accounted for 60% of total
investment and attracted a sizeable amount of the
increased liquidity in the 2014 real estate market.
€15.3 billion have been invested in offices: a 45%
growth from 2013. More than half of the 23 transactions valued at over €200 million and moreover,
82% of both the number and the volume of sales
in the €100 to €200 million range - have involved
office spaces, doing much to explain the extent of
this increase.
Volumes invested in non-residential real estate by product type
€ million
2013
2014
16 000
14 000
12 000
10 000
8 000
6 000
4 000
2 000
0
Offices
Light industrial
Warehouses
Shopping centers
Retail
Diversification
Geographically, some areas have benefited more than
others from these higher liquidity levels. Growth has
been strong in all three Parisian submarkets. This has
been especially true in the business districts, most of
all in the Paris Rive Gauche area. The Emerging North
has also performed exceptionally well, accounting for
70% of all office-related investments made in the
inner suburbs, while seeing a 54% rise in investment
volume. Volumes have also been up substantially in
the West CBD (+ 46%) and in the regions (+ 30%).
Retail properties and shopping centers experienced
record investment spends. At nearly €7 billion, these
sectors have smashed the previous records set in
2010 and 2013 of between €3 and €4 billion. The
availability of very large retail and shopping centre
portfolios, placed on the market by domesticallylisted property companies, has allowed investors to
satisfy their demand for what has traditionally been
a highly sought-after asset category.
Diversification products, primarily hotels and healthcare facilities, have shown an overall decline in
investment volume. This has been due to the absence
of any very large transactions in the hotel sector in
2014 compared to the previous year, when a €750
million portfolio of luxury hotels was acquired by a
Qatar-based fund.
Healthcare-related investments, by contrast, have
seen an increase of 94% in 2014. In this category, a
portfolio of seven clinics was acquired by Icade for
€260 million. Two other portfolios, (one for clinics
and the other for nursing homes), were acquired
by the OPCI Health Property Fund managed by
BNP Paribas REIM for a total of €98 million. SCPIs,
OPCIs and domestically-listed property companies
have been the most active in this sector. SCPIs and
OPCIs have focused more on small and medium-sized
assets, with domestically-listed property companies
concentrating on larger assets.
After falling 7% in 2013, investments in warehouses
have declined again in 2014 (-9%) to €942 million.
This has occurred despite one large transaction: the
acquisition by Blackstone of a portfolio of 17 logistics
platforms in France and Germany from Foncière des
Régions, with the French operations valued at an
estimated €380 million. The relative concentration
of actors was even stronger than in 2013; 74% of
acquisitions have been made by investment funds, a
large majority of them American-based.
The light-industry premises market has continued
to recover, with the resumption of investment that
began in 2013 in this sector intensifying over 2014.
However, the overall spend remains rather marginal
compared to the level of investor interest in more
popular products, representing only 2% of the total
volume. In 2014, 75% of investment in this market
has been for portfolio sales, with 69% of this in the
€50 to €100 million range, and 31% between €20
and €50 million. Among the most noteworthy deals
has been M Star’s acquisition of a pan-European
portfolio from Patrizia, with the French assets valued
at an estimated €98 million, as well as the acquisition
by Etche France of a France Telecom asset portfolio
for €90 million.
Retail-related investment
breaks all records
More investments
in healthcare facilities
Less interest in warehouses
Slight recovery in light
industrial premises, but
with only moderate spend
A recovery in speculative investments,
although these remain highly
concentrated in terms of location
Speculative investment spending has recovered in 2014:
up 152% compared to 2013 and approaching the billioneuro mark at €926 million. Recovery in the speculative
market, despite funding remaining very constrained, has
stayed highly focussed geographically.
Paris and the West CBD have accounted for 76% of
total speculative investment volume. Two submarkets,
Gare de Lyon/Bercy/Paris Rive Gauche and the ZAC
Clichy-Batignolles in the 17e arrondissement, together
have experienced 56% of this total investment volume.
The rare examples in other locations include the
acquisition by Tishman Speyer Properties of the
Influences Building in Saint-Ouen from Nexity for an
estimated €140 million, and the purchase by La Française
AM of a demolition-reconstruction project involving
a 14,000 sq.m office building in Montrouge for over
€78 million.
Share of speculative investments: 2006-2014
Spec
€ million
Partially let
Let
30 000
25 000
20 000
15 000
10 000
5 000
0
2006
2007
2008
2009
2010
2011
2012
2013
2014
The most active speculative investors have been
insurance companies (44%) and US opportunistic funds
(28%). Other actors include SCPIs (11%) and private
investors (16%).
Such investments reflect investors’ desire to find higher
yields for assets located in what they hope, both in
terms of rental and liquidity potential, are relatively
low-risk areas.
Domestically-listed property companies,
(SIIC or otherwise) and SCPIs have been
the most active players
Domestically-listed property companies, whether SIIC or
otherwise, have experienced the largest growth in 2014
investment volumes. SIIC companies in particular have
increased their investment in non-residential property
by 114%, with their share in overall investment rising
from 7% in 2013 to 11% in 2014.
SIICs have invested more than €2.7 billion in
offices (40% of the total volume), shopping centers
(35%) and hotels and healthcare facilities (21%).
Geographically, however, their profile has been atypical.
They have invested mostly in the regions (44%) in the
Other Paris submarket (15%) and in the outlying suburbs
(13%).
A major return
by domestically-listed
property companies
Volumes in the non-residential real estate market by investor type
€ million
2013
2014
8 000
6 000
4 000
2 000
0
SIIC
Listed companies
International
Long term funds
Pension funds
Non-SIIC-listed companies have invested €3.5 billion
in the non-residential market in 2014: 255% more
than the previous year.
Carmila, a non-SIIC-listed company specializing in
retail properties and shopping centres, has been
the single entity most responsible for this substantial increase. Created by Carrefour in collaboration
with several leading international institutions; the
French insurance firms AXA, Cardif, Crédit Agricole
Assurance, and Sogecap, and the international investment funds Colony Capital and Pimco, Carmila has
accounted for 84% of the amounts invested by nonSIIC companies in 2014, due to the €2.9 billion it has
invested in three retail property portfolios.
SCPIs have also been very active in 2014 - thanks,
once again, to a major net collection - increasing their
investments in non-residential property by 40% on
the year. Over €3 billion have been invested by SCPIs,
whether acting alone or in collaboration with OPCIs
or investment funds. SCPIs have mainly invested
in assets valued at between €20 and €100 million,
located in the regions (32% of total transactions); in
the outlying suburbs (21%); in the West CBD (16%)
and in the inner suburbs (10 %).
Private investors have also strongly increased their
investment activity in 2014.
However, this rise is due entirely to two very highvalue transactions: the acquisition by three private
investors of the Beaugrenelle shopping center for
SCPI
OPCI
Life insurance
Private
nearly €700 million, and the Risanamento portfolio
purchase by the Olayan Group, a Saudi private firm,
for €1.2 billion. Aside from these exceptionally highvalue transactions, volume spend from other private
investors has also increased over 2013, but at a less
impressive rate of 26%, totaling €797 million.
Investment funds have been the most active buyers in
the non-residential French market for several years,
and have remained so in 2014.
Although the investment spends of these funds in
the French market have been up by 18% compared
to 2013, their share in total investment has fallen
from 35% in 2013 to 29% in 2014. The lack of activity
from Middle-Eastern funds has been the main reason
behind this weaker performance (the Risanamento
portfolio buyer being a private-company acquisition
by a Saudi buyer.)
As in 2013, US funds have been the most dynamic,
thereby confirming their return to the French market. They have invested more than €3.4 billion this
year, up 65% from 2013. Among the most notable
transactions involving US funds, the acquisition of
Coeur Défense by Lone Star for €1.28 billion is the
most emblematic.
American investment funds have acquired offices
(66% of total market sales) and warehouses (15%).
76% of these investments have been opportunistic,
such as the Coeur Défense acquisition and the logistics platform portfolio bought by Blackstone from
the Foncière des Régions.
SCPIs have also
been very active
Investment funds
are still top buyers
Confirmation of the return
of American investment
funds...
... while Asian funds remain
a timid presence
Asian funds have also been more present on the
French market, even if the amounts they invested in
2014 remain low relative to their available liquidity.
At €922 million, their investments have increased
by 382% compared to 2013.
French investment funds have also been more active
in 2014 with investment volumes up 54% compared to 2013. However their interest has been in
transactions valued at less than €200 million. The
largest of these has been the acquisition by Caisse
des Dépôts in association with Caisse d’Epargne
Provence Alpes Corse of the Tour La Marseillaise
in Marseille for €177 million.
Insurance companies have
remained prominent players
Insurance companies and pension funds have also
apparently been less active in 2014, with €4.5 billion invested: down 4% compared to 2013 despite
the increase in net collection by of life insurance
companies.
In fact, investment levels by insurance companies
regarding real estate investments have remained
stable from 2013 at 3% but insurance companies in
2014 have been more active in indirect real estate
transactions particularly through shares in listed
companies - while slightly reducing their direct investment activity.
Despite this trend, insurance companies have been
very directly active in the over €100 million market,
in which their investment volumes have increased by
13%. Examples of such deals include the acquisition
by Crédit Agricole Assurances and Aviva of the
Campus SFR in Saint-Denis for €680 million, and the
acquisition by Cardif of the Tours CityLights 1 and
3 in Boulogne for around €375 million.
However, the volumes invested by insurance companies in the under €100 million market have been
down 32% compared to 2013. Again, it is the scarcity
of supply meeting the general investment criteria for
insurance companies that explains this downward
trend.
Insurance companies, including AG2R La Mondiale and
ACM, were also among the few investors to acquire
properties speculatively in 2014. Notable among
these were purchases by AG2R La Mondiale of the
Panorama Building in the ZAC Paris Rive Gauche and
of the Season Building in the ZAC Clichy-Batignolles,
as well as ACM’s purchase of the Be Open Building
in Paris Rive Gauche.
OPCIs’ investment levels have been stable in 2014,
with an investment volume of nearly €1.8 billion: up
1.5% from 2013. They have focused on transactions
valued at €20 to €200 million, making no purchases
valued at over the latter amount.
Their investments have focused primarily on offices,
retail properties and to a lesser extent on healthcare
facilities. 78% of their investment volume has been
concentrated in four markets: the regions (22%); the
outlying suburbs (13%); the West CBD (12%) and
the Parisian business districts (11%).
Overall rise in investment volumes
throughout France
While all cities and regions in France have seen higher
investment volumes in 2014, Paris has benefited
the most. Volumes in the capital increased by 74%
over 2013, hitting an all-time high at €8.7 billion and
breaking the previous record set in 2007 by 43%.
Paris has accounted for 34% of total investment: up
from 28% in 2013. The three Parisian submarkets
have benefited from this increase.
The Paris CBD has seen a spend of nearly €4.7 billion
in 2014, a year-on-year rise of 42%.
The Paris CBD has also broken its 2007 record of
€4.2 billion. However, its market share of investment
on a national level has declined slightly from 2013,
falling from 19% to 18%.
Acquisitions in retail properties and hotels have
been responsible for the Paris CBD’s record-breaking performance. Examples in the former category
include the purchase of Printemps de l’Homme by a
Qatari investor for €230 million and Thor Equities’
acquisition of a building at 51, Blvd. Hausmann for
€140 million. Noteworthy hotel deals have included
the Chinese firm Kai Yuan Holding’s €344 million
purchase of the Hôtel Mariott Champs-Elysées and
Starwood Capital’s acquisition of the Hôtel Méridien
for €300 million.
Office-related investments, while still close to their
2007 record levels, have been 7.5% lower than in that
year, despite the Risanamento portfolio sale valued at
nearly €1.2 billion. However, 2014 has still been the
second-best year since 1995 for investment spend
in offices in the Paris CBD.
A record-breaking year
for investments in Paris
Best-ever performance
in Paris CBD
Investment volumes by location
€ million
2013
2014
5 152
5 000
4 695
4 000
3 285
3 242
3 029
3 000
2 093
2 000
2 045
1 949
1 000
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0
Parisian secondary business districts have also
experienced historical levels of attractiveness for
investors, with €1.95 billion being invested. A single
high-value retail property transaction accounts for
much of this impressive result: the sale by Gecina of
the Beaugrenelle shopping center to private investors
for nearly €700 million. However, investments in offices
have also reached a record high, of €1.26 billion. The
market share of the Parisian business districts within
total investment spend has risen from 3% in 2013
to 8% in 2014.
In the “Other Paris” area, volumes have also risen
remarkably, by 77% on the year. These have reached
nearly €2.1 billion and also represent record-breaking
levels
During the past four years, the Other Paris area has
seen its investor appeal rise demonstrably, compared to
the 2006-2007 period. In 2014, both offices and retail
properties have seen record investment spends. The
Other Paris market share has risen by one point on
the year, accounting for 8% of total national investment
volume in 2014.
Historical highs also seen
in the Paris Secondary
Business Districts
and in Other Paris areas...
... as well as in regional
markets
Regional areas of France are in a very similar situation
as Paris, with total investment volumes growing
strongly by 43% from 2013. At €5.2 billion, regional
investment volume has broken the record for the
1995-2014 period.
Compared to 2013, however, regional market share
has remained stable. This result has been achieved
due to number of “mega-deals” involving retail and
shopping center portfolios. In the office market, 2014
has approached, but not broken the 2007 record for
investment volumes, although office-related spending
in regional markets has been trending upwards since
2011.
Outside of portfolio sales that have represented
almost 50% of the volume invested in the regions,
Lyon, as was the case in 2013, has profited more than
any other regional city from this increased investor
interest.
Lyon has accounted for 24% of single-asset spend in
2014, with an increase in volume of 9% over 2013.
Marseille has seen renewed appeal after a bad year
in 2013, with six office-related transactions. This
includes one of the largest regional transactions of
the year: the acquisition by the Caisse des Dépôts
et Caisse d’Epargne Provence Alpes Corse of the
Tour La Marseillaise
Conversely, Parisian suburbs as a whole have had
a lacklustre year. Although 2014 results have been
an improvement over 2013, they have still been far
from their best levels.
The inner suburbs are the only Paris suburban
submarket even to approach the highest volumes
seen in 2007. With over €2 billion of spend in 2014,
investment has been up by 25% compared to 2013,
but has remained 10% below the 2007 record.
Growth of investment
in the West CBD
While 2014 still ranks second among the most active
years since 1995, the inner suburbs’ market share
as a proportion of the overall investment market
has been down by one point to 8%. The Emerging
North, due particularly to the acquisition by Crédit
Agricole Assurances and Aviva of the Campus SFR
for €680 million, has benefited the most from volume
growth in 2014.
The West CBD has seen a 42% growth in volumes
invested in 2014, at more than €3.2 billion. Its 13%
market share, stable compared to 2013, may appear
satisfactory but is still 52% below its 2007 best level
of €6.7 billion.
The outer suburbs see only
weak growth
In 2014, the acquisition of Coeur Defense by Lone
Star is the sole factor behind the growth of investment
volume, but this was even more the case in 2007
when Lehman Brothers acquired the same building
for €2.1 billion.
The West CBD in general and La Défense in particular
have been struggling for years to regain their previous
appeal to investors. This submarket has suffered more
than nearly any other from the effects of the 2008
financial crisis. Since 2011, this has been mainly due
to difficulties in sales of generally high-value assets,
with potential buyers having difficulties in securing
the necessary funding. Since 2013, it has also endured
over-supply in its rental market.
The rise of rental risks has limited the appetite of
investors in this submarket since the beginning of the
crisis, except, as in 2013, when local market values
have fallen significantly.
The “outer suburbs” is the submarket that has suffered
the most, due to changes in geographic strategy on
the part not only of investors, but also of bankers.
Investment volumes have increased only relatively
slightly in 2014 (+ 16%) and the outlying suburbs’
market share has fallen by three points from 15% in
2013 to 12% in 2014.
As in the West CBD, investment spend in the outer
suburbs have been far from the highest levels of
investment reached in 2006, when more than €4
billion were invested in the latter area.
The outlying suburbs have experienced only one
transaction valued at over €200 million: the acquisition
by Crédit Agricole Assurances of the Campus
Carrefour in Massy. As such, the area has not benefited
from the sharp rise in non-portfolio office and retail
property asset sales seen in other submarkets.
The outlying suburbs have lately appealed mostly to
equity investors (ie. SCPIs and insurance companies)
that have accounted for 57% of the amount invested
in this submarket. This finding does much to explain
the loss of attractiveness of outlying areas compared
to 2006-07.
Despite improved conditions in the past two years, it
is still very difficult to obtain financing for properties
situated in the outer suburbs. Both banks and
alternative funding sources are proving very reluctant
to grant loans to potential buyers who might well
struggle in finding new tenants when leases in certain
properties expire.
The geographical distribution of investment is probably
the market indicator that had changed the most as a
result of the 2008 financial crisis at least until 2014.
Investors have tended to focus on what are considered
«core» locations which appear to have the lowest
long-term rental risks: namely, Paris, probably at the
expense of the West CBD, the latter being seen as too
risky, at least in the short term. In the regional office
markets, the same situation has been observed, in the
most appealing cities namely, Lyon, Marseille, Lille and
Toulouse - to the detriment of the outer suburbs.
Prime yields have trended lower everywhere
Prime yields, based on surveys of office-only buildings with
leases of at least six years, have declined significantly in all
geographic locations.
The decline in suburban yields has been identified in buildings
that are either new or recently delivered with long-term
leases (ie., of at least nine years) and that are rented to a
single user.
Even lower rates, however, occurred for mixed office and
retail buildings. The top value of 3.6% was identified for a building at 61, rue de Monceau acquired by Financière Dassault.
The fierce competition for the «core» assets on offer in the
Paris CBD has made this market too expensive for some of
the investors who have decided to buy assets in the inner
suburbs, where they can find smaller buildings. This type of
asset has especially suited the investment strategies of SCPI’s
and small investment companies, since it has continued to
provide yields of over 5%.
This sharp decline in yields has been driven both by the
increased competition between buyers, generated by the
massive influx of capital into the French market in 2014, and
by far lower yields for government bonds. The latter situation has generated major rises in real estate risk premiums.
Although not reaching the peak levels seen in late 2012, the
risk premium rose to 364 basis points in 2014, giving real
estate a significant advantage over other forms of investment.
Moreover, we have observed particularly in the regions - a
yield drop of 35 base points in secondary locations. This has
occurred, for example, in the Carré de Soie project now
underway in the towns of Villeurbanne and Vaux-en-Velin
near Lyon. The drop in yields there has again involved new
buildings, rented to single users. This yield decline is surprising,
especially as it led to an increase in market values of about
€1,200/sq.m in an emerging submarket, and in a project still
under construction.
In other markets, lower prime yields have also been universal.
They have declined by 30 base points in the regions (eg., the
Part Dieu district of Lyon, at 5.4%) to 100 base points in
the inner suburbs (eg., Malakoff and Saint-Denis, at 5.25%) .
Office yields
2009
5,5 – 5,75%
5,5 – 5,75%
6,5 – 8%
6,75 – 9%
6,75 – 9%
6,5 – 9%
Paris CDB
Paris Secondary
La Défense-Neuilly
Other west CDB
Other suburbs
Provinces
2010
4,75 – 5,5%
6,,0 – 6,5%
5,70 – 7%
6 – 7%
6 – 8%
6,2 – 8,25%
2011
4,5 – 5%
5,7 – 6,0%
5,7 – 6.2%
5,6 – 6,8%
5,85 – 7%
6 – 8%
2012
4,25 – 5%
5,35 – 5,75%
5,2 – 6.2%
5,5 – 6,2%
6,25 – 7%
5,8 – 8%
2013
4,25 – 5,5%
5,2 – 5,75%
6 – 6,5%
5,5 – 6,5%
6,25 – 8%
5,7 – 8%
2014
3,9 – 5%
4,8 – 5,75%
5,6 – 7,5%
5,0 – 6,5%
5,25 – 8%
5,4 – 8%
Source: MBE Conseil / Catella Property
The risk premium has trended strongly upward, growing
from 246 base points at the end of 2013 to 364 base points
in Q4 2014. This has been chiefly due to the near-collapse
in government bond yields, which have fallen from 2.49% at
the end of 2013 to 0.86% at the end of 2014. The easing
of monetary policy, reflected in particular by the decision of
the European Central Bank regarding large-scale buying of
bonds, has led to a further sharp decline in government bond
yields since the beginning of 2015. It now appears that this
policy of quantitative easing should last at least throughout
2015, limiting the likelihood of any short-term yield rises.
This should lead to a further decline in prime yields for real
estate, especially for office markets. These could well end
2015 close to the historical lows seen in 2006: (i.e., towards
the threshold level of 3.5%).
Long-term evolution of prime yields vs. government bond yields: 1992-2014
10
%
Paris CBD
Indexed 10 years gov. bond yields
10 years gov. bond yields
8
6
4
2
0
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
19
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
CONCLUSION
CONCLUSION
Economic growth in 2014 was weaker than predicted.
GDP growth has not exceeded 0.4%: far from the
commonly forecasted 0.8% at the beginning of the year.
The French economy has lost much of its resilience: domestic
consumption, long the primary growth engine, has been too
weak to perform its traditional role due to unemployment
fears and the consequences of a still very restrictive fiscal
policy.
Business investment also trended downward, reflecting the
deterioration in confidence and the cautious attitude of
businesses. Foreign trade has also weakened because of the
widespread slowdown in growth in most emerging markets.
2015 is expected to mark a break from 2014 and economists
expect a recovery in activity, confirmed by the generally
brighter outlook since the beginning of this year. French
growth has clearly been stimulated by the fall in oil prices,
which has had an almost immediate impact on the purchasing
power of households as well as on corporate margins.
Furthermore, the depreciation of the Euro, chiefly caused
both by a relaxation of European monetary policy and the
strong economic performance of the United States, could
help to promote exports through improved competitiveness
and lower prices for French products sold outside the
Eurozone.
Low interest rates and the lack of anticipation of them
rising in the short term are also a welcome development.
This is directly related to the quantitative easing (QE) policy
implemented by the ECB, with its massive buyback program
of €60 billion worth of government bonds per month,
expected to last from March 2015 to March 2016. This
will enable a revival of credit and should have a consequent
positive effect on business investment.
The primary purposes of QE are to reduce the present
deflationary risks in Europe and to return inflation to a
level near 2%. The return of inflation would help to reduce
the EU’s debt burden and allow for a continued decline
in the Euro.
However, French economic growth is expected to remain
modest throughout 2015, due to still-restrained fiscal policy
while the government attempts to reduce the deficit to 3% of
GDP. Unemployment will remain high, despite the expected
initial positive effects of the Responsibility Pact and the Tax
Credit for Competitiveness and Employment (CICE). Most
economists are predicting growth of somewhere between
0.9% and 1% this year. We will have to wait 2016 to expect
stronger growth, of around 1.2 %.
In this environment, the rental market is not expected to
find the stimulus it needs for strong recovery. Employment
growth is expected to remain low, probably much in line
with last year’s levels. This in turn is not expected to generate
major changes in business demand for small and medium
surfaces, which presently look likely to remain stable
compared to 2014.
As in 2014, take-up volume will depend mainly on large
transactions. While intended take-up for large surfaces was
down at the end of 2014, however, it stands at a high level
and is mostly concerning shorter-term decisions than have
been observed in previous years. Take-up levels 2015, will
still greatly depend on the level of rental values.
Declining rental values, especially economic values, were
largely behind the take-up growth for large surfaces in 2014.
This trend is expected to continue in 2015 and support
the over 5,000 sq m. market.
Overall take-up is expected to remain relatively stable
compared to 2014, of between 2.1 and 2.2 million square
meters. In contrast, shorter delays related to relocation
projects as expressed in the intended take-up (see Odessa
study published in December 2014 by DTZ) could have a
positive effect on vacancy rates, favoring transaction activity
for existing buildings at the expense of pre-lettings.
The slowdown in release levels and the decline in
construction starts which appear on the amount of supply
available within one year, and further into the future supply
- could trigger a general decline in vacancy rates. The first
effect of this would be a rebalancing of certain markets,
especially in an oversupplied La Défense as well as in the
rest of the West Central Business District.
However, declines in economic rental averages in the
most mature business districts should continue to limit
the attractiveness of less developed areas, if the latter do
not undergo substantial value adjustments themselves.
However, the evolution of the level of supply for small and
medium surfaces should be watched carefully. This grew
strongly in 2014 in many areas, including in fully developed
business districts, and especially in the Paris CBD. Any
continuation in this growth could hamper the likelihood
of a return to balance in certain markets.
Downward pressure on rental values will remain strong,
at least as long as corporate margins do not significantly
improve. This will do much to maintain the significant gaps
that have been seen between economic and headline values
in many markets. However, it will probably be the end of
2016 or some point in 2017 at the earliest before we can
hope to see this gap narrow, thanks to the inevitable shortage
of new buildings looming on the horizon.
The investment market should remain very healthy, with
little having occurred to alter its direction since last year’s
«Property Market Trends». Liquidity in the investment
market is still very high, and may even increase, due to the
effects that the ECB’s quantitative easing policy will likely
have on the exchange rate of the Euro, as well as on interest
rate levels in general.
All of the investors listed below will probably increase their
investments in non-residential property:
Life insurance companies enjoyed remarkable net collection
growth, which doubled in 2014 to €21 billion. Their strategy
of asset allocation remains increasingly directed towards real
estate, especially since new prudential regulations under
Solvency 2 are scheduled for 1 January 2016.
Real estate is still favored over other assets with a capital
requirement set at 25% against 40% for stocks and 50%
for private equity.
Investment funds, foreign funds in particular, including
sovereign wealth funds (especially Asian or Norwegian),
as well as American opportunistic funds and Canadian
pension funds should also continue, or even increase their
investments in real estate, encouraged by the decline of
the Euro against the US Dollar and the increased availability
of bank financing.
Numerous studies about leading asset managers and pension
funds strategies have concluded that these actors will be
willing to increase their exposure to European real estate
by about 20%, particularly in the British, German and French
markets.
SCPIs’ collection should continue to remain high, due to low
government bond yields, weak stock market performance
and massive outflows recorded in the «Livret A» due to
historically low yields.
Listed property companies increased their acquisitions
significantly in 2014, following their debt reduction efforts
in 2011 and 2012, and should continue to be very active
in the French real estate market this year.
At the same time, banks are back in the real estate financing
market after having reconstituted their capital requirement
ratios. This greater access to funding certainly contributed
to the increase in volumes invested in 2014. Here too,
quantitative easing should help to improve banks’ liquidity,
thereby enabling them to provide more financing for both
businesses and individual borrowers.
Future liquidity levels notwithstanding, however, doubts
remain regarding the range of products that will be offered
to investors.
In assessing the market for high-value transactions, however,
trends seen at the beginning of this year should help ease
some concerns.
Several very high-value portfolios have been placed on the
market so far in 2015. In the retail property sector, the most
notable is one valued at around €1.2 billion concerning ten
shopping centers owned by CBRE Global Investors. Several
towers available in La Défense should also stir major interest
from office market investors.
Adding to the sense of a robust market will be the imminent
finalization of the Q3 2014 acquisition of the Louvre Hotels
Group by a Chinese investor.
However, worries remain about the dynamism of the
market for less high-value assets, with the year beginning
less auspiciously.
In light of the current situation regarding falling real estate
yields and increased market values, some investors might
however well decide to profit from the still generally good
overall market conditions by selling their assets for significant
capital gains.
The real question for investors would remain, however,
how best to reinvest this newly gained liquidity.
The volumes invested in non-residential property should
remain high: between €23 billion if overall supply remains
limited and €25 billion if current market conditions encourage
many owners to put more of their assets on the market.
In terms of real estate yields, the sharp decline in yields
for government bonds since the beginning of the year
coupled with a total lack of expectations of them rising
in the short term, leads us to expect a further decline in
yields in 2015 and 2016.
As a result, prime yields in the business districts of Paris
could fall to the lowest point ever recorded: 3.5%
CONCLUSION
The 2015 Rental Market:
a Pivotal Year
Stéphane Guyot-Sionnest - CEO, Catella Property
“The dynamism seen in the rental market in 2014 should not blind us to certain fundamental problems.
While take-up volume was substantially higher than in 2013, the overall number of transactions was
not. Furthermore, 2014 has been among the four worst years in terms of take-up by volume in the
last decade: well below the average of 2.3 million square meters seen between 2005 and 2014.
We do not expect any real recovery in the rental market in 2015. Economic indicators remain
gloomy. Unemployment remains very high, with few positive signs in terms of either domestic
consumption improving, or any resumption in job creation, which is the prime engine for growth
in office space take-up.
Overall, despite the easing of monetary policy an absolute necessity to avoid sinking further into recession - fiscal policy
will remain too constrained to permit any genuine economic recovery.
For property markets, the public sector - long a major consumer of large surfaces in times of economic crisis - has not
played this role either in 2013 or in 2014, with take-up trending downwards.With state budgets only getting tighter, this
looks unlikely to improve soon. In the absence of any other model that would allow us a return to sustainable growth, the
economy is now effectively operating on a short-term cycle which at times may have a positive impact on real estate.
Against a still-gloomy economic backdrop, two elements can support take-up in 2015, helping to maintain volumes
equivalent to 2014 levels:
Firstly, the market could be boosted by a continuation in the value adjustments that began in earnest in 2014.
New relationships have come into effect between landlords and tenants, caused by the acceptance on the part of owners
that the financial models of 2007 and 2008 that allowed them to stand firm on the rents disclosed in their cash flows
when negotiating with lease holders are no longer applicable.
In fact, particularly in certain currently oversupplied markets, tenants now have the upper hand in obtaining rents more
in line with their overall objectives and financial capabilities
Lastly, there is now far better control over the volume of new deliveries, indicating that developers and investors have
kept the painful memory of the oversupply situation of the early 90s firmly in mind. This control is limiting the risk of
future major imbalances in the Paris office market.
2015 may prove to be much like 2014: a pivotal year, though one that does not provide a great deal of long-term
visibility, and another year in which the market dynamism of 2006 and 2007 does not come to pass.
Take-up volume is expected to remain generally in line with that seen in 2014, of between 2.1 and 2.2 million square
meters. In contrast, the better control of supply should enable some places, especially the more presently oversupplied
markets, to see their vacancy rates begin to decline.”
The investment market is expected
to remain very active and wide
Emmanuel Schreder - CEO Catella Property
“We anticipate a very active start of the year for a number of actors:
- Institutional investors including savings collectors, life insurance companies and listed property
companies have all seen their collection and real estate investment targets rise sharply - by an average of
25 to 30% - compared to last year.
-Foreign investors - whether value-added funds or “core” pension funds - have shown greater confidence
that the French economy is recovering, however slowly.This is especially true for those who have invested
in dollars and who want to return to European markets to benefit from the ongoing decline in the value
of the Euro.
Despite still-high volumes of capital influx, however, the biggest concern relates to the number of assets set to arrive on the
market in 2015. The first two months of this year have not presented a significant amount of new significative investment
opportunities, which at first glance may seem disturbing. However, some very large deals are in the pipeline, including major
retail portfolios (CBRE Global Investors), several office towers in La Défense or major office portfolios.
Unibail-Rodamco set the tone in 2014 in its selling of two shopping center portfolios for a total of nearly €1.7 billion.
This example should be followed by others over the course of 2015.
However, it has been investment opportunities of between €20 and €100 million that have been a sorely lacking factor
since the beginning of 2015.This segment usually attracts the largest share of liquidity from SCPIs, OPCIs, small and medium
insurance firms.
However, given the sharp decline in bond yields with rates varying in 2014 between 0.45% and 0.60% and which look set
to stand at that level, or even drop slightly during 2015 - property yields could also realign, and then trend significantly lower.
Such lower rates, and subsequently rising market values, could encourage many owners to sell, as most of them could achieve
a true performance, by significantly exceeding the values of expertise.
Still, we still sense something of a speculative bubble at present. We remain concerned about current trend in risk premiums
that are in many cases already overvalued, and probably less than the current 364 base points.
Indeed, real estate yields now apply to headline rents sometimes 20 to 25% higher than economic values. It is clearly
necessary, in our analysis of real estate yields, to factor this in accordingly.
The decline in yields should lead to an increase in market values for all types of secured assets in 2015. This should be
especially evident in the Paris CBD, where yields should fall below the 4% threshold for the more “prime” assets, as has
already occurred in a few instances.
When comparing yields seen in London and Paris, it is clear that there is still a real potential for lower rates and that,
in the current economic environment, Paris can catch up to London, with prime yields falling to 3.5%.
Given the scarcity of supply, 2015 could also emerge as a year of diversification. With a shortage of investment opportunities
in both the retail and office markets, investors could shift their focus to healthcare or hotel assets - or possibly even warehouses
- the latter offering the promise of higher yields.
In any case, the pressure to invest will remain strong and the French market in 2015 should still experience a very large
liquidity influx - whether in the form of equity or debt. Notwithstanding any major macroeconomic or geopolitical crisis,
the investment market should remain very active and wide.”
Catella is a European finance group active in Corporate Finance and Asset Management.
500 employees work in 25 cities and 12 European countries including France, Germany,
Sweden, Norway, Denmark, Finland, Spain and the UK.
Catella Property combines the structured approach of an investment bank with
local market knowledge and “Dealability”: in 2014, we acted as advisor in property
transactions throughout Europe for a total value of approximately EUR 8 billion.
Emmanuel Schreder, Managing Director
Stéphane Guyot-Sionnest, Managing Director
Monique Benisty, MBE Conseil
Catella Property
4 rue de Lasteyrie
75116 Paris
France
Tél. : +33 (0)1 56 79 79 79
Fax : +33 (0)1 56 79 79 80
[email protected]
www.catella.fr

Research Report March

Transcription

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