The office market in the Greater Paris Region – 4th quarter 2013

The office market in the Greater ParisRegion – 4th quarter 2013

Contrasting performance ofthe leasing and investmentmarkets

Office rentals dropped in 2013 as a result of low growth and

uncertain outlook (down 25% in 12 months).

Rise in immediate supply to 3.9 million sqm. Nevertheless, Grade

A properties still only account for less than 20% of vacant stock.

In this context, rents remain under pressure. Most of the decline

in values in Paris CBD has been recorded in 2013.

With €11 billion invested in 2013, the investment market

maintains its trend for dynamic growth.

30 transactions over €100 million recorded in 2013.

.

The prime yield for the Central Business District fell to between

4.25 and 4.50%.

On Point • The office market in the Greater Paris Region – Q4 2013 Page 2

Office rentals: a strugglingmarket

ImmoStat has just published its figures for 2013 and it is no surprise

that the slowdown experienced at the start of the year is still

ongoing. Take-up in the Greater Paris Region ultimately reached

1.845 sq m, down 25% since 2012. This is the slowest rate of

growth seen in a decade.

Nevertheless, the downturn in activity was not as bad by the end of

the year as during the first three quarters of 2013. In fact, for the first

time in twelve months, quarterly take-up broke the 500,000 sq m

barrier Q4 alone.

The decline in activity of the large segment (>5,000 m²) was notable,

recording a 45% drop in 2013. Finally, 53 deals for properties over

5,000 sq m were completed, representing approximately 655,000 sq

m compared to 73 transactions in 2012 for 1.2 million sq m.

It is primarily major turnkey operations that are missing from the

picture this year, since they account for only 11% of take-up despite

having represented nearly a quarter of volumes rented in 2012. This

high level of activity had largely contributed to the good rental

performance in 2011 and 2012.

Office rentals dropped in 2013 as a result of low growth and

uncertain outlook. The persistent unpredictability of the business

environment has prompted a large number of companies to

renegotiate their leases rather than move, thereby avoiding the

costs of relocation and the widespread repercussions on staff that a

move can have.

Ratio of turnkey transactions in the total take-up(yoy change)

Source: Jones Lang LaSalle

Macro-economic data as at Q4 2013(yoy change)

2013 Yoy change

GDP (3rd quarter) -0.10%

Salaried employment (3rd quarter) -10,734 -0.3%

Business climate (Dec.) 94

Source: INSEE

Greater Paris Region KMI’s Q4 2013(yoy change)

2013 Yoy change

Total take-up 1,844,497 sq m

Immediate supply 3,925,000 sq m

Immediate vacancy rate 7.5%

Prime rent €710 /sq m

Average 2nd hand rent €312 /sq m

Source: Jones Lang LaSalle/ImmoStat/ORIE

24%

11%

2,464,000

1,844,000

0,0

0,5

1,0

1,5

2,0

2,5

2012 2013

In million sq m Turnkeys

Excl. turnkeys

As we indicated several months ago, the sharp dropin large transactions, in particular major turnkeyprojects, has affected the figures for 2013 since theshortfall we are experiencing accounts for more thanhalf a million square metres, down 45% compared to2012.


A handful of sectors are doing well this year

Broken down by region, results vary greatly from sector to another

one, with very few markets doing well this year. In central Paris,

demand has fallen by 19%. All sectors are experiencing a downturn

in the capital, except Paris Centre West (including CBD) which is

bucking the trend with a 4% rise in activity since last year. Despite a

highly complex economic environment, companies have not

remained frozen, since the sector recorded 10 transactions over

5000 sq m (vs. 8 in 2012), the largest being Klesia (~15,000 sq m) in

Rézo, and TGI (~30,000 sq m) in the ZAC Clichy-Batignolles, two

new buildings under construction.

Take-up in the La Défense market was disappointing at 110,000

sqm, a decrease of 34% in 2013. There were only 4 deals for

properties greater than 5,000 sq m (vs. 7 last year), the largest

being ERDF in “Tour Blanche” (~22,000 sq m). In Q4, Egencia

leased 5,600 sq m in “Tour Egée”.

In the Western Crescent, the rental market performed well on the

whole, contrary to the widespread downturn at regional level. First

prize goes to Neuilly-Levallois, which saw a 76% increase thanks to

two major transactions signed at the end of the year in Levallois:

Cetelem (~35,000 sq m) in Q3 and SAP (~28,000 sq m) in “So

Ouest” in Q4. Second and third place are held by the Northern Bend

and Southern Bend sectors, which also had a good year. L'Oréal

took on further office space in Clichy in the “Nuovo” development

(~21,500 sq m), whilst in Boulogne and Issy, several companies are

being seduced by the number of quality premises, the great

accessibility of the area and the attractive rents. Q4 also saw a

particularly high number of major transactions: Banque Postale in

“Bords de Seine 2”, CocaCola in “Noda”, Boursorama in “You” and

Vinci in “In Situ”.

In the inner suburbs and southern outer suburbs, rental activity in

contrast experienced a sharp decline on account of the large

number of major transactions completed in these areas in the

previous year. However 2013 was marked by the following arrivals:

Eiffage (future campus) in Vélizy, Orange in “Eastview” (Bagnolet),

Ericsson in “Hélios” (Massy), HAS in “Green Corner” (Saint-Denis),

Dassault (extending their campus) in Vélizy and Lafarge in “Le

Panoramic” (Clamart).

Number of large transactions > 5,000 sq m(as at 4th quarter of the year)

Source: Jones Lang LaSalle/ImmoStat

Take-up change by surface area(12 months change)


« So Ouest » - Levallois

35% 35%44% 43% 44% 44% 45% 48% 48% 48%

37% 36%

0,0

0,5

1,0

1,5

2,0

2,5

3,0In million sq m

< 5,000 sq m> 5,000 sq m


Take-up change as at Q4 2013(split by sub-market)



Available supply shoots up by 9% in one year

The weakening of the rental activity has contributed to the marked

increase in available supply. By the end of the year, office supply

had reached unprecedented levels, with 3.925 square metres

immediately available, accounting for 7.5% of the office stock. This

rise was largely driven by vacancies arising in existing buildings,

whilst there were only limited deliveries of available new buildings in

Q4. The share of new premises account for only around 20% of the

immediate supply, with the proportion of Grade A properties being

even smaller.

The steepest rises were recorded in west of the Greater Paris

region, a market which saw a particularly high number of new

deliveries this year, with La Défense and the Southern Bend leading

the way with ~140,000 sq m and ~60,000 sq m respectively

delivered vacant in 2013. Vacancy rates are therefore on the up:

12.2% in La Défense and 14.2% for the Western Crescent.

In general, supply is more prevalent in the inner suburbs whereas in

the capital itself the vacancy rate remains at 5.1%, despite an

increase. Despite everything, an encouraging sign this year has

been that certain new buildings, which in some cases have

remained vacant for several years, are gradually finding tenants now

that their rents have been revised.

Rents remain under pressure

Prime rents in Paris CBD and La Défense have remained stable this

quarter, at €710/sq m and €530/sq m respectively. Over the past

year, however, CBD prime rents have fallen considerably due to the

lack of any contracts being signed for exceptional levels of rent.

Fewer than 10 deals were signed for over €700, with the maximum

being only €750. However, we estimate that most of the decline in

headline rents was recorded this year. In La Défense, the most

expensive contracts signed were for premises in the “Coeur

Défense” office complex.

As far as incentives are concerned, after a significant upturn in

2012, the figures were more varied in 2013, albeit remaining high

across all sectors. Overall, the market remains well supplied with

supply, and companies continue to have the upper hand in

negotiations.

Grade A ratio in the immediate supply > 5,000 sq m(split by market)

Immediate supply > 5,000 sq m Grade A ratio

Outer Suburbs 468,000 sq m 17%

Inner Suburbs 272,000 sq m 27%

Paris 167,000 sq m 8%

Western Crescent 599,000 sq m 42%

La Défense 373,000 sq m 54%


Immediate supply and vacancy rate change(by building quality)


Immediate supply as at Q4 2013(split by market)


24%28% 26% 23% 20% 22%

0%

1%

2%

3%

4%

5%

6%

7%

8%

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

4,0

4,5

2008 2009 2010 2011 2012 2013

In million sq m Second hand supplyNew/Refurbished supplyVacancy rate

9%

11%

28%

10%

14%

28% Paris CBDParis (excl. CBD)Western CrescentLa DéfenseInner SuburbsOuter Suburbs


Vacancy rate as at Q4 2013(split by sub-market)


Prime rent as at Q4 2013(split by sub-market)



Outlook

“Looking beyond the figures for 2013 as a whole, the fact that take-

up exceeded 500,000 sq m in Q4 bodes very well for the year to

come. With large companies sustaining their demand and owners

providing true financial incentives for companies, the barriers are

lifting one by one. We therefore expect an upturn of activity on the

market to around 2 million square metres for 2014, although this

remains less than the long-term average”, explains Jacques Bagge,

Head of the French leasing team of Jones Lang LaSalle.

There is still a considerable volume of supply to rent, especially in

the suburbs. Available supply ought to meet and absorb the

demand, especially in sectors where new available supply is high.

The arrival of new projects, in La Défense and in the Southern Bend

sector in particular, should consolidate or even accentuate the

shortfalls currently being experienced. We could therefore see

vacancy rates in certain areas rise even further in the coming

months.

In fact, although speculative office developments remain limited, the

majority of these projects, currently under construction (~800,000

sq m in total), are located in the west of the Greater Paris Region

(~45%).

It is still a tenant's market, and there has been no change in

direction among owners who should remain attentive to the

operational and financial constraints faced by companies. Prime

headline rents should stabilise in 2014, especially in sectors where

there is a limited supply of high quality rental premises, such as

Paris CBD. As for actual rents, they are likely to remain at the lower

end due to the widespread excess in supply and a sluggish leasing

market.

Lease renegotiations should also remain numerous, the strong lack

of confidence does not encourage companies to leave their current

premises.

Projects under construction and available up to 2016(split by market)


20169,000 sq m

TOTAL

2014 - 2016802,000 sq m

2014387,000 sq m

2015406,000 sq m

50,000

100,000

150,000

200,000

250,000

300,000In sq m

Inner Suburbs Outer SuburbsWestern Crescent La DéfenseParis (excl. CBD) Paris CBD


Sustained activity on theinvestment market in 2013

The dynamic growth and stability on the Greater Paris Region

investment market surprised everyone this year, despite the

financial climate and the situation on the leasing market .

After a dynamic 3rd quarter, this year didn't see the usual 4th quarter

“race to the finish” for the investment market, with “only” €2.9 billion

being invested over the final three months.

That brought the total investment figure for 2013 to over €11 billion.

Despite a 9% decline compared to 2012, the market is

demonstrating no less momentum and has not broken its habit of

recording levels of activity.

An even balance of deals either side of the €100 million mark

Following the signature of several major deals in the 3rd quarter, the

end of the year followed suit with a further nine contracts worth over

€100 million each being signed. The biggest transaction, not just for

the quarter but also for the year, was the sale by DOCKS

LYONNAIS of the Greater Paris Region elements of its French

portfolio to ABU DHABI INVESTMENT AUTHORITY (ADIA) for an

estimated €580 million. Another salient deal involved the purchase

by THOR EQUITIES, along with an Israeli investor, of “65-67

Avenue des Champs Elysées” from UBS for €280 million.

Finally, 2013 saw 30 transactions exceeding the €100 million mark,

almost identical to that of 2012, but for a sligthly lower total amount.

No market segment under-performed particularly badly compared to

2012. The Greater Paris Region market has therefore once again

proven a very evenly-balanced sector with investment volumes

divided equally between transactions worth less than €100 million

(49% by volume) and those worth over €100 million (51% in total).

« Passy Plaza » - Paris 16th

Macro-economic data as at Q4 2013(yoy change)

Q4 2013 Yoy change

GDP (3rd quarter) -0.10%

ECB headline rate 0.5

10-year-bond 2.5

3-months-Euribor-rate 0.287

5-year-SWAP-rate 1.26

Source: INSEE / Agence France Trésor / euribor-rates.eu / Jones Lang LaSalle-Thomson Reuters

Greater Paris Region KMI’s as at Q4 2013(yoy change)

2013 Yoy change

Investment volumes €11.075 M

Average investment deal €51 M

Number of transactionsof which over €100m

21630

Prime office yield 4.25 - 4.75


A dynamic year in 2013, with 2014 looking set to passthe €12 billion mark in the Greater Paris Region


Inner suburbs attract nearly half the capital

Receiving 43% of the total investment amount, central Paris isn't yet

absorbing the majority of the invested amount, although it's not far

off. The inner Parisian suburbs have done rather well this year,

attracting 47% of the capital invested i.e. over €5.2 billion (up 48% in

just one year).

Not counting the DOCKS LYONNAIS portfolio, the three biggest

transactions recorded in 2013 were all within the inner Parisian

suburbs:

- “Eco Campus” in Châtillon,

- “Sequana” tower in Issy-les-Moulineaux (JLL transaction),

- and “Adria” tower in La Défense.

La Défense therefore ended the year on a high with over €900

million invested (6 transactions), making it the best year for this

market since 2007. Underpinning this good performance were three

deals over €100 million. Following the sale by IVANHOE

CAMBRIDGE of the “Pacific” tower to TISHMAN SPEYER

PROPERTIES for €228 million (JLL transaction) and the sale by

TESTA to PRIMONIAL of “Adria” tower for €450 million, SAINT-

GOBAIN followed up by selling Les Miroirs (Buildings A and B) to

PERELLA WEINBERG PARTNERS for €110 million in the 4th

quarter.

Office premises remain on top, but a dynamic year for retail

Although office assets continue to dominate the sector, accounting

for 86% of commitments, retail sales remain dynamic and represent

9% of investment in the Greater Paris Region (-5% in a year). This

year saw five retail transactions over €100 million. Three of them

were only signed in the 4th quarter: the purchase by THOR

EQUITIES of “65-67 Avenue des Champs Elysées” (€260 million),

the portfolio sold by ALTAREA-COGEDIM to ALLIANZ for €190

million, and the purchase of “Passy Plaza” by GENERALI from

EUROCOMMERCIAL PROPERTIES for €150 million (JLL

transaction).

Quarterly investment(in volume)


Investment split by individual lot-size as at Q4 2013(in number of deals)


Investment volume as at Q4 2013(by asset class)


1,44 1,76

3,51 2,68

2,40 3,69

4,77 2,95

12,1211,08

0

2

4

6

8

10

12

14

16

2008 2009 2010 2011 2012 2013

In €Bn Q4Q3Q2Q1

-9%

69%

18%

12% 1%0%< €50 M

From €50 to €100 M

From €100 to €300 M

From €300 to €500 M

> €500 M


A sluggish forward funding market

After an already difficult 2012, the forward funding sale market had

not yet refound its footing by the end of 2013. More than €1.1 billion

was invested on forward funding office sales in the Greater Paris

Region, down 16% since the previous year. Three forward funding

sales were completed in Q4: IVANHOE CAMBRIDGE agreed to

purchase the “Ardeko”* building for €140 million, DeAWM purchased

“In Situ” from VINCI IMMOBILIER/NEXITY for €110 million (JLL

transaction), and FONCIERE DES REGIONS purchased the future

EIFFAGE headquarters in Vélizy-Villacoublay in a deal believed to

be worth an estimated €90 million.

A return of foreign investors, but French investors still

dominate the market

As we predicted, the number of foreign investors increased in the

final quarter of the year, driven in particular by major transactions

such as the sale of the DOCKS LYONNAIS portfolio to ADIA. Six of

the 9 transactions over €100 million in the 4th quarter were signed by

international investors. “The increased foreign activity in the 4th

quarter bears witness to the appeal of the Parisian market for

international investors. Their relatively low rate of involvement since

the start of the year was not a reflection of any lack of interest in the

Parisian market place, rather the result of a lack of opportunities

suited to their investment strategy” explains Stephan von Barczy,

Head of French Capital Markets Group at Jones Lang LaSalle.

Nevertheless, French investors continue to largely dominate the

investment market, accounting for 67% of amounts committed in the

Greater Paris Region. Historically highly active in the <€100 million

sector, this year they have also moved into the major transactions

segment (“Eco Campus”, “Adria” and even the BOUYGUES

Technopole in Meudon-la-Forêt).

Fall in yields in the most active sectors

Buoyed by a persistently strong demand for the best products and

low financing rates, we have seen a slight fall in prime yields for the

most well-established sectors in the Greater Paris Region. For Paris

CBD, therefore, the reference rate for Greater Paris Region slipped

from 4.50-5.00% to 4.25-4.75% in the final quarter of 2013.

Forward funding sale ratio in the total office investment Q42013 (in volume)


Investment split by nationality as in 2013(in volume)


* although initiated in 2011, this transaction was recorded in 2013 because of its specific legalarrangement.

Prime yields as at Q4 2013(split by sub-sector)


1,05 1,64 1,57 1,92 2,23 1,60 1,61 1,32 0,90 1,10 1,28 1,110

2

4

6

8

10

12

14

Q1

2011

Q2

2011

Q3

2011

Q4

2011

Q1

2012

Q2

2012

Q3

2012

Q4

2012

Q1

2013

Q2

2013

Q3

2013

Q4

2013

In €BnOffices's sales (excl. forward funding sales)

Offices' forward funding sales


Outlook

Once again, the investment market in the Greater Paris Region

proved in 2013 that it could exceed the €10 billion mark without any

need for special tax incentives.

Based on products currently available on the market, products

potentially available for trading during the year and transactions

currently being negotiated, total investment has the potential to

exceed €12 billion in 2014.

In addition, foreign interest in the Parisian market place has not

waned and overseas investors are particularly involved in some of

the major deals underway: the sale of the RISANAMENTO portfolio

and the sale of the “Beaugrenelle” commercial centre.

Finally, as regards funding, although banks continue to dominate the

market, debt funds have effectively deployed a share of their capital

and new insurers have entered the scene. In 2013, competition

between lenders triggered a fall in margins for prime asset funding,

offsetting the rise in rates. This means that assets with a higher risk

investment profile are now able to secure funding.

Consensus forecasts

Up to 2014 Trend Y on Y

GDP (year end)

10-year-bond

3-months-Euribor-rate

Source: Consensus forecasts – December 2013

Jones Lang LaSalle French Offices

Paris40-42 rue La Boétie75008 ParisTél. : + 33 (0)1 40 55 15 15Fax : + 33 (0)1 46 22 28 28

La DéfenseBuilding Le Berkeley19-29, rue du Capitaine Guynemer92903 Paris La Défense CedexTél. : + 33 (0)1 49 00 32 50Fax : + 33 (0)1 49 00 32 59

Saint-Denis3, rue Jesse Owens93210 Saint-DenisTél. : + 33 (0)1 40 55 15 15Fax : + 33 (0)1 48 22 52 83

Le Plessis-Robinson“La Boursidière”BP 17192357 Le Plessis-RobinsonTél. : + 33 (0)1 40 55 15 15Fax : + 33 (0)1 46 01 06 37

Lyon55, avenue Foch69006 LyonTél. : + 33 (0)4 78 89 26 26Fax : + 33 (0)4 78 89 04 76

Contacts

www.joneslanglasalle.com

COPYRIGHT © JONES LANG LASALLE IP, inc. 2014 - No part of this presentation may be reproduced or transmitted in any form or by any means, or stored in any database or retrieval system of any

nature, without prior written permission of Jones Lang LaSalle except for any permitted fair dealing in accordance with all applicable copyright laws. Full acknowledgement must be given for any such

use. This presentation is based upon materials either compiled by us through independent research or supplied to us by third parties. Whilst we have made every effort to ensure the accuracy and

completeness of the data used in the presentation, we cannot offer any warranty that no factual errors are present. We take no responsibility for any direct or indirect actual or potential damage or loss

suffered as a result of any inaccuracy or incompleteness of any kind in this presentation. We would, however, like to be told of any such errors in order to correct them. These forecasts are generated

from a range of statistical techniques, including econometric models. They are subject to errors stemming from three main Source: measurement and statistical errors, which relate to raw data and the

econometric model, as well as errors arising from assumptions regarding the future behaviour of explanatory variables. As a result, we place greater emphasis on trends and turning points than on

precise values. Jones Lang LaSalle takes no responsibility for any damage or loss suffered by reason of the inaccuracy or incorrectness of this report.

Virginie HouzéDirectorResearch DepartmentParis+33 (0)1 40 55 15 [email protected]

Sophie Rozen-BenaïnousResearch ManagerResearch DepartmentParis+33 (0)1 40 55 85 [email protected]

Manuela MouraConsultantResearch DepartmentParis+33 (0)1 40 55 85 [email protected]

News & Politics

The office market in the Greater Paris Region – 4th quarter 2013