French Property market 2015 - Cushman & Wakefield

2015

FRENCH PROPERTY MARKET

A Cushman & Wakefield Research Publication

7INVESTMENT


JANUARY 2015

3

EDITORIAL

5ECONOMY

19OFFICES

31LOGISTICS

39

RETAIL

54

GLOSSARY

2

EDITORIAL

EDITORIAL

With levels of activity unseen since the crisis began, 2014 was the third-best year ever for the French property-investment market. While French investors continued to dominate the sector, foreign investors also played a significant role, taking part in some of the largest deals ever seen in France. Steady international demand and the constant arrival of newcomers from around the world bore witness to the breadth of international capital flows and to their vital contribution to the rise of amounts invested in France and most European countries.

Occupier activity, on the other hand, remains tied to local realities. In 2014, France was the “sick man of Europe” in the eyes of many observers, an image contrasting starkly with the UK’s revitalized economy and with signs of recovery in some of the countries hardest hit by the crisis. Other strictly local conditions included the instability of the French fiscal and regulatory environment, illustrated by the uncertainty surrounding the enactment into law of the ALUR and ACTPE bills. This environment weighed on the development of retailer and corporate real estate projects, further delayed by the stubborn slump in business and by stagnant household consumption.

The dichotomy of the French market, where record-breaking investment lives side by side with uneven leasing activity, should persist into 2015. However, several external factors—the sharp decline in oil prices, the weakening of the euro, and the ECB’s policy of quantitative easing—are expected to breathe a little life into businesses and consumers.

French domestic policies could also be at a turning point. Because of the extraordinary circumstances under which France has been living since the terrorist attacks of January 2015, and as a result of the national unity that has since prevailed, the government’s approval ratings have risen considerably. The main political parties may now be able to work more closely together to set priorities for putting France back on the right path. Although far from the radical proposals that many had hoped for, measures currently under discussion, such as those in the Macron bill, would undoubtedly improve the image of France held by many foreign decision makers. If the bill passes into law, France will be seen as less resistant to change and friendlier to business, whether the traditional blue chips of the CAC 40 or the numerous startups on view at high-tech trade shows.

Although these problems are still far from being solved, France in recent years has rarely enjoyed such a combination of favorable conditions as now. The investment market should continue to do very well in 2015, as investors seek alternatives to low interest rates and unattractive bond yields. All the more reason to believe in a return to confidence more quickly than anticipated, the vital first step towards recovery in the overall property market.

Olivier GérardPresident


3


ECONOMY

ECONOMY In 2014, the weakness of the international economy was confirmed by the slowdown in emerging economies and by sluggish business in the eurozone. The BRIC1 countries are no longer the growth engines they once were. China has slowed in recent months. Structural cracks have appeared in Brazil and India, while the Russian economy has been crippled by intervention in Ukraine and the fall in oil prices. Growth has remained elusive in most eurozone countries. Deteriorated by years of economic crisis, the business climate and household morale failed to rally significantly. Unemployment, meanwhile, hovered close to the record high reached in 2013. Such stagnation was in stark contrast to the momentum of the American and British economies. With corporate investment on the rise and household spending up, the United States and Great Britain enjoyed annual GDP growth of 2−3%. The job market also showed significant improvement in 2014, when more than 220,000 jobs were created monthly in the United States. Meanwhile the unemployment rate in the UK reached a six-year low.

The uneven, modest recovery begun in 2014 is expected to continue in 2015, resulting in global GDP growth of 3.8%, compared with 3.3% in 2014.2 Business activity should benefit from numerous positive shocks, starting with a sharp decline in oil prices. The price per barrel3 has fallen to under $50 for the first time since 2009. In addition to lowering energy costs for large consumers of oil, this decline could help to boost private consumption in eurozone countries. Furthermore, consumers will benefit from extremely low inflation and from the softening of austerity measures. European exports should get a boost from the weaker euro, the ECB’s accommodative monetary policy of quantitative easing, and the economic momentum of the United States. These elements suggest that growth, estimated at 1.1% in 2015 and 1.7% in 2016,

will provide considerable improvement from the recession or stagnation that has prevailed since the beginning of the crisis. However, several risk factors could jeopardize this scenario: uncertainty around the consequences of major elections in Greece and Spain, unresolved conflict between Russian and Ukraine, and a rise in oil prices in the short and medium term.

Despite recovery in the third quarter that was better than expected, French GDP growth remained close to zero in 2014. Nonetheless, after three years of nearly flat business activity, a more robust turnaround has appeared on the horizon. Growth of nearly 1% is forecast for 2015, and of 1.5% for 2016. Extremely low inflation and a modest rise in purchasing power should continue to bolster private consumption. Some households will benefit from lower oil prices, while poorer families will receive tax breaks, a consequence of the elimination of the lowest tax bracket. Pronounced recovery in the eurozone and vigorous growth in the US and UK are expected to stimulate French exports. However, the benefits of a weaker euro will be minimized by the eurozone trade structure—seven of France’s ten largest trading partners are European—and by the automatic rise in the cost of imports and the competitive weakness of French companies in certain market segments. Although the future looks somewhat brighter, France’s economic outlook remains cloudy. As in 2014, France is expected to underperform its eurozone partners in 2015, with business activity well under the long-term average. Despite the growing number of government employment schemes and CICE (French tax relief designed to boost competitiveness and job creation) promises to reduce social security costs, unemployment is not expected to improve significantly. Nor is the morale of the French people, sapped by the tragic events of January 2015 and by the growing terrorist threat in France.

*Estimate / **Forecast Source: European Commission – November 2014.

1Brazil, Russia, India, and China.2European Commission Economic Forecast, November 2014.3Barrel of light sweet crude.

FRENCH ECONOMIC ACTIVITY

-5.0

-2.5

0.0

2.5

5.0

-5.0

-2.5

0.0

2.5

5.0

2003 2005 2007 2009 2011 2013 2015 E

GDP growth (annual %) − left scale Inflation (annual %) − right scale

ECONOMIC OUTLOOK (IN %)

Source: INSEE

GDP INFLATION UNEMPLOYMENT

2014 2015 2014 2015 2014 2015

FRANCE 0.3 0.7 0.6 0.7 10.4 10.4

GERMANY 1.3 1.1 0.9 1.2 5.1 5.1

EUROZONE 0.8 1.1 0.5 0.8 11.6 11.3

UNITED KINGDOM 3.1 2.7 1.5 1.6 6.2 5.7

UNITED STATES 2.2 3.1 1.8 2.0 6.3 5.8

CHINA 7.3 7.1 2.4 2.4 - -

JAPAN 1.1 1.0 2.8 1.6 3.8 3.8

5

-5.0

-2.5

0.0

2.5

5.0

-5.0

-2.5

0.0

2.5

5.0

2003 2005 2007 2009 2011 2013 2015 E

GDP growth (annual %) − left scale Inflation (annual %) − right scale

In 2014, property investment in France amounted to €23.8 billion, 57% more than in 2013. After 2007 (€28.5 billion) and 2006 (€24.4 billion), 2014 was the third-best year ever and marked a return to the kind of performances not seen since the crisis began. These excellent results are attributable above all to large deals made by French and international investors with deep pockets. The financial context, with its low yields in the bond market and high volatility in the stock market, was very favorable to property investment. The commercial-property market has benefited from supply—growing but still limited—fed by sales from property-investment firms and by liquidations of real-estate funds (e.g., German open-end funds). Although investors continue to exercise caution, their research criteria have moved beyond core assets. Numerous investors today are searching for value-add asset plays, tenant risk, or secure assets in less-established sectors.

INVESTMENTFRENCH PROPERTY MARKET


JANUARY 2015

AMOUNTS INVESTED

Investment in France amounted to €23.8 billion in 2014, 57% more than the previous year’s total and 48% more than the ten-year average. After the first and second halves on 2007, H1 2014 was the third-best half-year ever, with €12.8 billion invested. The second half of the year slowed slightly, with €11 billion invested, though €7.5 billion of that came in the fourth quarter alone.

In 2014 there were 416 transactions in France. Although better than the previous year’s 393 transactions, this performance remains relatively modest and is less than the 421 transactions in 2012. The slowdown is attributable to a decline in the number of small operations. In 2014 there were 312 transactions of less than €50 million, compared with 305 in 2013 and 343 in 2012. Medium-sized transactions were stable, at 50 deals in the €50−100 million range, compared with 52 in 2013 and 39 in 2012. However, it is the largest deals that drive the market, and last year was no exception. Transactions of more than €100 million accounted for 68% (54 transactions) of total amounts invested in 2014, compared with 48% (36 transactions) the year before. Transactions of €100−200 million were relatively stable, at 31 compared with 26 in 2013, while transactions of more than €200 million rose significantly, from 10 (totaling €3.5 billion) in 2013 to 23 (totaling €11.9 billion) in 2014. Three transactions of more than €200 million exceeded the €1 billion mark—Cœur Défense as well as the Klepierre/Carmila and Risanamento portfolios—and were some of the biggest ever seen in France. These large deals were made possible by an abundance of raised capital and easier access to debt, with leverage reaching as high as 70%. In addition, this year saw the involvement of numerous types of investors—insurers, pension funds, property-investment companies, listed real estate companies, private-equity funds, etc.—whereas before the crisis the largest deals were done mainly by North American funds.

HISTORIC INVESTMENT ACTIVITY IN FRANCE

50%Half of total

investment in 2014 (23% in 2013) came from transactions of more than €200

million.

12,2

17,5

24,4

28,5

13,0

7,8

11,0

16,5

14,9

15,2

23,8

0

5

10

15

20

25

30

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

2004-2013 average (€16.1bn)

8

INVESTMENT

Portfolio disposals also boosted volume. 46 transactions, including seven of more than €200 million, accounted for 31% of the total amount (€7.4 billion) invested in all property-asset classes in France. While a few trophy assets changed hands (e.g., the Étoile portfolio sold by Risanamento for €1.2 billion), portfolio sales often allowed investors to dispose of assets of less interest individually.

INVESTMENT VOLUME BY LOCATION

Ile-de-France

Ile-de-France accounted for 71% of total investment in France in 2014, with €17 billion invested (+53% year on year). Paris is the most desirable market for French investors and virtually the only market in the eyes of foreigners, who have acquired 81% of their French holdings in the Paris region. The large supply of office stock, the presence of numerous corporate headquarters, and the resilient local economy, less affected by the crisis than elsewhere in France, all explain the appeal of the office market in Ile-de-France. Office properties accounted for 77% of total investment in the Paris region in 2014, virtually unchanged from the previous year (78%). Activity in the retail sector also revived considerably, with €3.3 billion invested (+71% year on year). This excellent performance was due to seven transactions in Paris of more than €100 million for several mixed-use buildings (Étoile portfolio, Le Madeleine, 49−51 avenue George V, etc.) and iconic individual assets (Beaugrenelle, Chanel flagship on avenue Montaigne, Benetton flagship on boulevard Haussmann, etc.). Industrial properties accounted for 4% of the Paris region’s overall market, compared with 5% in 2013, despite an 8% rise in investments year on year.

Provinces

Investment in the provinces amounted to €6.3 billion in 2014, 58% more than the previous year’s total and 75% more than the ten-year average. Once again large transactions and portfolio disposals drove the market, particularly in the retail sector. Boosted by several sales of shopping centers and malls, the retail market accounted for 70% of total investment outside Ile-de-France. Penalized by the weak economy, a sluggish lettings market, and investor prudence, the office market totaled €1.3 billion and accounted for only 21% of total investment in the provinces in 2014 (26% in 2013 and 28% in 2012). The distribution of amounts invested in office properties was very uneven, with the Lyon conurbation claiming almost half (€590 million). This imbalance was attributable mainly to the acquisition of the Tour Incity by the Caisse d’Epargne for more than €200 million, the largest transaction in 2014 outside Ile-de-France.

KEY INVESTORS

French investors accounted for 66% of total investment in France in 2014 and remained by far the country’s largest investors. The French are active in all segments of the market and were behind 33 of the year’s 54 transactions worth more than €100 million. The largest deal of 2014, the €1.4 billion acquisition by Carmila of a portfolio of Carrefour shopping malls, was also led by French investors.

As in 2013, institutional investors (i.e., insurers, private health insurers, and pension funds, all with significant liquidity) led the pack. These institutional investors focused on large new office complexes and construction projects in the Paris region, such as the SFR campus in Saint-Denis (sold to Predica and Aviva Investors), CityLights in Boulogne-Billancourt (sold to Cardif), and the A9B building in the ZAC Rive Gauche in Paris (acquired by the CNP). Increasingly cash-rich SCPIs and OPCIs were active in the office

INVESTMENT VOUMES BY ASSET TYPE AND LOCATION

% in volume/*excluding non divisible portfolios


50% 7% 10% 9%23%

32% 26%

70%51%

61% 64%

21% 26%

0%

20%

40%

60%

80%

100%

2014France

2013France

2014Provinces*

2013Provinces

Office Retail Industrial

DEAL ANALYSIS IN FRANCE

9

% in volume, all products

0 2 4 6 8 10 12

€1-15m

€15-50m

€50-100m

€100-200m

>€200m

€ bn

2013 2014


JANUARY 2015

market, as seen in the acquisition by Primonial Reim of the Grand Seine office building in Paris and of the Ovalie office building in Saint-Ouen, the acquisition by BNP Reim of Bord de Seine 2 in Issy-les-Moulineaux, and the sale to La Française of the Jazz building in Boulogne. However, it was the proportion of other investor profiles that increased the most in 2014. Property-investment firms were active, particularly in the Carmila acquisitions (nearly €3 billion). Private investors were also present, in the acquisition of the Beaugrenelle shopping center by a consortium comprising Apsys, Foncière du Rond Point, and Financière Saint James. Large office tenants, mainly in the public sector as well as banking and insurance, were behind some of the largest transactions on the French market. Acquisitions were made by SMABTP (future headquarters in the 15th), Caisse d’Epargne Rhône-Alpes (Tour Incity in Lyon), BRED (Urbagreen in Joinville-le-Pont), and the Ministry of the Interior (Garance in the 20th).

Although still a minority in 2014, foreign investors were more active than in the previous year, contributing 34% of total investment in France. Their acquisitions totaled €8.2 billion, up 55% from a year earlier. The French market’s liquidity and the quality and diversity of its assets make it a vital target for all large international investors, as seen in the arrival of diverse newcomers such as the Dutch Syntrus Achmea, the Canadian Oxford Properties, the Korean Igis Asset Management, and the Japanese Mitsubishi.

An analysis of investment by nationality confirms the predominance of Europeans (14% of acquisitions in 2014). The Dutch came in first place thanks to two large transactions totaling nearly €1 billion: Wereldhave’s purchase for €850 million of a portfolio of six shopping centers belonging to Unibail-Rodamco, and the sale by Grosvenor to Syntrus Achmea of the Verano portfolio (ground-floor shops in Paris, Toulouse, and Bordeaux). The Germans came in second, mainly in the form of insurers and open-end funds, and focused mostly on large office complexes and mixed-use secure assets in Paris and the inner suburbs (Arc de Seine in the 13th, acquired by Allianz, Les Ateliers du Parc in Clichy, sold to Deka, and 49−51 avenue George V in the 8th, acquired by Pramerica). Nevertheless, the Germans were notable for their disposals, particularly by open-end

% in volume, all products, in France

PURCHASER NATIONALITY IN 2014

France66%

Europe14%

North America

12%

Middle East6%

Asia2%

La France n’est pas le seul marché d’Europe à avoir enregistré d’excellents résultats en 2014. Il en va de même pour de nombreux pays, confirmant l’ampleur des flux de capitaux, la volonté des grands investisseurs internationaux de diversifier leur allocation d’actifs et le statut de valeur refuge de l’immobilier à l’échelle de la planète. 215 milliards d’euros ont ainsi été investis en Europe en 2014, soit une progression de 26 % sur un an. Si les bureaux restent l’actif privilégié (45 % des volumes investis en Europe), les commerces ont, comme en France, connu une augmentation plus importante, passant de 40 milliards d’euros en 2013 à près de 50 milliards en 2014 (+ 24 %). La hausse des volumes a été importante au Royaume-Uni (74,6 milliards d’euros, soit + 15 %) et en Allemagne (40 milliards d’euros, soit + 31 %), permettant à ces deux pays de conserver leur position de leaders du marché européen. Les performances exceptionnelles du marché français lui permettent néanmoins de consolider sa troisième place devant la Suède.

Focus sur le marché européen

France was not the only country with excellent results in 2014. Many other countries benefited from massive capital inflow, the diversification needs of large international investors, and the safe-haven status worldwide of property as an asset class. In Europe, €169 billion was invested in 2014,* a rise of 22% year on year. While office properties received the most attention (57% of total investment in Europe), retail properties across Europe experienced an even sharper increase, as in France, from €40 billion in 2013 to nearly €50 billion (+24%) in 2014. Investment rose 7% in the UK (€55.3 billion) and 9% in Germany (€30.6 billion), confirming the European-leader positions of these two countries. Thanks to its exceptional performance, the French market took third place, ahead of Sweden.

Focus on the European market

10

*In offices, retail and industrial.

INVESTMENT

funds, which have enhanced supply. Finally, British investors came in third in France in 2014, thereby confirming their interest in a wide variety of more or less secure assets in various regions. The largest UK transaction was the sale to Hammerson of the Saint-Sébastien1 shopping center in Nancy. UK investors also targeted value-add office opportunities, such as Cap West in Clichy (acquired by a fund managed by Tristan Capital Partners) and several individual industrial assets or portfolios (Phoenix portfolio acquired by MStar, logistics platforms sold to Segro and Standard Life in Ile-de-France and near Marseille).

More present than in 2013, North Americans accounted for 12% of investment in the French market and were behind the second-largest transaction of 2014 (acquisition by Lone Star of Cœur Défense for €1.3 billion). The North American players were mainly US private equity funds, whose investment firepower allows them to target large transactions of more than €100 million. These funds sometimes aim for less-established locations and assets ignored by core investors and therefore more difficult to finance, such as secondhand industrial sites (Loren portfolio acquired by Blackstone), speculative forward sales (Influence in Saint-Ouen bought by Tishman Speyer), and large office buildings to be renovated, some with high vacancy rates (Seine Office in the 12th). Middle Eastern investors, which account for 6% of total investment in France, tend to focus on mixed-use assets in Paris with secure, long-term leases, such as the purchase by the Olayan family of the Étoile portfolio. As for Asian investors, their 2% share underrepresents the growing Asian appetite for the French market. A few new investors in search of core opportunities have turned up in France (IGIS Asset Management, Mitsubishi) and could inspire others to follow in the months ahead.

OFFICES

Amounts invested

In 2014, €14.4 billion was invested in office properties, representing 61% of total investment in France, compared with 64% the previous year. This decline was due not to a decline in investor interest, but to the boom in retail. In fact, investment in office properties was 48% higher than in 2013 and 24% higher than the ten-year average (a performance in line with asset and geographical diversification), despite investors’ continued aversion to risk. Several forward sales were recorded and most activity was in new complexes that are mostly secure (A9B in the 13th) and conveniently located in tertiary sectors that either are large (CityLights in Boulogne), are highly promising (Season in the ZAC Clichy-Batignolles), or have little available space (Influence in Saint-Ouen). The Ile-de-France office market was again the most active by far, with €13.2 billion invested in 2014, representing 91% of the total investment in all French office properties and a rise of 53% year on year.

Geographic distribution

Of the €6.4 billion invested in inner Paris in 2014, €4 billion went to the central business district (CBD). This 71% rise from 2013 was due largely to the completion of several major transactions (12 worth more than €100 million), including sales of the Sanofi-Aventis headquarters at 54−56 rue de la Boétie, the GrDF offices at 6 rue Condorcet, and the Galeries Lafayette headquarters at 44−48 rue de Châteaudun. Once again and without surprise the CBD benefited from its prestigious supply, central location, and easy access. Always targeted by well-funded French and foreign investors, this submarket and its structurally limited supply enjoyed opportunities created by disposals of mixed-use buildings (Le Madeleine acquired by BlackRock, Étoile portfolio) and redeveloped office complexes (32 Blanche, L’Astorg). In addition, the development of a new district (ZAC Clichy-Batignolles in the 17th) brought new,

% in volume, all products, in France

OFFICE INVESTMENT ACTIVITY IN FRANCE

10,2

14,0

18,2

19,5

10,3

5,3

6,7

12,3

10,0

9,7

14,4

0%

20%

40%

60%

80%

100%

0

4

8

12

16

20

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Office investments (€bn) % of sums invested in offices in France


PURCHASER TYPE IN 2014

Properties companies/REITs

26%

Investment funds21%

Insurer/pension funds18%

SCPIs/OPCIs16%

Private10%

Owneroccupier

5%

SWFs3%

Developers1%

1 75% of the shopping center.11


high-quality supply (Strato, Season) and completed the expansion of the CBD beyond its traditional border. Outside the CBD, other neighborhoods under development contributed to the success of the Paris market. The ZAC Rive Gauche (Paris 13th) attracted investment of €1.04 billion in 2014 (see Focus opposite), a record amount and 29% higher than the previous record in 2004. This outstanding performance explains the 30% annual increase in investments in Paris Rive Gauche, a market underpinned by the sale to SMABTP of the former Hôtel Pullman (Paris 15th) and the acquisition by Unofi Assurances of the Atlantique 34 building (Paris 14th).

Beyond inner Paris, the Ile-de-France market was driven mainly by activity of large tertiary sectors in the western suburbs. La Défense turned in its best performance (€1.9 billion invested in 2014) since the beginning of the crisis, with a correspondingly ebullient lettings market. The sale of Cœur Défense, one of the biggest office complexes in Europe, was largely responsible for this result, but several other transactions of more than €100 million also contributed to the business district’s success (e.g., acquisition of the Tour Prisma by Invesco Real Estate on behalf of a Malaysian pension fund, sale to LaSalle Investment Management and Quantum Global Real Estate of the Tour Blanche). Other tertiary sectors in the Hauts-de-Seine department stood out, such as the southwestern suburbs, where more than €1 billion was invested. After an excellent 2013, the southwestern suburbs repeated the performance in 2014 thanks to sales of large existing buildings (Bords de Seine 2 and Quai Ouest in Issy-les-Moulineaux) and to investor enthusiasm for the sector’s new stock (CityLights and Jazz in Boulogne). In contrast with the strong rise in office space let in 2014, investment in the western business district (WBD) decreased. Medium-sized transactions (Tour Aviso in Puteaux, Cap West in Clichy, Seine Etoile in Suresnes) were the norm, and there were few deals of more than €100 million (Les Ateliers du Parc in Clichy, acquired by Deka).

Northern Ile-de-France was the liveliest market after those of Paris and the Hauts-de-Seine department. Investment totaled €1.3 billion, attributable to the completion of several transactions of more than €50 million in Saint-Ouen (Influence, Ovalie) and Saint-Denis (Spallis, Dyonis).

JANUARY 2015

Jazz - Boulogne-Billancourt (92)The ZAC Rive Gauche, whose first buildings were completed at the end of the 1990s, was initially designed to rebalance Parisian economic activity, long concentrated in the western part of the city. Since then this market has enjoyed unfaltering success, mainly through large transactions in the banking, insurance, and public sectors. At present the vacancy rate is a very low 4% (approx.). Notable since 2009 for its steady rental values and the rapid absorption of secondhand office supply, the success of the ZAC Rive Gauche is also due the enthusiasm of large tenants for new construction that pushes the boundaries of the district (e.g., Le Monde’s decision to build its new headquarters near the Gare d’Austerlitz, and the SNI’s letting of the A9B project). The acquisition of the A9B project by CNP was one of the five transactions of more than €100 million in the ZAC Rive Gauche in 2014. The other four include a development project (Panorama acquired by Icade and La Mondiale) and three existing buildings: Arc de Seine acquired by Allianz, Grand Seine bought by Primonial Reim, and the France acquired by Gecina.

Focus on ZAC Rive Gauche

A9B - Paris 13th

12


INVESTMENT

EXAMPLES OF OFFICE ACQUISITIONS IN 2014

However, it was the sale of the new SFR headquarters that contributed the most investment. This complex was sold for nearly €700 million, thereby becoming the largest deal ever in the northern suburbs. Delivery of the second tranche is scheduled for 2015. This type of transaction also reaffirms investor preference for campuses of high-quality new assets let to large tenants and secured by long-term leases. After significantly boosting volume in the southern suburbs in 2013 (Eco-campus Orange in Châtillon), new campus sales in 2014 contributed again to the performance of certain sectors in the outer suburbs (Carrefour campus in Massy acquired by Predica for approximately 385 million). By contrast, performances of other Ile-de-France tertiary sectors were less remarkable. Investment in the southern suburbs in 2014 declined by 55% year on year, to €403 million, while the eastern suburbs received investment of only €262 million.

Elsewhere in France, office-property investment in 2014 was up by 18% year on year, to €1.3 billion, only 8% of total investment in France for this class of property. The Lyon region accounted for 45% of total provincial volume, largely because of the acquisition of the 40,000 m² Tour Incity. Other large transactions, for the most part carried out by SCPIs and OPCIs, were generally in the range

of €20−70 million and usually in large French conurbations (acquisitions of the Safran headquarters in Toulouse by Crédit Agricole Assurances, of Europrogramme in Marseille by Primonial, and of Arcuriales in Lille by Swiss Life Reim).

*Mixed-use assets

79-81 boulevard Haussmann - Paris 8th

PROPERTY LOCATION VENDOR PURCHASER PRICE (€ M) AREA (M2)

Cœur Défense La Défense (92) JV Lehman Bros Holdings, Atemi, GE Pension Trust Lone Star 1,280 182,000

Étoile portfolio* Paris (75008, 75009) Risanamento The Olayan Group 1,160 76,500

Campus SFR Saint-Denis (93) Vinci Immobilier, SFR Predica / Aviva Investors 680 134,000

Campus Carrefour Massy (91) Colony Capital Predica 380 (est.) 81,000

City Lights Boulogne-Billancourt (92) BNP Paribas Promotion Cardif 375 (est.) 40,000

54-56 rue de La Boétie Paris (75008) Kanam IGIS Asset Management 350 (est.) 21,000

32 Blanche Paris (75009) Carlyle Oxford Properties / Hines 263 21,000

A9B Paris (75013) Kaufman & Broad CNP / DTZ Investors Confidential 23,000

Incity tower Lyon (69) Sogelym Steiner / Dixence Caisse d'Épargne Rhône-Alpes 240 42,300

6 rue Condorcet Paris (75009) Blackstone SFL 230 25,600

Liberté & Coupole Charenton-Le-Pont (94) Natixis Foncière des Regions 162 38,000

Blanche tower La Défense (92) Perella Weinberg Real Estate LaSalle Investment Management / Quantum Global Real Estate 161 25,800

Ovalie Saint-Ouen (93) Aviva Investors / Capital Continental Primonial Reim 100 15,100

Eastview Bagnolet (93) Pramerica HSBC Reim 98 26,900

Jazz Boulogne-Billancourt (92) Eurosic La Francaise AM 70 7,000

46 rue de la Boétie Paris (75008) Invesco Real Estate MEC (Mitsubishi) 35 2,400

13

RETAIL

Amounts invested

Investment in French retail assets in 2014 amounted to €7.7 billion, an all-time high that smashed the previous record (+60%) established in 2007. Retail accounted for 32% of total investment in France, nearly twice the average performance of the past ten years (18%). This exceptional result reaffirmed the appeal of a class of property with a sterling reputation as a safe haven for investors. The market also saw the arrival of a wide variety of supply from sales by investors aiming to rebalance their portfolios by means of larger assets (Unibail-Rodamco, Klepierre) or classes of property other than retail (Gecina). In addition, the boom of retail investment was also the result of huge restructuring projects in the sector, such as the creation of Carmila and the merger of Klépierre and Corio. Under the circumstances, it is unsurprising to see so many large and very large deals being done. Fourteen transactions of more than €100 million (compared with 7 in 2013) accounted for 78% of total investment in retail properties. Five of these transactions were larger than €500 million, for a total of €4.5 billion, and accounted for nearly 60% of total activity.

Asset types

The five transactions of more than €500 million were for malls and shopping centers. All transaction sizes considered, this market segment accounted for 72% of total investment in retail assets in 2014. The high proportion was due principally to sales by property-investment firms of individual assets (Beaugrenelle sold by Gecina) and portfolios (acquisition by Carmila and Wereldhave of Unibail-Rodamco shopping centers). These deals facilitated asset flow, from large regional shopping centers (Beaugrenelle in Paris, Docks Vauban in Le Havre) to hypermarket galleries (Carrefour portfolio sold by Klepierre to Carmila, Cotentin sold to Ciloger) and smaller sites (Rivétoile in Strasbourg, Côté Seine in


JANUARY 2015

RETAIL INVESTMENT ACTIVITY IN FRANCE

1,2

1,9

2,3

4,8

1,2

1,9

3,6

3,3

3,6

4,0

7,7

0%

20%

40%

60%

80%

100%

0

1

2

3

4

5

6

7

8

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Retail investments (€bn) % of sums invested in retail in France

5Five transactions of

more than €500 million accounted for 60% of total investment

in retail properties in 2014.

14

Argenteuil). Investor enthusiasm for value-add assets has not waned, as illustrated by the acquisition by KKR/Seefar of a portfolio of four shopping centers in the Paris region and the provinces (Ivry Grand Ciel, Espace du Palais in Rouen) and the sale to Orion Capital Manager of Domus in Rosny-sous-Bois.

Total investment of €1.5 billion in high streets in 2014 was unchanged from the previous year, although the number of transactions increased to 66, compared with 54 in 2013. Unsurprisingly, Paris was the recipient of most investment (82%) in this market segment. Several iconic deals marked the past year and reaffirmed French and foreign investor appetite for core assets in Paris, such as mixed-use buildings in the western suburbs (e.g., the Madeleine building, the Rossini building, 49−51 avenue George V, and mixed-use buildings in the Étoile portfolio). Flagship stores on the busiest and most prestigious high streets remained retailers’ preferred format for enhancing their visibility and image. Demand for flagships was strong in 2014, as illustrated by the sale to Thor Equities of the Benetton store at 51−53 boulevard Haussmann and by transactions in the luxury sector (Louis Vuitton in Saint-Germain-des-Prés, Étoile portfolio). Even in a weakening market, the scarcity of prime retail slots continued to encourage the largest luxury groups to expand their networks by acquiring new boutiques (Chanel at 51 avenue Montaigne). Key high streets were also sought after in the provinces, as illustrated by the acquisition of the Verano portfolio by Dutch asset manager Syntrus Achmea as well as by a few smaller transactions (New Yorker and La Halle on rue Serpenoise in Metz, Armand Thiery on rue Sainte-Catherine in Bordeaux, Sandro on rue Édouard Herriot in Lyon, etc.).

In 2014, €590 million was invested in French retail parks, 40% less than in 2013. This decline was due mainly to a drop in sale-and-leaseback operations. Despite investor enthusiasm for retail parks, acquisitions in this property class were also in decline because of a shortage of quality supply. The largest transactions of 2014 included several existing, secure assets, such as the Realis acquisitions in the Croix Blanche zone and several recent (or under-development) complexes located in well-established peripheral areas (White Parc in Orgeval, Saint-Max Avenue in the Creil-Saint-Maximin zone).


INVESTMENT

Rivétoile - Strasbourg (67)

5

15

Avenue des Ternes - Paris 17th (Verano portfolio)

INDUSTRIAL

Amounts invested

Investments in industrial assets in 2014 amounted to €1.7 billion, or 7% of total investment in France. This annual rise of 13% continued a positive trend that began in 2009. As in 2012 and 2013, portfolio disposals played a crucial role, totaling €1.05 billion (62% of all investment in industrial assets) and 14 transactions, including a few pan-European portfolios. Among the largest portfolios exchanged in 2014 were the logistics sites sold by Foncière des Régions to Blackstone (Loren portfolio) and light industrial premises acquired by MStar from Tamar Capital (Phoenix portfolio). There were seven transactions in the €50−100 million range, totaling €512 million, (e.g., the acquisition by Etche and KKR of the Cloud portfolio and the portfolio of three logistics platforms sold by Internos Global Investors to CBRE Global Investors), compared with four in 2013 for a total of €230 million.

Solid performances in the industrial-property market reaffirm the interest shown by the sector’s pure players. Attracted by higher yields, US and UK funds (Blackstone, KKR, MStar, CBRE Global Investors, etc.) were behind the largest deals in 2014. Their activity explains the preponderance of foreign investment (60%) in total investment in industrial assets. North Americans accounted for 32%

of total acquisitions, particularly from German funds (SEB Immobilien Investment) and French investors (Foncière des Régions). French players were less active in acquisitions than in sales and accounted for only 40% of total investment, primarily by property-investment firms (Argan, Foncière Atland, Etche), SCPIs and OPCIs (Amundi, BNP Paribas Reim, Corum AM), and private investors.


JANUARY 2015

INDUSTRIAL INVESTMENT ACTIVITY IN FRANCE

*Mixed-use asset

EXAMPLES OF RETAIL ACQUISITIONS IN 2014TYPE PROPERTY LOCATION VENDOR PURCHASER PRICE (€M) AREA (M2)

Gallery Portfolio (56 galleries) France Klépierre Carmila 1,400 −

Shopping center Portfolio (6 shopping centres) France Unibail-Rodamco Carmila 931 128,000

Shopping center Portfolio (6 shopping centres) France Unibail-Rodamco Wereldhave 850 202,500

Shopping center Beaugrenelle Paris (75015) Gecina, SCI Pont de Grenelle

Apsys, Foncière du Rond Point, Financière Saint-James 700 50,000

High street retail Le Madeleine* Paris (75001) Blackrock NBIM 425 29,700

High street retail Chanel flagship store Paris (75008) Private Chanel 140 600

Shopping center Saint-Sébastien (75%) Nancy (54) Axa Real Estate Hammerson 130 24,000

High street retail Verano portfolio Paris, Bordeaux, Toulouse Grosvenor Syntrus Achmea / BNP

Paribas Reim 130 9,400

Shopping center Portfolio (4 shopping centres) France Corio Seefar / KKR 104 55,300

High street retail Rossini* Paris (75009) Inovalis, Pitch Promotion Aviva Investors 98 6,300

Shopping center Domus mall Rosny-sous-Bois (93) Rabo Real Estate Orion Capital Managers 70 62,000

Gallery Grand Cap (extension) Le Havre (76) Immochan Amundi 50 (est.) 13,000

Retail park White Parc Villennes-sur-Seine (78) Codic DeAWM 35 11,600

0,8

2,6

2,1

3,2

1,5

0,6 0,

7 0,8

1,3 1,

5 1,7

0%

20%

40%

60%

80%

100%

0

1

2

3

4

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Industrial investments (€bn) % of sums invested in industrial in France

16

**


INVESTMENT

EXAMPLES OF INDUSTRIAL ACQUISITIONS IN 2014

TYPE PROPERTY LOCATION VENDOR PURCHASER PRICE (€M) AREA (M2)

Logistics Loren portfolio France Foncière des Régions Blackstone 380 619,000

Industrial park Phoenix portfolio France Tamar Capital Mstar 103 167,000

Light industrial Cloud portfolio France BNP Paris Reim Etche / KKR 87 (est.) 174,000

Logistics Portfolio Ile-de-France, Lyon Carval Investors IDI Gazeley 83 200,000

Light industrial Portfolio* France Groupe Elis Foncière Atland, Groupe Tikehau 80 267,000

Logistics Maisons du Monde turnkey scheme Saint-Martin de Crau (13) Tristan Capital Partners Segro 69 116,000

Logistics Portfolio Mer (41), Satolas & Saint-Priest (69) Internos Global Investors CBRE Global

Investors 59 104,000

Assets and geographic distribution

Logistics accounted for €1.1 billion (65%) of total investment in industrial assets in 2014. The logistics market received steady demand for new and recent large platforms located for the most part in large consumer populations and near major roads and transport infrastructure. The four principal markets on the north-south axis (Lille, Paris, Lyon, and Marseille) are the main recipients of this activity (e.g., the acquisition by CBRE Global Investors of a 25,000 m² platform let to Rexel in Saint-Vulbas, and the sale to Goodman of a 20,500 m² logistics platform at the Port of Gennevilliers). Nonetheless, 2014 was also the year of light industrial sites, whose volume grew 72%, a rebound due mainly to several portfolios (Phoenix, Cloud, etc.) and to a few sale-and-leaseback operations (sale by the Elis group of 17 assets totaling 270,000 m²).

YIELDS

Prime yields fell again in 2014, with Paris office and retail assets paying 4% and 3.5% respectively. Yields also declined for assets in several large tertiary sectors of the outer and inner suburbs (Hauts-de-Seine, northern suburbs).

Interest rates also declined at the end of 2014, with three-month Euribor rates averaging 0.08% in December. Yields of long-term bonds (10-year French Treasuries) fell below the symbolic threshold of 1%, averaging 0.92% in December. Even though low interest paid by government bonds and competition among investors combined to accelerate the decline in yields, the return on property assets remains largely superior to that of risk-free assets.

OUTLOOK FOR THE INVESTMENT MARKET

The economic outlook for France and the eurozone calls for only slight improvement in 2015. Regulatory and fiscal uncertainty incites prudence among investors, particularly occupiers hesitating to embark on real-estate projects. However, the French property-investment market is expected to remain buoyant. Strong demand from investors already present in France, the steady arrival of newcomers, and significant levels of available capital guarantee that 2015 will be a lively year, with volume well above the ten-year average.

JANUARY 2014 JANUARY 2015

OFFICESParis (CBD) 4.25 4.00

Provinces (Lyons) 5.90 5.75

RETAILShops 3.75 3.50

Shopping centres 5.00 4.50

Retail parks 6.00 5.75

INDUSTRIALLogistics 7.25 6.75

Light industrial 8.25 7.75

AVERAGE 5.77 5.43

PRIME YIELDS IN FRANCE %

*Sale and leaseback / **Estimation

17

**

The office market in Ile-de-France recovered slightly in 2014, when take-up was 15% higher than in 2013 but 8% lower than the ten-year average. After a lively first half, market activity faded. Occupiers took longer to make decisions, no doubt wary of the lackluster economy. Other factors came into play, such as the uncertainty surrounding the ACTPE bill and the extent of incentives offered by landlords. Although lease negotiations may have deteriorated, occupiers ultimately managed to upgrade their properties while lowering costs. These factors explain the success of certain tertiary poles in the western suburbs, where there is a supply of high-quality office assets that are affordable and conveniently located.

OFFICESFRENCH PROPERTY MARKET


JANUARY 2015

OCCUPIER DEMAND

Trends in take-up

In 2014, 2,010,003 m² of office space was let or sold to occupiers 2014, 15% more than in 2013 (1,743,102 m²). This volume is far from the record performances of the mid-2000s and is 8% less than the average of the past ten years (2,179,962 m²). The 9% rise in the number of transactions should not be taken to suggest that market conditions have improved. The 2,213 transactions recorded in 2014 represent the second-worst performance in a decade, better only than 2013. What’s worse, the traditional motor of large transactions seems to have stalled. Only 74 deals of more than 4,000 m² were recorded in 2014, compared with 66 in 2013 and 89 over the past ten years. Large transactions totaled 911,730 m² in 2014 and accounted for 45% of total take-up, compared with 41% in 2013. Except for the project developed by Veolia in Aubervilliers, large turnkey transactions were almost nonexistent in 2014, as in the previous year. Such operations were what drove volume during the period 2009−2012 (Crédit Agricole in Montrouge, Thales in Gennevilliers, Carrefour in Massy, SFR in Saint-Denis, etc.).

Sales to occupiers were not enough to revive market activity. Even with the completion of large deals, such as the 45,000 m² acquired by Safran in Châteaufort or the acquisition by SMABTP of its new headquarters in the 15th arrondissement, transaction volume of office assets declined by 14% year on year, mainly because of the collapse of small and medium-sized transactions. The historically low level of interest rates and the safe-haven status of property investment were not enough to compensate the wait-and-see attitude of very small enterprises and SMEs. Smaller companies often face financing problems, which can prove fatal when combined with high prices in real estate in certain parts of the Paris region and with the unreasonable expectations of sellers.

Trends in take-up according to supply quality

In 2014, occupiers showed an increased appetite for large refurbished office complexes, which allowed many companies to lower costs without compromising on the quality of assets or locations. Such transactions accounted for 24% of total take-up of more than 4,000 m², compared with 14% in 2013. The success of this type of transaction enlivened several large business sectors in the western suburbs, such as the WBD (Henner at 14 boulevard du Général Leclerc in Neuilly-sur-Seine, SNCF-Geodis in Espace Seine in Levallois-Perret) and La Défense (Dalkia in the Tour Europe).

TAKE-UP IN ILE-DE-FRANCE (M²)

1 937 6382 049 452

2 791 6222 656 443

2 357 403

1 752 665

2 091 864

2 321 082

2 098 351

1 743 102

2 010 003

44% 43%

51%42% 49%

45%51% 45% 50%

41%45%

2 3172 498

2 893

3 306

2 784

2 314 2 264

2 590

2 271

2 0332 213

0

500

1 000

1 500

2 000

2 500

3 000

3 500

4 000

0

500 000

1 000 000

1 500 000

2 000 000

2 500 000

3 000 000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Take-up (m²) Take-up > 4,000 m² (share in %) Number of deals

BREAKDOWN OF TAKE-UP ACCORDING TO SUPPLY QUALITY*

64% 61%69% 67%

77%65% 66% 66% 67% 73%

64%

12% 21%15%

27%13%

23%15% 11%

15%14%

24%

24%18% 16%

6% 10% 12%19% 23% 16% 13% 12%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

New-Redeveloped Refurbished Second-hand

24%

Tour Europe – La Défense (92)

20

*Transactions of more than 4,000 m2.

The increase in the proportion of refurbished buildings automatically lowered the share of new and redeveloped buildings. Nonetheless new and redeveloped buildings remain by far the most sought after and still account for 64% of take-up of more than 4,000 m² (73% in 2013). Related to the completion of several turnkey projects (Veolia in Aubervilliers, Eiffage in Vélizy, etc.), the success of this property type is also due to early lettings of large complexes of more than 20,000 m², such as the letting by the Ministry of the Interior of the Garance building in the 20th and L’Oréal’s letting of Ecowest in Levallois. Several office projects in conjunction with new or continuing urban-development projects have also been successful: the second phase of Le Trapèze in Boulogne-Billancourt (Carrefour Property in Ardeko) and the ZAC Clichy-Batignolles (Klesia in Rezo and Strato), Rungis (Mutuelle Générale in Pushed Slab), and Rive Gauche (SNI in A9B) projects in Paris.

Occupier strategies

Those counting on recovery of the French economy in 2014 were quickly disillusioned. The absence of growth, estimated by INSEE at 0.4% for the year, brought further job destruction and persistent unemployment to Ile-de-France.

Under the circumstances, the low number of expansion projects was unsurprising. Comprising only 6% of transactions of more than 4,000 m² in 2014, the few expansion projects were usually in dynamic sectors such as new technologies (Aldebaran Robotics in Nouvel Air in Issy-les-Moulineaux, Salesforce in Alcatel’s former headquarters on 3 avenue Octave Gréard in the 7th). Market transactions revealed that the trend was for businesses not to lease additional office space, but to consolidate and streamline sites in order to cut costs and protect profitability. Such transactions accounted for 88% of total take-up of more than 4,000 m² in 2014. However, the cost per work station is by no means the only factor taken into consideration for relocation, as demonstrated by the very small number of relocations outside the center of the Paris region and by the very small number of lettings of large secondhand complexes.

Études & Recherche Cushman & Wakefield

OFFICES

49%

39%

6%

3% 3%

Consolidation

Cost-Cuttings

Extension

Merger

Other

TAKE-UP (> 4,000 M²) ACCORDING TO REASON FOR RELOCATING

24%Proportion of

refurbished office space in total take-

up > 4,000 m² in 2014

(14% in 2013)

21


JANUARY 2015

Companies are applying a more global approach to their real estate, with which they endeavor to raise the productivity of their teams, to improve their corporate image, and to attract the most talented workers. As a result, human factors are taken into greater consideration and human resources plays a larger role. The work space, neighborhood, and convenient access all take on a new importance for the company.

Some occupiers have taken advantage of mergers to regroup their teams in Paris (Klesia in Rezo & Strato, Paris 17th, Public System/Hopscotch at 23−25 rue Notre-Dame-des-Victoires, Paris 2nd) and others have moved towards the city center (Wolters Kluwer in Colisée IV). By contrast, some companies have gone the other direction, eliminating numerous smaller sites in favor of large office complexes that are farther away but of higher quality, like the new Veolia headquarters in Aubervilliers and the La Mutuelle Générale headquarters in the 13th (Pushed Slab). Decisions by companies to leave the CBD were relatively numerous in 2014 and have become symbolic of a new, opportunistic approach to real estate and to the compromises required by relocation. Moves from prestigious, centrally located neighborhoods were compensated by lettings of efficient, less expensive office space with a desirable address (Groupe Henner and Groupe M in Neuilly, Fimalac/Webedia in Levallois, Fromageries Bel in Suresnes, Euronext in La Défense) and sometimes in Paris (Ministry of the Interior in the Garance building).

Take-up according to geographical sector

The Paris office market experienced uneven results in 2014. At 676,526 m², the volume of take-up in Paris was 11% higher than in 2013 but 12% lower than the average of the past ten years.

Activity was especially erratic in the CBD. More than half of the 11 transactions of more than 4,000 m² completed in 2014 were made in the first quarter of the year. The year began brilliantly with a cascade of decisions made by occupiers wishing to benefit from restructurings and to optimize their office space (Cheuvreux at 55 boulevard Haussmann, Clifford Chance at 1−5 rue d’Astorg). However, this momentum ground to a halt after the first quarter. A few significant lettings aside (Fast Retailing in Louvre Saint-Honoré, Generali at 2−4 rue Pillet-Will), cautiousness once again came to dominate occupiers’ real estate decisions. When confronted with the end of a lease, some companies, including several large Paris law firms (Linklaters, De Pardieu Brocas Maffei, etc.), preferred to renegotiate than to relocate. Furthermore, the slowdown in large properties was not compensated by recovery in activity among SMEs, which are more exposed to economic difficulties. In 2014, SMEs tended not to relocate; transactions of less than 4,000 m² were significantly below the average of the past ten years (−10%).

Other sectors besides the CBD suffered above all from a lack of quality office properties. For example, the 7th arrondissement saw only one large transaction in 2014, the letting by Salesforce of Alcatel’s former headquarters at 3 avenue Octave Gréard. Lettings of office space of more than 4,000 m² were almost inexistent in the 7th after the absorption of a few large redeveloped complexes (103 Grenelle, 23−25 rue de l’Université, Laennec, etc.). Such weakness was in contrast with the liveliness of sectors just beyond the city center. Large transactions in a few designated development zones (SNI in ZAC Rive Gauche, Klesia in ZAC Clichy-Batignolles, Pushed Slab in ZAC Rungis) and in certain mainly residential neighborhoods (Ministry of the Interior in the Garance building) not only helped soften the fall in demand in Paris, but also illustrated the office market’s trend to move away from business districts in central Paris.

In western Ile-de-France, most activity resulted from relaxed lease restrictions. Large companies took advantage of incentives offered by landlords, which had a relatively abundant high-quality supply to dispose of.

3 avenue Octave Gréard – Paris 7th

140 %

61%

35%27% 21%

13%

- 2%

- 6%- 26% - 38%

- 42%

- 150 %

- 100 %

- 50 %

0 %

50 %

100 %

150 %

La D

éfen

se

Paris

Rive

Gau

che

Nor

ther

n Su

burb

s

WBD

Oth

er

Paris

Cen

tre

Est

Paris

CBD

Sout

wes

tern

Sub

urbs

East

ern

Subu

rbs

Bouc

le d

e Se

ine

Sout

hern

Sub

urbs

TRENDS IN TAKE-UP ACCORDING TO GEOGRAPHIC SECTOR, BETWEEN 2013 AND 2014 (%)

22


OFFICES

OCCUPIER MOVED TO BUSINESS SECTOR AREA (M²)Ministry of the Interior Paris 20 | Paris Centre Est Public Sector 26,200Fromageries Bel Suresnes | WBD Manufacturing-Distribution 16,500Groupe Henner Neuilly | WBD Banking-Insurance 12,800Fimalac/Webedia Levallois | WBD Communication 12,000Groupe M Levallois | WBD Communication 12,000La Française AM Paris 6 | Paris Rive Gauche Banking-Insurance 10,000Euronext Courbevoie | La Défense Banking-Insurance 10,000Salesforce Paris 7 | Paris Rive Gauche IT 5,500Hi Media Paris 12 | Paris Centre Est IT 3,500Groupon Courbevoie | La Défense IT 3,500Open Levallois | WBD IT 3,000

OCCUPIERS WHO LEFT THE CBD IN 2014*

This trend is particularly visible in the WBD, which had its best year since 2008. Of the 336,830 m² let in the WBD, 58% comprised areas of more than 4,000 m². The geographic distribution of take-up was inconsistent, however. Levallois-Perret alone accounted for 43% of the m² let or sold to the sector’s occupiers. With lettings of 145,867 m², Levallois reached an all-time high. Five buildings of more than 4,000 m² were let: new/refurbished supply allowing long-standing occupiers to modernize their office space and regroup their teams (L’Oréal in Ecowest and So Ouest Plaza), and large refurbished headquarters with competitive rental values attracting companies from other municipalities (SNCF-Geodis in Espace Seine, Fimalac/Webedia in Le Libertis). Other municipalities of the WBD saw significant transactions. In Rueil-Malmaison, Ingerop and Amex Voyages let the remaining available space of Green Office II, and Neuilly had its best year since 2004. The arrival or return of large redeveloped complexes (Groupe M in Silvergreen) and refurbished buildings (Groupe Henner at 14 boulevard du Général Leclerc) attracted large Parisian occupiers to Neuilly.

After a very bad year in 2013—the worst in a decade—the La Défense market has also returned to the forefront. With 231,933 m² let in 2014, La Défense almost broke its 2001 record, ending the year at a level similar to those of 2006 and 2008. In 2014 there were thirteen transactions of more than 4,000 m² for a total of 171,925 m², or 74% of the sector’s total take-up. The SME segment was also lively. Take-up for office assets of less than 4,000 m² increased by 31% in 2014 and reached its highest level since 2007. Discounts granted by landlords played a vital role and explain the rapid absorption of a large, diversified supply that provides opportunities for companies in La Défense aiming to expand (Ernst & Young in First) or to regroup their employees while modernizing

their site (KPMG in Eqho, HSBC in Cœur Défense, AXA IM in Majunga). La Défense’s increased attractiveness to occupiers of other business sectors served to heighten the sector’s capacity to retain occupiers. The success of La Défense new offers confirmed the validity of the sector’s renewal plan. For example, Thales’s letting of part of Carpe Diem provides the company with a prestigious, modern site that is both energy efficient and comfortable. La Défense has also attracted companies located in neighboring towns of the Hauts-de-Seine department and in Paris that are looking for flexible, inexpensive, and central locations (e.g., Euronext in Praetorium, Dalkia in the Tour Europe, and Tarkett in the Tour Initiale).

Unlike the WBD and La Défense, most emerging districts of the inner suburbs played a minor role in 2014, despite an economic context favorable for occupiers looking to lower costs. The success of La Défense, as well as efforts made by landlords, compromised

*Transactions in 2014

23

Carpe Diem – La Défense (92)


performances in the Boucle de Seine, where take-up was at its lowest since 2005. For the first time since 2000, there were no transactions of more than 4,000 m². Activity came mainly from lettings of office space in rather recent buildings that offer competitive occupancy costs (Front Office and O² in Asnières). All was quiet in the office market of the inner eastern suburbs too, where quality supply is scarce. On the other hand, the northern suburbs performed well. With take-up of 160,643 m² (inflated by Veolia Environnement’s new 45,000 m² headquarters in Aubervilliers), performances were in line with those of the past ten years. However, lettings may slow over the next few months as a result of the limited supply of new office space in Saint-Denis and the absorption of renovated large complexes in Saint-Ouen (Mondial Assistance in Eurosquare II).

Take-up by business sector

The public sector, banking and insurance, and manufacturing and distribution continued to dominate activity in 2013 and accounted for 75% of total take-up greater than 4,000 m2 in Ile-de-France, compared with an average of 71% for the period 2004−2013.

The share of the public sector fell significantly, from 25% in 2013 to 9% in 2014. In its worst performance since 2001, the public sector originated only six large transactions, totaling less than 80,000 m². These transactions were mostly in Paris, which accounted for 80% of public-sector volume, thanks to two transactions of more than 20,000 m²: the letting by SNI of A9B in the ZAC Rive Gauche and the letting by the Ministry of the Interior of the Garance building in the 20th, another example of the government trend to relocate from the west to the east of Paris. Prior relocations were the Ministry of the Interior to 35,400 m² in Le Lumière (Paris 12th) and the construction for the Ministry of Justice of a 32,000 m² building in the Parc du Millénaire (Paris 19th). By contrast, transactions by local governments were inexistent, except for the Région Ile-de-France’s letting of more than 6,000 m² in the Nord Pont building because of the need to relocate employees from the Tour Montparnasse. After

the municipal elections in 2014, departmental and regional elections may slow public-sector relocations in 2015, despite the State’s need to downsize its property portfolio.

The dominant players in the 2014 office market were occupiers in the manufacturing and distribution sector, accounting for 24 transactions of more than 4,000 m² and 38% of total take-up, compared with 22% in 2013. As usual, occupiers in the manufacturing and distribution sector were also behind the largest transactions in Ile-de-France, with four transactions greater than 30,000 m² (including two lettings by L’Oréal from Ecowest and from So Ouest Plaza in Levallois). In 2014, the cosmetics giant also let the remaining available space in Nuovo in Clichy after letting 25,000 m² there the year before. This activity was part of L’Oréal’s strategy to restructure its property portfolio in Ile-de-France, after the construction of a new R&D center in Saint-Ouen in 2012 and the development of a vast logistics platform recently completed north of CDG airport.

Like occupiers in the manufacturing-distribution sector, occupiers in the banking-insurance sector saw their share in total take-up rise year on year (from 25% in 2013 to 28% in 2014), while total volume of more than 4,000 m² grew an impressive 50%. Some French banks were particularly active. After beginning expansion work of its Montrouge and Guyancourt campuses in 2013, Crédit Agricole let several more large properties, thereby consolidating its leader position among large occupiers over the past five years (see table next page). The banking sector also stood out in 2014. Several transactions confirmed the status of La Défense as a financial center, including consolidations (HSBC in Cœur Défense) and arrivals of companies previously in Paris and elsewhere (Euronext in Praetorium, Banque de France in Eqho). Except for Groupe Henner, whose decision to relocate from the CBD to Neuilly lengthened the list of departures since 2011 (Allianz and Euler Hermès to La Défense, Apria RSA to Montreuil), insurance companies and private health insurers (mutuelles) remained in Paris in 2014 (Klesia in the 17th, Generali and Covéa in the 9th, La Mutuelle Générale in the 13th), thereby reaffirming their attachment to the Paris market in which they are long-time participants.

JANUARY 2015

TAKE-UP (> 4 000 M²) ACCORDING TO BUSINESS SECTOR

9%

28%

9%10%

38%

2% 4%

Public SectorBanking-InsuranceCommunicationAdvisoryManufacturing-DistributionITServices

TAKE-UP IN LA DÉFENSE (M2)

107 437

214 328

233 349

214 602

232 498

156 106145 925

108 634

158 804

96 509

231 933

79%

77% 68% 70%77%

81%66%

51%

79%

53%

74%

0

50 000

100 000

150 000

200 000

250 000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Take-up (m²) Take-up > 4,000 m² (share in %)

24

Large consulting and legal firms also continued to favor the CBD (DLA Piper in Laffitte-La Fayette, Clifford Chance at 1−5 rue d’Astorg, McKinsey & Company at 90 Champs-Élysées) and La Défense (KPMG dans Eqho). A few companies reinforced the communications cluster in the southwestern suburbs (Solocal in CityLights in Boulogne) as well as the WBD (Groupe M in Neuilly).

RENTAL VALUES

Prime rental values in Ile-de-France stood at €750/m²/year at the end of 2014, down 1% year on year. This slight decline was due mainly to the small number of transactions for new and redeveloped Parisian buildings (McKinsey & Company at 90 Champs-Élysées, Olivier Wyman at 1 rue Euler, Holman Fenwick Willan in the Astorg). The growing scarcity of such supply forced occupiers in business sectors with high added value (e.g., consulting, finance, new technologies) to consider high-quality renovated office space,

whether for consolidation or expansion, which allowed them to preserve an address in one of Paris’s most prestigious neighborhoods (Clifford Chance in the 8th, Salesforce in the 7th).

Yet the market for prestigious assets is far from representative of the trends observed in the rest of Ile-de-France, where more than ever a diversity of rental values is the rule. Values may vary widely within the same business sector, depending on a given building’s location, its fundamental quality, and the owner’s letting strategy. As a general rule, incentives have played a critical role in tenant-landlord relations, with landlords granting more generous rent-free periods. Occupiers are able to use negotiation tactics to their advantage, widening the gap between headline rents and economic values. Some landlords displayed increasing flexibility in order to retain their tenants.

Unless the economy shows more strength, or unless demand increases significantly with faster absorption of supply, these factors will continue to weigh on negotiation terms between landlords and tenants in 2015. The recent adoption of the ACTPE bill should help clarify relations between the two parties, particularly in terms of the sharing of expenses, work, and taxes.

AVAILABLE SUPPLY

After reaching an all-time high in the first quarter of 2014 (4,426,621 m²), available supply within six months declined to 4,190,958 m² at the end of 2014. The 5% decline in the second half of the year was related to the lack of large complexes on the market and to the completion of several large transactions of more than 10,000 m². The vacancy rate in the Paris region stood at 7.8% at the end of 2014, well below levels of other major European cities (10.1% in Brussels, 11.4% in Frankfurt, 14.9% in Milan, etc.) with the exception of Central London.


OFFICES

*Only one transaction during the period.

LARGEST OCCUPIERS IN THE PERIOD 2009−2014 M² OF OFFICE LET OR SOLD FOR OWN USERANK OCCUPIER BUSINESS SECTOR1 Crédit Agricole Banking-Insurance2 Thales Manufacturing-Distribution3 SFR IT4 France Telecom/Orange IT5 BNP Paribas Banking-Insurance6 Carrefour Manufacturing-Distribution7 SNCF Public Sector8 BPCE Banking-Insurance9 L’Oréal Manufacturing-Distribution10 EDF Manufacturing-Distribution

PRIME RENTAL VALUES BY GEOGRAPHIC SECTOR (€/M²/YEAR)

753

680

498 488463

429

310292

310

257

746

667

511478

450426

305 290 287

240

0 €/m²

100 €/m²

200 €/m²

300 €/m²

400 €/m²

500 €/m²

600 €/m²

700 €/m²

800 €/m²

Paris CBD Paris RiveGauche

La Défense WBD SouthwesternSuburbs

Paris CentreEst

NorthernSuburbs

Boucle deSeine

SouthernSuburbs

EasternSuburbs

2013

2014

SUPPLY AND VACANCY RATE IN ILE-DE-FRANCE (M2)

341

368

1

313

311

3

279

467

6

329

076

4 410

310

9

406

605

3

372

090

2

386

938

0

436

796

5

419

095

8

57%54%

54%56%

58% 58%57% 57%

57%54%

25%20% 25%

30% 27% 25%24% 23%

25% 25%

7,1

6,5

5,7

6,6

8,0 7,9

7,17,4

8,27,8

0,0 %

1,0 %

2,0 %

3,0 %

4,0 %

5,0 %

6,0 %

7,0 %

8,0 %

9,0 %

0

500 000

1 000 000

1 500 000

2 000 000

2 500 000

3 000 000

3 500 000

4 000 000

4 500 000

5 000 000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Total supply Supply > 4,000 m² New-redeveloped supply (all sizes) Vacancy rate

*

25


Recent months have done nothing to reduce the large differences among the various tertiary poles in Ile-de-France. While the market in Paris proper remains relatively undersupplied, especially outside the CBD, there are abundant and diverse solutions in a few markets in the western suburbs, such as the Boucle de Seine (vacancy rate of 14.1%) and the WBD (12.2%). Available supply within six months also remains high at La Défense, well above precrisis levels (+234% from levels observed in 2008). This is the result of both releases and deliveries of large new and redeveloped complexes. Nevertheless, La Défense’s 12% vacancy rate is considerably lower than it was at the end of 2013 (14.1%).

In La Défense as in the rest of Ile-de-France, a decline in supply quality logically paralleled the faster absorption of new and redeveloped assets in 2014. On a regional scale, the proportion of such assets accounts for only 25% of total available supply within six months, and in Paris intra muros this figure falls to only 14%. Volume of renovated supply was stable (+2% year on year) after the 30% rise between the end of 2010 and the end of 2013.

OUTLOOK FOR FUTURE SUPPLY

Paris: high-quality supply limited in the short term

Unsurprisingly, it is in Paris’s most prestigious neighborhoods that supply is most limited. Since the partial letting of 1 rue Euler, redeveloped supply to 2016 of more than 10,000 m² in the area around Etoile has dwindled to 3−5 Friedland. Once this offer has been absorbed—and given the lack of alternatives in the 7th arrondissement—the most captive occupiers in the 8th arrondissement will increasingly turn to lease renegotiation. The scarcity of redeveloped supply should encourage the absorption of the highest quality secondhand supply in the CBD, primarily the 13,500 m² of Capital 8 and the 15,000 m² released by Clifford Chance in Vendôme-Saint-Honoré. For occupiers less concerned with a prestigious address, other solutions exist, mainly in Paris’s financial district. Two redevelopment projects of more than 10,000 m² will become available in 2015: the 27,000 m² of #Cloud and the 24 Drouot building. However, there should

JANUARY 2015

FUTURE SUPPLY TO 2017

1 101 619

443 320 406 713

88 524

1 417 205

0

200 000

400 000

600 000

800 000

1 000 000

1 200 000

1 400 000

1 600 000

1 800 000

2 000 000

2015 2016 2017Volume of likely future supply > 10,000 m²Volume of secure future supply > 10,000 m²Average take-up >10,000 m² over the past 5 yearsAverage take-up >5,000 m² over the past 5 years

1 101 619

443 320 406 713

88 524

1 417 205

0

200 000

400 000

600 000

800 000

1 000 000

1 200 000

1 400 000

1 600 000

1 800 000

2 000 000

2015 2016 2017Volume of likely future supply > 10,000 m²Volume of secure future supply > 10,000 m²Average take-up >10,000 m² over the past 5 yearsAverage take-up >5,000 m² over the past 5 years

After 750,000 m² in 2013, office deliveries in 2014 in Ile-de-France totaled just over 800,000 m². Slightly more than one-third of total volume was in the WBD and La Défense, while 62% comprised partially or wholly pre-let offices (Majunga in La Défense, Green Office II in Rueil, Pushed Slab in Paris, etc.) and large turnkey campuses (first tranche of new SFR headquarters in Saint-Denis, new Carrefour headquarters in Massy, etc.). In 2015, completions are expected to rise considerably, to near the record level of 2009 (1.3 million m²). However, the market will not be flooded with empty office space. Only 30% of the 1.2 million m² expected this year is still available. This volume includes several large turnkey projects: the Ministry of Defense in Balard, Eole building at Evergreen in Montrouge, renovation for Sanofi in Gentilly, and the second tranche of SFR’s new headquarters in Saint-Denis. In addition, a few large complexes were pre-let in 2014, such as CityLights in Boulogne (Solocal), So Ouest Plaza in Levallois (L’Oréal), and the Garance building (Ministry of the Interior) in the 20th. After 2015, opportunities will become even scarcer. Of the 575,000 m² currently under construction for estimated delivery in 2016, less than 200,000 m² is still available (10 Grenelle in Paris, White in Montrouge, etc.).

Focus on construction activity in Ile-de-France

26


OFFICES

be a greater number and range of solutions as from 2016, the result of significant releases by long-standing occupiers of the CBD such as insurers in the Grands Boulevards district (Generali on boulevard Haussmann, Allianz on rue Richelieu) and the public sector in the area around Gare Saint-Lazare (SNCF). Two iconic redevelopment projects under way in the 1st arrondissement, the Samaritaine and the Poste du Louvre, will add to this supply.

Concentrated in just a few arrondissements, this significant potential may encourage landlords to stagger their project launches. The quality of certain programs, the overall improvement of the eastern part of the CBD (redevelopment of the Samaritaine, improvement of the Halles neighborhood, shopping center at the Gare Saint-Lazare, etc.) and the shortage of space in western Paris will undoubtedly make the financial district one of the main drivers of the Paris market in the years to come. The CBD will also profit from the maturing of the Clichy-Batignolles sector. The rapid absorption of Rezo et Strato and the early interest shown by occupiers in future supply to 2017 confirm the success expected of this neighborhood by Parisian businesses, despite the postponement to 2019 of the extension of the Metro line 14. The ZAC Clichy-Batignolles may also provide a Paris address to companies from nearby towns such as Levallois-Perret and Neuilly-sur-Seine, where a large supply of high-quality assets was partially absorbed in 2014.

As in the CBD, large, high-quality office space remains very scarce in the Paris Centre Est and Paris Rive Gauche sectors. In the 7th arrondissement the shortage of supply could be long term. Other Left Bank arrondissements, by contrast, could return to more-balanced market conditions as early as 2015. In the 15th, high-quality supply will come to market over the next few years because of opportunities created by redeveloped assets in centrally located sectors (10 Grenelle, 43−45 quai de Grenelle) and by the completion

of large programs planned around the Maréchaux inner belt (Quadrans). The variety of supply could attract a wide range of occupiers from more or less prestigious neighborhoods of Paris and allow them to consolidate their teams while upgrading their office space. This same approach will also likely lead to the success of new supply gradually developed as from 2016 in the ZAC Rive Gauche, the Austerlitz and Tolbiac sectors (Panorama, Eléments, Austerlitz), and, in the longer term, Masséna-Bruneseau (Duo).

The depth of supply in the pipeline for Paris Rive Gauche contrasts with the chronic shortage in Paris Centre Est, where high-quality supply comprises mainly occasional redevelopment transactions in centrally located residential neighborhoods (Parisquare in the 11th, Archives in the 3rd) as well as new development projects in peripheral arrondissements. Tempo and Parc du Millénaire 4 should benefit from the maturing of large urban development zones, the arrival of large residential and retail programs, and the implementation of the Rosa Parks RER E station. Although highly valued by occupiers, the Gare de Lyon district, with its ageing, energy-inefficient office buildings, will not see new supply before at least 2017.

La Défense: less supply in the medium term

Although La Défense remains one of the best-supplied markets in Ile-de-France, there is little doubt that occupiers will be offered fewer and less-diversified solutions in the medium term. As a result, numerous large transactions, both recent and imminent, are sure to absorb a large part of inventory before new and redeveloped assets can replenish stock (at the end of 2017 at the earliest), and before the marketing of supply such as the 50,000 m² Tour Trinity. Until then, La Défense will likely remain one of the key driving forces of the Ile-de-France office market, mainly because of the availability of high-quality programs, whether new (D2 and the remaining availably supply of First, Majunga, and Carpe Diem), refurbished, or secondhand (Cœur Défense).

As long as its lease terms remain attractive, La Défense should be able to retain tenants and lure companies from sectors such as Paris, where supply is scarce, expensive, and relatively inflexible. Some of La Défense’s best available space may also be an alternative for occupiers from established parts of the WBD, such as Levallois and Neuilly, where supply largely dried up in 2014 except for a few quality assets (Alegria in Neuilly).

Supply at La Défense remains abundant and diverse, creating competition with Boulogne-Billancourt and Issy-les-Moulineaux even if transactions in 2013 and 2014 reaffirmed that both towns generally command loyalty among occupiers (Solocal in Citylights, Boursorama in You). However, supply of new and redeveloped office space of more than 10,000 m² is increasingly hard to find in either of those towns. The only three offers that will be available in Boulogne for this category of office asset before the end of 2016

3-5 Friedland – Paris 8th

27


are the 33,000 m² of In & Out, the 15,800 m² of Kinetik (the first project completed with Ardeko for the second phase of Trapèze), and the 10,800 m² of Cristallin. The lack of supply may seem even more pronounced in Issy, where new and redeveloped stock now accounts for only 10% of the town’s total inventory. However, supply greater than 10,000 m² will be assured in the short and medium term by a few redevelopment projects (Lemnys) and by releases of large complexes (Sequana, former Coca-Cola headquarters). In addition to available supply in Boulogne in the Trapèze sector and on Ile Seguin, there are several potential development projects in Issy (e.g., office towers overlooking the Seine). By attracting large companies within the sector, such deals could provoke releases and further widen the gap with energy-inefficient secondhand assets.

Are market conditions favorable to alternatives?

The competitive pressure from established markets towards alternative markets is expected to remain intense, at least in the short term. For example, several refurbished or secondhand assets in La Défense (Between, Pacific, etc.) could be made available to occupiers of nearby less established business sectors. Such tertiary poles would provide lower costs as well as a more prestigious address. On the other hand, incentives granted by landlords, the quality of supply, and improved local conditions of certain towns could allow some WBD buildings (Green Office Spring in Nanterre) and Boucle de Seine supply close to La Défense (West Plaza in Colombes, Défense Autrement in La Garenne Colombes) to outperform after a lackluster 2014.

Other emerging districts could become more attractive. Some towns of the southern Hauts-de-Seine department enjoy a positive image, significant new and inexpensive supply, and easy access thanks to the extension of the Métro line 4 and tramway line 6. The markets in Montrouge (Fairway, White) and Chatillon (Area Prima) are emerging as potential cost-efficient options for occupiers of more established, undersupplied tertiary sectors nearby, such as Paris’s southern districts and Issy-les-Moulineaux. A few sectors in southern Ile-de-France, farther out but less expensive, should also eventually profit from better accessibility. Bagneux, which saw a couple of large transactions in 2014 (Neopost in Résonance, Sonovision in Aristide), is an example of significant development potential closely tied to the completion of major development projects (ZAC Victor Hugo) and to the extension of the Métro line 4. Improved public transportation is a significant selling point. Although far from confirmed, the extension of the Métro line 10 to Ivry-sur-Seine is under study and could encourage long-term development of business sectors on the site of the former BHV warehouses.

Other sectors to the north and east could provide in the shorter term a natural alternative for occupiers aiming to cut costs and benefit from proximity to a Métro station. Such is the case for high-quality supply in northern Hauts-de-Seine (Pointe Métro 2 in Gennevilliers) and for certain towns in Seine-Saint-Denis. Bobigny (Ecocité), for example, benefits from the scarcity of high-quality supply in Saint-Denis, where only one new building (Coruscant) will be available by the end of 2015. These towns could also profit from the decline in opportunities in Saint-Ouen, where the future supply of new and redeveloped assets of more than 10,000 m² by 2016 is mainly in the form of a 13,600 m² development project at the former CRIT headquarters just outside Paris. Finally, the eastern suburbs comprise the alternative market with the least supply in Ile-de-France. With the launch of Altaïs Evolution in Montreuil still pending, this sector can offer only one building of more than 20,000 m² (Tour 9 in Montreuil) over the next two or three years.

OUTLOOK

Given modest economic growth and the numerous possibilities available to companies for streamlining their office space, several trends observed in 2014 are expected to continue in the months ahead. The year 2015 could be one of transition before more significant recovery in 2016. Until then, the increasing scarcity of new and redeveloped stock should whet corporate appetites for large, high-quality refurbished spaces and could even, in sectors with the least supply, begin rebalancing the inequalities between landlords and occupiers.

JANUARY 2015

Tour D2 – La Défense (92)

28


OFFICES

29

THE ILE-DE-FRANCE OFFICE SUBMARKETS

A6

A10

Boulevard Périphérique

I

II

III

IV

VVI

VII

VIII

IX X

XI

XII

XIIIXIV

XV

XVI

XVIIXVIII

XIX

XX

Arcueil

Gentilly Le Kremlin

Bicêtre

Cachan

Ivry-sur-Seine

Villejuif

Charenton-le-Pont

Vincennes

Fontenay-sous-Bois

Nogent-sur-Marne

St-Mandé

Champigny-sur-Marne

St-Denis

St-Ouen

Tremblay-

en France

VillepinteAulnay-sous-Bois

Le Blanc-Mesnil

Le Bourget

Drancy

Rosny-sous-Bois

Neuilly-Plaisance

Neuilly-sur-MarneMontreuil

Bagnolet

La Courneuve

Aubervilliers

Pantin

Les Lilas

Le Pré- St-Gervais

Noisy-le-Grand

Villeneuve-la-Garenne

Colombes

La Garenne-Colombes

Bois-Colombes Asnières-

sur- Seine

Courbevoie

Rueil-Malmaison

Suresnes

Puteaux

Clichy

ParisLevallois-

PerretNeuilly-

sur-Seine

Saint-Cloud

Boulogne-

Billancourt

Issy-lesMoulineaux

Sèvres

MeudonChâtillon

Vanves

Malako� Montrouge

Bagneux

Roissy-en-France

Bobigny

Nanterre

La Seine

LaDéfense

Gonesse

Bezons

Southwestern Suburbs

Southern Suburbs

Western Business District (WBD)

Eastern Suburbs

Boucle de Seine

Northern Suburbs

Paris CBD

Paris Rive Gauche

Paris Centre Est

La Défense

SUBMARKET TAKE-UP (M2) PRIME RENT(€/M2/YEAR) VACANCY RATE (%)

2014 2013 2014 2013 2014 2013PARIS CDB 398,636 404,813 746 753 7.9 7.7PARIS CENTRE EST 121,476 107,321 426 429 6.5 5.3

PARIS RIVE GAUCHE 156,414 97,427 667 680 5.7 5.3LA DÉFENSE 231,933 96,509 511 498 12 14.1WBD 336,830 265,934 478 488 12.2 13.4BOUCLE DE SEINE 36,717 58,929 290 292 14.1 17.1SOUTHWESTERN SUBURBS 160,312 170,566 450 463 11 10.3EASTERN SUBURBS 34,637 46,956 240 257 7.7 7.4NORTHERN SUBURBS 160,643 119,297 305 310 7.2 7.6SOUTHERN SUBURBS 76,292 131,310 287 310 10.1 9.4OTHERS SUBMARKETS 296,113 244,040 234 248 5.1 6.0

TOTAL ILE-DE-FRANCE 2,010,003 1,743,102 750 753 7.8 8.2

ILE-DE-FRANCE OFFICE-MARKET INDICATORS

Gennevilliers

”

In 2014 in France, 2.24 million m² of warehouse space was leased or sold to occupiers, a slight increase (+3%) year on year. As in 2013, this volume was boosted by in-house logisticians of large distribution retailers aiming to streamline and modernize their supply-chain by means of large-scale turnkey operations. Several such operations fueled the Paris and Lyon markets, which revived considerably after a lackluster 2013. These two markets compensated for the uneven performances of most other logistics centers in France.

LOGISTICSFRENCH PROPERTY MARKET


JANUARY 2015

OCCUPIER DEMAND

Occupier strategies

Take-up in France rose slightly (+3% year on year) in 2014, totaling 2,240,000 m². This 9% improvement over the ten-year average was the best performance since the beginning of the economic crisis, except for that in 2011. Higher take-up volume also brought a 10% rise in the total number of transactions. The largest transactions played an especially important role. Ten transactions totaling nearly 530,000 m² (and each larger than 40,000 m²) accounted for just under a quarter of total take-up, confirming that consolidation remains a priority for occupiers. By replacing several buildings with a smaller number of large platforms, occupiers are able to lower their total warehouse footprint.

The strategy of lowering property costs is not the only factor that explains the trend in the French warehouse market towards larger spaces. When located near major highways, large port facilities, or at the center of catchment areas, such large platforms allow occupiers to optimize their transport costs while reducing the number of trucks on the roads and improving their load rate. More generally these platforms provide significant economies of scale that are not limited to real estate (maintenance costs, salaries, etc.). As seen in 2014 in the development of several turnkey schemes and expansion projects of existing warehouses (Amazon in Lauwin-Planque, Carrefour in Saint-Vulbas, etc.), the larger size of buildings is due mainly to the rapid growth of e-commerce and to improved supply-chain efficiency of in-house logisticians in the retail-distribution sector, resulting in the need for more employees, sophisticated order-processing facilities, larger parking lots, and sufficient maneuvering area for trucks. Occupiers’ desire for modern buildings is also attributable to their need to adapt to changes in regulatory requirements (safety, working conditions, and product traceability), to requirements concerning delivery time, and to the search for greater productivity.

*Transactions > 5,000 m² including turnkey and owner-occupied premises but excluding lease renewals.

450,000 m²

TAKE-UP IN FRANCE (M²)

150

000

0

200

000

0

220

000

0

260

000

0

260

000

0

160

000

0

176

000

0

240

000

0

180

000

0

217

000

0

224

000

0

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

0

500000

1000000

1500000

2000000

2500000

3000000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Take-up in France (m²) Share of Ile-de-France (%)

Volume let by in-house logisticians

of large food retailers in 2014 in France, compared with 500,00 m2 in

2013.

32


LOGISTICS

Occupier profiles

The retail-distribution sector is at the cutting edge of logistics technology and sophistication. Accounting for 45% of total take-up in France in 2014, the sector’s in-house logisticians were behind most turnkey schemes and almost all deals larger than 40,000 m². As in 2013, large distribution retailers were very active in 2014: Socara, E. Leclerc group’s global procurement operation, developed a platform of 106,000 m² in Villette d’Anthon, near Lyon; Lidl built a new warehouse of 40,000 m² in Rousset, near Marseille; and Carrefour announced numerous new leases and development projects as part of its Caravelle logistics-restructuring program. In addition, Carrefour is expected to increase take-up in 2015. Several sites have already been selected in various parts of France (Nîmes, Bourges, etc.). These trends reveal the extent of the streamlining strategies implemented in an environment of slower consumer spending and a price war among retailers. Although designed to better manage the regrouping of fresh, dry, and frozen products, as well as the proliferation of sales channels that have emerged from e-commerce and the rapid growth of click-and-collect grocery pickup, the projects developed for large food retailers also devote significant resources to information systems, automated features, and mechanized processes.

Concerned about lowering real estate costs, managing growth of online sales, and encouraging store-network development, other categories of retailers launched major operations (La Foir’fouille in Dourges, C&A near Meaux, Toys “R” Us in Saint-Fargeau-Ponthierry, Orchestra in Lauwin-Planque, etc.).

Although industrial in-house logisticians experienced a decline in business in 2014 (15% of total take-up in France, compared with 18% the previous year), logistics service providers enjoyed significant business growth and accounted for 40% of total take-up in 2014, compared with 30% in 2013 and 34% in 2012. The

operations of logistics service providers comprised not only large development projects carried out on behalf of general service providers (FM Logistic in Entraigues-sur-la-Sorgue), but also numerous new leases of cross-dock facilities (UPS in Savigny-le-Temple, Geodis near Nancy, etc.). The growth of online sales boosted e-commerce logistics, as seen in operations carried out by some of the sector’s major players: Alpha Direct Services in Evreux, Rhenus Logistics near Chalon-sur-Saône, and Kiala in Savigny-le-Temple. Logistics providers were nonetheless hurt by the economy and saw trading volume decline. The precariousness of their service contracts is reflected in the increasingly frequent use of short-term leases intended to lower the risk of letting buildings that logistics providers may not be able to occupy in the long term.

REGION CITY TENANT AREA (M²)Rhône-Alpes Villette d’Anthon (38) Socara (Leclerc) 106,000Ile-de-France Serris (77) Auchan 52,000Ile-de-France Saint-Fargeau-Ponthierry (77) Toys “R” Us 48,000Champagne Troyes (10) Petit Bateau 44,000Nord-Pas-de-Calais Wattrelos (59) La Redoute 42,000PACA Rousset (13) Lidl 40,000Nord-Pas-de-Calais Lauwin-Planque (59) Orchestra 40,000Ile-de-France Moussy-le-Neuf (77) Carrefour 36,800Ile-de-France Villenoy (77) C&A 32,000PACA Fos-sur-Mer (13) Tempo One 24,000Bourgogne Sevrey (71) Rhenus Logistics 22,500

KEY LEASE TRANSACTIONS IN 2014

450,000 m²

TAKE-UP ACCORDING TO OCCUPIER PROFILE

Logistics service providers

40%

In-house logisticians (retail distribution)

45%

In-house logisticians (manufacturing)

15%

33

Take-up according to geographical sector

The four principal markets along France’s north-south axis (Lille, Paris, Lyon, and Marseille) accounted for 68% of volume of warehouse space let or sold to occupiers in 2014 in France, compared with 58% in 2013. This rise conceals significant differences between geographical sectors. In contrast with the decline in the Lille and Marseille markets, Paris and Lyon enjoyed a strong rise in business activity. These two markets accounted for 50% of all warehouse space let or sold in France in 2014, compared to just 28% in 2013.

Nearly 700,000 m² was let in the Paris conurbation in 2014, a staggering 59% more than in 2013, which was the weakest year of the decade yet. Volume let was further inflated by the completion of large turnkey projects, such as Auchan in Serris, C&A near Meaux, and Toys “R” Us in Saint-Fargeau-Ponthierry. First launched in 2013, these projects account for 38% of all warehouse space let or sold in the Paris region, if smaller, early-stage projects (Relay France and DHL in Roissy, Dachser in Wissous, etc.) are also taken into account. Illustrating the advantages of conveniently located buildings with operating permits, leases of large existing buildings also enlivened the market and allowed the absorption of new space that had never been occupied (Carrefour in Moussy-le-Neuf) as well as of secondhand assets placed on the market (ID Logistics in Saint-Witz). The geographic distribution of take-up confirmed the dominant position of major logistics centers in the Paris region. After a glum 2013, the northern suburbs were awarded the largest share (48%) as a result of numerous transactions at and near CDG airport (Marly-la-Ville, Moussy-le-Neuf, and Saint-Witz). Southern Ile-de-France accounted for 30% of take-up in 2014. With nearly 50,000 m² in Saint-Fargeau-Ponthierry, Toys “R” Us took the lion’s share, but several medium-sized warehouse spaces were also let by logistics providers. In the eastern suburbs, Marne-la-Vallée continued to attract more and more interest. Conveniently located

and with abundant land opportunities, this region was chosen by Auchan for its 52,000 m² platform designed to service more than 40 hypermarkets and drives. Like the Toys “R” Us project, Auchan’s development project illustrates the trend of in-house logisticians to set up operations further afield, well away from conurbations.

With 420,000 m² let or sold to occupiers in 2014, take-up in the Rhône-Alpes region doubled in 2014 year on year and was 21% higher than the ten-year average. This excellent performance is attributable mainly to the development of a platform of more than 100,000 m² for Socara in Villette d’Anthon. The project, the largest in 2014, represented one quarter of all warehouse space let or sold in the Lyon region in 2014. While not record breaking, the total number of transactions was greater than in the previous year. Most transactions were for existing buildings in the Rocade Est sector.

Because of a scarcity of available high-quality supply, markets in Lille (220,000 m² let, an annual decline of 13%) and Marseille (190,000 m² let, an annual decline of 46%) were quiet in 2014, with relatively few transactions. However, take-up was boosted at the end of the year by a few operations larger than 40,000 m². These transactions served to confirm the vital importance of in-house logisticians of the retail-distribution sector in both regions (La Redoute with 42,000 m² in Wattrelos, Orchestra with 40,000 m² in Lauwin-Planque, and LIDL with 40,000 m² in Rousset, near Marseille). Although the slowdown in business was especially pronounced in Marseille, statistics for 2013 were skewed by a platform of more than 100,000 m² developed for Maisons du Monde in Saint-Martin-de-Crau.

At just over 700,000 m² in 2014, compared with 950,000 m² in 2013, take-up outside the four principal markets on the north-south axis fell by 26% year on year. These poor results can be explained mainly by the sharp decline in turnkey projects for in-house logisticians (such projects had boosted business in 2013). A few large deals were nonetheless finalized, including a new 50,000 m² platform developed for Carrefour in Bourges and a new 44,000 m² site launched for Petit Bateau in the Aube Logistics Park in Troyes. Generally more attractive in terms of taxes, development costs, and available land, secondary markets continued to benefit from in-house logisticians’ one-off consolidation and expansion projects. Volume let to logistics providers was stable year on year and continued to sustain traditional crossroads such as the Centre region. Because of the wide variety of demand, this market turned in an excellent performance in 2014. More than 110,000 m² were let in 2014 as a result of the development of a few turnkey projects for in-house logisticians (Carrefour in Bourges) and several new leases by service providers (Girard Agediss in Mer, DHL in Meung-sur-Loire, etc.). Brittany also distinguished itself through projects carried out by various large distribution retailers (Carrefour and Intermarché near Rennes, Scarmor/Leclerc near Saint-Brieuc).


JANUARY 2015

TAKE-UP ACCORDING TO GEOGRAPHICAL SECTOR IN 2014

Ile-de-France31%

Rhône-Alpes19%Nord-Pas-de-Calais

9%

PACA9%

Bretagne5%

Centre5%

Normandie4%

Bourgogne3%

Other15%

34


LOGISTICS

RENTAL VALUES

Rental values in 2014 were stable overall, with prime rent slightly more than €50/m²/year in Ile-de-France. However, the overriding need of tenants to lower property costs continued to dictate negotiation (or renegotiation) terms with landlords, even though incentives (mainly rent-free periods) stabilized.

The current context gives a premium to assets that are well adapted to occupiers’ streamlining and enhancement strategies and that meet increasingly strict regulatory standards. However, rental values remain extremely diverse and can vary widely even within the same market, depending on a building’s location and intrinsic quality, and on the type of transaction (e.g., product available on the open market, turnkey). The decline in quality of existing supply and the shortage of land in several well-known areas also explain the upward price pressure in certain micromarkets with little available space. In addition, and in line with observations over the past few years, the price of land continues to rise, slowing the development of large platforms near major conurbations in the short and medium term.

AVAILABLE AND FUTURE SUPPLY

The slight rise in take-up did not correspond to a decline in available supply in 2014. Totaling just over 3 million m² in France, of which nearly half is in Ile-de-France, availably supply was stable last year. Leases of existing buildings, fairly numerous in Paris and Lyon, helped to absorb some of the supply, but releases continued to compensate for declines in stock. Several occupiers opted for fewer sites in favor of bigger platforms, both new and recent. Consequently the quality of available supply continued to deteriorate. The almost complete absence of speculative schemes revealed not only investor timidity but also a trend towards development of custom-designed buildings that are adapted to the increasingly specific and sophisticated needs of occupiers.

The scarcity of land opportunities, illustrated by difficulties in developing new projects in certain areas along the north-south axis, is an encumbrance to future supply. This is especially the case in dense urban areas, where occupiers’ need for more volume requires larger sites that are rare in the inner suburbs. In addition, other segments (housing, offices, etc.) competing for the same space are more attractive to neighbors and municipalities. The trend towards relocating logistics to more distant sectors, often far from the centers of large cities, is expected to continue, particularly in the form of large multimodal parks such as the Parc des Bréguières in Arcs-sur-Argens in the Var region or the recently announced 600,000 m² e-commerce logistics park on the former military base (BA 103) in Cambrai. Such parks meet occupier needs by providing vast land opportunities, pooled expenses and services, and the latest safety and sustainable-development standards.

While the conversion of former industrial sites or obsolete buildings can provide real-estate opportunities, redevelopment remains largely determined by location. Certain sites that enjoy existing infrastructure are ideally placed to service large catchment areas. They may also justify significant investment for decontamination, refurbishment work, and integration of new environmental standards and regulations. However, the future is more uncertain for obsolete buildings or sites whose location is less than ideal. This is all the more true because higher taxes (fees for business creation, TSB,1 etc.) weigh increasingly on the development of new real-estate projects, especially in Ile-de-France. In addition to problems related to available land and slow administrative procedures, fiscal uncertainties continue to compromise the sustainability of the logistics sector in Ile-de-France. In the longer term, it is the markets located just outside the Paris region (Oise, Loiret, etc.) that will benefit the most from these conditions.

1 Office tax (TSB): annual tax on facilities used for offices, retail, storage, and parking.

PRIME RENTS FOR LARGE WAREHOUSES (€/M²/YEAR)

35


OUTLOOK FOR THE FRENCH MARKET

In 2015, the logistics-warehouses market will remain challenging. The economy may have improved slightly, but the scarcity of available high-quality supply, the shortage and prices of land in some key sectors, and strong fiscal pressure will combine to slow take-up. Activity will remain steady mainly where occupiers are carrying out streamlining and improvement projects, such as those of in-house logisticians in the retail-distribution sector. Such development projects for large, modern distribution platforms are expected to provide relative stability for the letting of warehouse space.

JANUARY 2015

36

Revolutionary new ways of shopping and the rapid growth of international newcomers have prompted many retailers to adjust their positioning and to continue expanding under various forms. Household consumption remains persistently weak, while retailers’ development projects for new and refurbished stores involve significant cost cutting. By choosing sites and locations that provide optimal visibility, high visitor numbers, and the best value for money, most retailers have increased their relocations while readily closing the least profitable stores. Now under way for several years, the polarization of the retail property market continued to widen in 2014, further deteriorating negotiation conditions between landlords and retailers. Other factors also came into play, such as the uncertainty surrounding the content and adoption of the ACTPE bill governing artisans, retailers, and very small enterprises.

RETAILFRENCH PROPERTY MARKET


JANUARY 2015

ECONOMIC AND LEGAL ENVIRONMENTStagnation in household consumption

After a record decline in 2012, household consumption rose slightly in 2013 (+0.2%, compared with −0.5% the previous year). Stimulated by price cuts but curbed by weak recovery in purchasing power and by further softness in the job market, household consumption marked time in 2014 (+0.1 to +0.3%, according to estimates). In 2015, however, household consumption could rise by more than 1%, outperforming every year since 2011 but significantly underperforming precrisis figures (annual average growth of 2.1% during the period 2000−2007). Even though the number of households “that believe the time is right for major purchases” rose considerably in November, reaching levels not seen since June 2012, it is unlikely that the French will dip very deeply into their savings and abandon their self-discipline of recent years. This rigor is expected to hold at the same time that consumption in the “sharing economy” (bartering, used goods, etc.) enters the mainstream.

A weakened retail sector

The large number of jobs destroyed in the retail sector shows just how deep the economic crisis runs. Over the past 12 months, retail was the hardest-hit sector after construction. Although the smallest companies suffered most, larger companies were not spared either: Mobilier Européen group (Fly, Atlas, and Crozatier), France’s fourth-largest furniture and home-furnishings company, is a good example. Furniture sales have continued to fall in recent months, partly because of the lackluster residential market. At the end of October 2014, furniture sales were down 1.4% year on year.1 After Virgin Megastore, Game, and The Phone House in 2013, groups from sectors other than home furnishings either disappeared from the French retail scene (Chapitre bookshops), went into receivership (Bata, Soleil Sucré), or implemented large-scale restructuring measures (Zannier, Esprit). Clothing retailers have been particularly % en volume

“We believe that pure players are finished, and we are no longer afraid of Amazon.”

François Poupard, manager of the Auchan hypermarket in Faches-Thumesnil and head of innovation at Auchan.Quoted from an article published on lsa-conso.fr, October 24, 2014.

INFLATION AND HOUSEHOLD CONSUMPTION (%)

0,6 0,7

0,2

1,1

-1

-0,5

0

0,5

1

1,5

2

2,5

3

2007 2008 2009 2010 2011 2012 2013 2014e 2015e

Inflation (%) Household consumption (%)

Source: INSEE/European Commission

1Source: IPEA (Institut de prospective et d’études de l’ameublement, or Research Center for the Home Furnishings Industry).

40

% en volume

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hard hit, with sales expected to fall by approximately 1% in 2014. Numerous retailers have felt consumer belt-tightening, in addition to intense competition from energetic new international retailers (Primark) and the continuing expansion of more established players such as Uniqlo, Zara, and H&M.

The different faces of “connected” retail

Products related to the information economy (e.g., tablets, smartphones), on the other hand, have been among the big winners in rapidly changing consumer tastes. After a 4.2% increase in 2013, sales of electronic products were expected to rise again in 2014. According to Credoc, 29% of French people owned a tablet in 2014, compared with 17% in 2013, and smartphone ownership rose to 49% (+7 points year on year). This change boosted the already rapid growth of online shopping, which grew 11% in 2014 after topping 50 billion in 2013.2 Although still an impressive pace, the growth rate is in fact continually slowing. In its most recent report,3 Arcep looks at the European trend for e-commerce to stagnate after rising spectacularly during the period 2004−2013.

The penetration rate of new technologies in the retail sector is measured not only by growth of online sales. While the sale of innovative objects and associated products is largely carried out online, consumer demand has also created new retailers offering a more or less complete retail network (The Kase, Lick, C4U) and forced established retailers like FNAC to expand their offer. New technologies are now used by nearly all retailers and have become part of the typical consumer shopping experience. “Connected” shopping centers, such as Qwartz, opened in Villeneuve-la-Garenne in 2014, are emblematic of these new digital concepts developed in various retail sectors (Gemo in Waves Actisud near Metz and Auchan in Faches-Thumesnil).

Retail regulatory framework: future unclear

In addition to speeding the transformation of the retail landscape in France, the use of new technologies is also the reason behind the increasing number of “drives” (drive-through grocery-pickup points). There are now nearly 3,500 drives, compared with 2,600 at the end of 2013 and fewer than 2,000 two years ago. The rapid spread of this format, which is no longer restricted to the food sector (both JouéClub and Castorama offer drives), has forced authorities to better regulate their growth. The ALUR law (governing access to housing and urban renewal), published in the French official bulletin on March 26, 2014, defines new drives—previously considered simple warehouses—as being no different from other commercial operations. The law contains other important provisions, such as the obligation of owners of unused commercial sites to restore them if they are not reopened within three years. Another provision limits the use of areas intended for a retailer’s parking lot.

However, the biggest change in recent months was undoubtedly the enactment of the ACTPE bill governing artisans, retailers, and very small enterprises. Published in the official bulletin on June 19, 2014, the law governs the end of floating sales and extends the length of traditional sales periods from five weeks to six, thereby breaking with a practice much criticized since its creation within the framework of the 2008 law on the modernization of the economy (LME). This decision should shed light on retailers’ pricing policies and rebuild consumer confidence. In a recent IFM (French Fashion Institute) survey, 72% of those surveyed agreed that “prices no longer mean anything.”4 The end of floating sales, however, is only one aspect of the ACTPE law, whose key provisions concern commercial leases. More specifically, these provisions govern restrictions on long-term leases, the extension of the short-term-lease option (from two years to three), rent control, and clearer divisions of maintenance charges shared by landlord and occupier. While certain of these measures should improve relations between the two parties, others, such as the 10% ceiling on rent hikes, may have the opposite effect. Other causes for concern are the combination of the building permit with the retail-operating permit, and the CNAC’s (Commissions Nationales d’Aménagement Commercial, or National Retail Development Commission) power to act on its own initiative in the assessment of development projects of more than 30,000 m².

Laws adopted or under discussion often receive mixed reactions further muddled by the political majority’s prevarication with regard to retail openings on Sundays and evenings. Extended opening hours, viewed in some cities as a driving force for tourism, seem to have political support. For example, Laurent Fabius, who during the French government’s most recent cabinet reshuffle was assigned the task of developing international tourism in France, has voiced his support for longer store hours on Sundays in Paris’s most touristic neighborhoods. More significant, the Macron bill, designed to liberalize the economy and boost growth, allows for 12 Sunday openings per year instead of the current five. The bill would also create international tourist zones where Sunday trade would be allowed year-round. Nevertheless, reactions to such proposals are still far from unanimous. In a press release dated December 10, 2014, the mayor of Paris stated: “I shall oppose any top-down unilateral decision that imposes the creation of international tourism zones by ministerial decree and that does not respect local democracy. Such decisions have always been left to mayors. The removal of this power constitutes a decision that goes against decades of decentralization.”

2Source: Fevad.3Source: Arcep, La diffusion des technologies de l’information et de la communication dans la société française (The Growth of Information and Communication Technologies in France), December 2014.


4Data reported during the French Fashion Institute’s (IFM) International Fashion Outlook Day, December 4, 2014. 41


THE PROPERTY STRATEGIES OF RETAILERSRecent trends in the French retail market reveal five key and often complementary features of retailer demand. These features illustrate the synergies used to adapt the retail model to new ways of shopping.

Retaking control of distribution

Retailers prefer to open single-brand shops, which allow tighter product control. Although this strategy encourages efficient inventory management and ultimately improves the productivity of individual sales points, brands also use it to ensure direct contact with their customers and for better communication. This trend is particularly visible in the luxury sector. For example, in 2013, Prada’s 330 single-brand stores worldwide accounted for 84% of the brand’s total sales, compared with 51% in 2006. In France, the rapid growth of single-brand shops continued in recent months, as seen in new openings in the luxury segment (in September Moët-Hennessy opened its first directly operated shop in terminal 2E of Charles de Gaulle airport) and in projects carried out by other brands in various sectors and levels of quality (The North Face, Le Creuset, Samsonite, Bourjois, etc.).

Flagships to promote brand universes

The opening of flagships is another key element in retailers’ strategies. Usually located on the most desirable thoroughfares of major cities, these store formats provide retailers with greater visibility. The use of carefully designed art and architecture gives sales points a strong identity intended to promote a brand’s universe, over and above basic consumer transactions. Flagships are recognizable by their large scale, which boosts the profitability of each sales point and provides the setting for a wider range of products. This trend is not limited to major high streets. In 2014, the largest fashion retailers opened megastores in France’s best-known shopping centers (Uniqlo in Belle Épine).

Slow and carefully considered expansion

Faced with a slowdown in sales, the rapid rise of retail websites, and a sluggish economy, many retailers have chosen to rein in their growth ambitions. This change does not contradict the trend towards ever larger and more spectacular stores. On the contrary, such stores will remain the market’s defining trend. More selective in their location strategy, retailers are willing to downsize their network in exchange for better locations, an approach employed especially in the service sector. Orange, for example, is focusing its efforts on a smaller number of outlets. Well located and designed to convey the retailer’s new concept, these outlets give Orange a larger footprint among its customers, in addition to its usual online services.

A multichannel strategy

Although the flagship store may have become an indispensable showcase for retailers, other formats, generally smaller and aimed at a specific clientele (i.e., corners in department stores, factory outlets, and shops in train stations and airports), allow retailers to build up

JANUARY 2015

“Growth will come from higher sales per square meter, thanks to larger shops and

a better shopping experience.”

Marco Bizzarri, CEO of Bottega Veneta.Reuters interview on March 18, 2014.

42


their networks. While this holistic approach is designed to meet the demands of increasingly segmented consumers, it also reveals the growing synergies between brick-and-mortar retail and online commerce. FNAC and Darty are excellent examples of just such a strategy. Long present in the largest cities, these two retailers are now opening numerous stores in smaller towns, where they can be closer to their online customers. The use of smaller sales points, usually developed as franchises, limits risk.

Exploring new territory

New ways of shopping, the rapid development of online sales, and competition from large international retailers have encouraged established retailers to adapt their model in order to consolidate their position and, in some cases, expand their clientele. In addition to Darty and FNAC, several retailers have repositioned their strategy, even going into new areas previously unexplored. While La Halle continued to move upmarket, other retailers long established on the outskirts decided to test concepts in the city center (Gemo with Follow Me, rue Crébillon in Nantes) or ramped up their development in shopping centers (Kiabi Kids in Qwartz and O’Parinor). By contrast, a few city-center retailers went the other direction, expanding into shopping centers (e.g., SMCP Group, which opened retail outlets in 2014 in Les Terrasses du Port in Marseille).

RETAILER DEMAND

Trends in high-street demandIn 2014, demand for chief shopping thoroughfares in Paris and other large French cities remained strong. Desigual, Kiko, and Calzedonia were among the numerous retailers that continued to expand. H&M added several megastores (avenue de Verdun in Nice, boulevard Saint-Germain in Paris, rue du Noyer in Strasbourg) to its French network. Other openings in Paris included several upscale brands of the Swedish group—Cheap Monday in Le Marais, & Other Stories on rue Montmartre, and COS on rue Tronchet in Paris. The accessible-luxury segment also distinguished itself. Because this market segment is reaching maturity, its largest French proponents have been forced abroad in search of fresh growth fields. However, other retailers have enhanced their networks opportunistically by consolidating their positions in Paris (Claudie Pierlot on avenue des Ternes and rue de Charonne) or by expanding in other French cities (The Kooples in Marseille on rue Paradis).

Other retail segments have boosted demand, such as the Paris openings of fast-food chains Burger King and Costa Coffee, as well as the recent Marks & Spencer blitz of small-format food shops (M&S Food). A few high-end food retailers and restaurants (Café Pouchkine, Palais des Thés, etc.) enlivened markets in Paris and other French cities, at the same time that Lafayette Gourmet reopened on boulevard Haussmann ahead of the much-anticipated Eataly. Nevertheless it is the fashion industry that drives the yearly arrival of new brands. In 2014 numerous Italian retailers (Gianfranco

Lotti, Ottod’Ame, Maliparmi, Golden Goose, Twin-Set, etc.) reaffirmed the attractiveness of the French market to newcomers. However, their demand is usually confined to Paris and its trendiest neighborhoods (Le Marais, Saint-Germain-des-Prés), where the Dutch cosmetics retailer Rituals also chose to open its first shops in France.

Le Marais and Saint-Germain-des-Prés, stars of 2014

Although the number of foreign tourists in 2014 was slightly less than in 2013,5 international tourism remains one of the main drivers of the Paris market. Saint-Germain-des-Prés and Le Marais are the prime beneficiaries of this momentum. Although long visited by wealthy locals and western tourists, these two neighborhoods are increasingly on the itinerary of visitors from emerging countries. Brazilian and Chinese tourists are, after the Americans and Japanese, among the biggest foreign spenders at the Bon Marché. Saint-Germain-des-Prés’s inexorable move upmarket will only be reinforced by the Bon Marché’s face-lift and the Lutétia’s refurbishment. After Berluti, Shang Xia, and Omega in 2013, the triangle formed by rue de Sèvres, boulevard Saint-Germain, and rue de Grenelle once again saw significant activity. In 2014, Moncler, La Perla, and Salvatore Ferragamo moved into the triangle, and LVMH acquired 165 boulevard Saint-Germain.

Trends in retailer demand and the latest openings and development projects have also reinforced the high-end positioning of Le Marais, a neighborhood with large numbers of tourists and a remarkable architectural heritage. In certain streets, Le Marais offers the additional attraction of Sunday openings. As seen in the repositioning of BHV, the expansion of trendy French retailers (The Kooples, Maje, etc.), and the proliferation of designer stores and showrooms (Margaret Howell and Tom Greyhound are the most recent), Le Marais’s rapid climb upmarket has set the perfect stage for the most exclusive brands. After the opening of a Marc Jacobs pop-up at the end of 2013 and the new Helmut Lang and Sonia Rykiel shops, in 2015 four big luxury names—Gucci, Givenchy, Fendi, and Moncler—will open menswear stores in Le Marais (rue des Archives).

RETAIL

Alberta Ferretti, 43 rue du Faubourg Saint-Honoré – Paris 8th

435Paris Tourist Office. The number of foreign visitors was down 2.7% year on year at the end of October 2014.


JANUARY 2015

Map of openings and development projects in Le Marais in 2014

Luxury Store

Single-brand-store

Newcomer

Other

Although at a lower intensity, other neighborhoods on the right bank more or less near Le Marais—rue de Charonne and boulevard Beaumarchais—continue to attract designers and upscale fashion retailers. The Champs-Élysées, meanwhile, remained relatively quiet in 2014. The even-numbered side, traditionally the more expensive of the two, did see a few major openings, but most of these had been launched long before (Tiffany & Co at no. 62). This maintenance of the status quo in no way suggests a loss of appetite of retailers, whose demand remains strong but which are confronted with a very limited number of opportunities. Future projects will largely comprise refurbishment of existing sales points (e.g., work currently under way at the Cartier flagship store). A few openings will also confirm, in the relatively short term, the move upscale of the Champs-Élysées, whether on the odd-numbered side, where at no. 77 Longchamp recently opened its largest European store, or on the even-numbered side, where at no. 52−60 the former Virgin Megastore will be replaced by Galeries Lafayette.

Few significant openings outside Paris and Ile-de-France

The small number of transactions recorded in the rest of France in 2014 is not so much a sign of flagging interest in major cities as it is an indication of the scarcity of leasing opportunities in their most desirable thoroughfares. Such prime locations are very much in demand by retailers, especially recent newcomers that are ramping up their expansion in France (Desigual on rue des Grandes Arcades in Strasbourg). A few fashion giants in the mass-market segment have kept their ambitions (e.g., the opening of the Uniqlo flagship in Strasbourg on rue du Noyer, and the H&M in Nice on avenue de Verdun). Some cities have been especially active. After welcoming several major operations in 2013 (Desigual, Primark, Hema, Kiko, etc.), Bordeaux and Toulouse continue to attract retailer interest (Size? in Bordeaux and Toulouse, and Nespresso, de Fursac, and The Kooples in Toulouse). Investors are also taking notice. Syntrus Achmea acquired a portfolio of ground-floor stores for €130 million.6


RETAIL

In 2014, 32 luxury shops were either opened or reopened in Paris, compared with around 50 in 2013. While the number of foreign tourists in Paris remains high, the international environment is less favorable than a few months ago. Newcomers and retailers will no doubt trim their network of stores instead of developing full steam ahead. Unsurprisingly, projects under way in the historic center of the Paris luxury market involve mainly relocations, refurbishments, and product repositioning. In the neighborhood around Place Vendôme and rue de la Paix, some of Richemont Group’s brands are playing a lively game of musical chairs. IWC has moved to 3 rue de la Paix, formerly the site of Van Cleef & Arpels, while the latter brand has expanded its footprint in Place Vendôme by taking over space released by Mauboussin. The rhythm of new creations should nonetheless remain vigorous, especially on rue Saint-Honoré. Since the opening of the Mandarin Oriental, this street has remained one of Paris’s most exclusive addresses. Numerous arrivals in 2014 (Lyubov, Exemplaire, Gianfranco Lotti, etc.) will be followed by significant openings in 2015 (Alexander McQueen, Tory Burch, Missoni). However, because of the rise in rental values and the scarcity of available facilities in the most desirable areas, retailers will be forced to search in districts that today are not as exclusive (i.e., beyond the Colette showroom and in a few adjacent streets such as rue Cambon and rue Castiglione).

A long-term slowdown in the Paris luxury market?

45

Longchamp, 77 avenue des Champs-Élysées – Paris 8th

6The Verano portfolio sold by Grosvenor also contained a few Parisian assets.


Trends in demand for shopping centers

Openings by fast-fashion giants (Zara in Créteil Soleil, Mango and Desigual in Saint-Lazare Paris, etc.) have been on the rise in recent months, proof of just how resilient the shopping-center model can be. The success of shopping centers was aided by increasingly diversified demand, as seen in new concepts implemented by several French retailers in search of image-enhancing ideas for the domestic market (Tati at Millénaire in Aubervilliers, Côté Seine in Argenteuil, and La Halle at La Toison d’Or in Dijon) and by retailers seeking to expand their clientele (Kiabi Kids at O’Parinor). The greater diversity of retailers in shopping centers also reflects an unquestionably upmarket trend. Already visible in 2013, this trend gathered speed in 2014 with the arrival in shopping centers of retailers and branded shops previously found only in high streets (Sonia By and Bourjois at Parly 2, Mauboussin at 4 Temps). New, high-quality facilities, better adapted to consumer needs (Les Terrasse du Port in Marseille, Polygone Riviera near Nice), appeared at the same time.

The shopping-center market also benefited from demand of international newcomers. Although newcomers were relatively few in 2014, several recent retailers continued to grow (e.g., Pandora and Kiko). The most striking example, however, was undoubtedly Primark, whose remarkable success was further strengthened by new openings (Qwartz, O’Parinor, La Toison d’Or). Other names also generated buzz. One year after its return to France, Burger King went nationwide. In 2014, the American fast-food giant opened several outlets in Ile-de-France (Créteil Soleil, Rosny 2), in other major French cities (La Part-Dieu and Confluence in Lyon, Grand Littoral in Marseille), and in a few smaller towns (L’Escapade in Troyes).

The most upmarket retailers and newcomers accounted for the majority of demand for prime slots in existing regional shopping centers, for the largest new shopping centers, and for expansion of the best-known sites. Jumbos were not the only outperformers, however. Large distribution retailers completed numerous high-quality expansion and property-refurbishment projects (Cora Mundo’ near Strasbourg). In addition, openings were planned by large retailers in several shopping centers in

JANUARY 2015

TRENDS IN SHOPPING-CENTER VISITOR NUMBERS (ANNUAL CHANGE IN %)

-3,00%

-2,00%

-1,00%

0,00%

1,00%

2,00%

3,00%

4,00%

Janu

ary

Febr

uary

Mar

ch

April

May

June July

Augu

st

Sept

embe

r

Oct

ober

Nov

embe

r

Dec

embe

r

Source: CNCC

46

And the future of department stores?“Each [city] has its own department store—a place where you interpret the lifestyle of the region, the locality and attract tourists. . . . You need to take advantage [of your city] and become the store of the city. That’s what department stores should be, all over the world, so when I come to your city center and want to go somewhere for a coffee, spend time, to go see new things and even buy new things, it should be your store.”

Vittorio Radice, chief executive officer, La Rinascente

After upgrading and, in some cases, streamlining their networks, department stores today seem to be at a turning point. The slowdown of global luxury sales and the decline in the number of foreign tourists are adding to the already lackluster performances, despite colossal investments made by department stores to become the showcase of the biggest luxury brands. Nonetheless the outlook for growth remains favorable. Paris’s reputation as the birthplace of haute couture, the prestige of its architectural heritage, and the importance placed by tourists on the quality of the shopping experience would seem to be major advantages for the city’s department stores. The possibility of Sunday and evening store openings in tourist zones, as provided for by the Macron bill, make department stores even more attractive to such tourists and shoppers. These advantages should allow department stores to continue confidently investing in Paris (Galeries Lafayette on the Champs-Élysées, BHV luxury shops on rue des Archives, etc.). Simultaneously numerous deals are in the pipeline for large shopping centers in Ile-de-France (Galeries Lafayette in Carré Sénart) and other parts of France (Galeries Lafayette in Marseille’s Prado shopping center, Printemps in Les Terrasses du Port in Marseille, and Polygone Riviera near Nice).

The Business of Fashion, Reinventing the Department Store, October 8, 2014.


midsized cities, in order to flesh out their network in France (Calzedonia at Jeu de Paume in Beauvais, Kiko at Avaricum in Bourges). For numerous sites, however, competition from the largest existing shopping centers and the most iconic projects creates a very unfavorable environment. Traditional retail anchors are hurt by direct competition from the internet. In addition, choices made by retailers faced with slowing sales, and the decisions of some retailers not to cannibalize earnings from their other stores, explain longer marketing periods and penalize development projects with insufficient catchment areas.

Trends in demand for retail parks

In 2014, the retail-park market continued to enjoy demand from large French retailers long located in peripheral zones. Discount retailers such as Gifi and Centrakor continued to grow and should drive demand once again in 2015, confirmation of their successful response to consumer calls for low prices. After opening more than 30 stores in 2014, Centrakor plans to open another 25 this year. Food outlets were also very active in 2014. Last year one of the fastest growing chains, La Pataterie, crossed the threshold of 200 outlets, developed mainly as franchises.

Demand was also underpinned by new concepts from established players. In addition to Gemo, Chaussea, and Tati, several of Vivarte Group’s brands reaffirmed their new, upmarket positioning (e.g., La Halle and Besson Chaussures, whose new concept was launched in a dozen stores after an initial test in Mondevillage in 2013). These examples illustrate the upscale trend of retail parks, a change that is attracting retailers that were largely or completely absent from peripheral zones. Attracted by low occupancy costs, easy access, and locations that are large and easy to equip, several retailers new to these peripheral zones have added to their positions as opportunities arise (Célio, Camaïeu, Carré Blanc, etc.). New retail parks increasingly feature a disparate mix of retailers and quality. The most visible example of this approach is Waves Actisud, a new shopping center near Metz, which places several relatively high-end brands such as Swarovski, Sephora, and Bose alongside more traditional retailers such as Gemo, Cultura, and Réauté.

However, success of this kind cannot eclipse the problems overshadowing an entire segment of the French market. Some groups are under extreme pressure (Bata, Mobilier européen, Zannier, etc.), and others have either slowed or terminated their expansion plans. This reality weighs on the sustainability of numerous development projects. Several sites have been hurt by relocations to new-generation retail parks or to more-established peripheral zones by numerous retailers in search of locations that are modern, spacious, and well designed. Beaumanoir and Orchestra have opted for the multistore format, which allows them to create synergies among their various brands. By targeting the latest zones (Waves Actisud, Parc Saint-Paul in Romans-sur-Isère, Les Bons Raisins in Loches, etc.), Intersport has combined new openings and relocations by opening large stores of more than 1,000 m² that provide a showcase for its entire product range.

Consequently the success of the newest and most-established zones has brought on a massive loss of appetite by retailers for secondary zones. Abandoned by the most successful retailers, these zones have sometimes experienced a significant rise in vacancy rates or a severe decline in retailer quality

TRENDS IN SUPPLY

General trends

The shortage of prime locations persists. Since medium-sized and large stores—those most in demand by retailers—are the first affected, this scarcity has been alleviated occasionally in recent years by releases due to problems experienced by major retailers. Such releases were a major source of supply in 2013 and continued to be absorbed in 2014, e.g., the letting of several locations formerly occupied by Virgin Megastore (H&M in Nice, La Halle in Metz, etc.). Other opportunities allowed certain retailers to set up new showcases on the most frequented high streets (Jules in the former Esprit on rue de Rennes, Tommy Hilfiger in the former Foncier Home on boulevard des Capucines), to launch single-brand stores (Asics in the former Game on rue d’Amsterdam in Paris), and to increase the number of stores (Lick in the former The Phone House outlets) in their network.

However, releases added mainly to the rise in supply of secondary markets and sites, and to such an extent that the future of some derelict retail space is at risk. This change is all the more worrisome because of the steady rhythm of openings, although there were far fewer openings in 2014 than during the previous two years (604,000 m², compared with 872,000 m² in 2013 and 982,000 m² in 2012). The arrival of new shopping centers automatically dilutes retailer revenue and weighs on existing shopping centers as well as those still in the marketing phase. Additional dilution comes from the increasing tendency of developers to expand for further growth or to build on their success.

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My Valley - Cormeilles-en-Parisis (95)

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The Business of Fashion, Reinventing the Department Store, October 8, 2014.


JANUARY 2015

LOCATION NUMBER OF SITES NUMBER OF SHOPS TOTAL AREA (M2) GROWTH IN TOTAL AREA 2013-2014 (%)

HIGH STREETS *Provinces 209 112,316 13,579,138 0.0 (0)Ile-de-France 83 26,167 4,015,729 0.0 (0.2)Total 292 138,483 17,594,867 0.0 (0.1)

SHOPPING CENTRES **Provinces 753 26,665 15,013,019 1.5 (1.0)Ile-de-France 190 10,123 5,180,411 1.3 (2.5)Total 943 36,788 20,193,430 1.5 (1.4)

RETAIL PARKS ***Provinces 924 35,567 29,654,231 0.8 (1.4)

Ile-de-France 132 4,971 4,242,355 0.5 (0.5)

Total 1,056 40,538 33,896,586 0.8 (1.3)

FRENCH RETAIL-PROPERTY STOCK

*Comprising at least 50 sites/** Shopping center comprising at least 10 sites/*** Retail Parks comprising at least 10 sites. Source : Cushman & Wakefield – as at 1st january 2015.

(xx): growth in total area 2012-2013 (%)

Trends in supply on high streets

The mismatch between retailers’ criteria and the quality of available supply on the market explains the relatively limited number of creations. The scarcity of available prime locations has resulted in retailers’ current preference for improving existing sites in order to update their design, increase their visibility, and gain market share. In Paris, this trend is particularly visible in the luxury sector. The shortage of supply, the rapid development of international tourism, and the sharp rise in rental values stimulate retailer demand for alternative sectors located near the most prestigious streets or in less central neighborhoods (Le Marais, Saint-Germain-des-Prés). Consequently the luxury topography, unchanged for decades, is starting to blur, even though the central shopping areas of Paris and major regional cities remain relatively fixed and even seem to be settling around the most renowned high streets and locations. Change is more visible in midsized cities, which are directly exposed to competition from e-commerce, neighboring large urban areas, and new projects on the outskirts. Vacancy rates in such places can soar, as in Perpignan, where the number of retailers declined by 20% during the period 2006−20137.

However, large development projects will likely alter the retail landscape in some large cities. In Paris, the largest development projects are for refurbishment of the Samaritaine and the Poste du Louvre. In addition to redevelopment of the Halles district, these refurbishment projects could serve to connect the retail core of the Right Bank (Opéra, rue Saint-Honoré, etc.) and Le Marais. Other French cities are also receiving attention. Several large deals in Bordeaux illustrate the success of the Promenade Sainte-Catherine.

Trends in supply of shopping centers

More than 340,000 m² were inaugurated in 2014 in France, similar to volume in 2013. This capacity was driven by a few large-scale openings. The two biggest projects in 2014, Qwartz in Villeneuve-la-Garenne and Les Terrasses du Port in Marseille, accounted for more than one-third of new retail space opened in France during the year. The total number of shopping centers was relatively low, but volume was boosted by several expansion and relocation-expansion operations of existing shopping centers, e.g., Grand Cap in Le Havre, Mérignac Soleil near Bordeaux, Le Grand Moun in Mont-de-Marsan, and Cora Mundo’ near Strasbourg. If redevelopment prospects are included (La Valentine in Marseille, Saint-Jacques in Metz), these types of development projects account for 47% of total openings in 2014.

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Promenade Sainte-Catherine – Bordeaux (33)

7Report by the Perpignan CCI (chamber of commerce and industry), whose results were presented in February 2014.


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In contrast with lackluster household consumption, this vibrant activity is due mainly to the strategies of property-investment companies, which aim to adapt supply to consumer expectations and to help large international groups expand. One of the most highly anticipated openings is the Polygone Riviera, a shopping center of 75,000 m² located near Nice. Like Les Terrasses du Port, this new shopping center offers stores and architecture that are unquestionably upscale. This deal is also a sign of the times: “bigger is better.” In addition to creations from scratch, a few expansion projects for a few of France’s best-known regional shopping centers will, as from 2015, feature outsized footprints (Forum des Halles, Cap 3000, Carré Sénart, Val d’Europe, etc.). The largest property-

investment companies are focusing on these types of assets, which also appeal to many retailers aiming for maximum visibility to customers. This is true of new retailers (Primark), retailers developing single-brand stores (Lego), and traditional retailers implementing new concepts in megastores (Mango).

In 2015, large cities such as Paris (Forum des Halles, Vill’Up) and Marseille (Les Docks Marseille, Centre Bourse) will be host to the majority of the most important projects. However, several midsized cities will also host openings in 2015 as part of urban-renewal and transformation projects in city centers (Le Jeu de Paume in Beauvais, Avaricum in Bourges, and Les Passages Pasteur in Besançon).

Trends in supply of retail parks

With 276,000 m² in 2014 (−43% year on year), the volume of completed retail parks is far from levels seen at the end of the 2000s (580,000 m² per year on average during the period 2007−2010) and even reached its lowest point since 2004.

This unequivocal slowdown is related to the very low number of large deals, even as the total number of development projects remained relatively stable. Only two shopping centers larger than 20,000 m² (Waves Actisud and Parc Saint-Paul) were opened, compared with eight in 2013. This decline may also be explained by the numerous projects postponed to 2015, 2016, and 2017, and by several cancellations, proof that lettings are a major challenge for many developers. In addition, some locations seem to be arriving at maturity, thereby auguring a rise in expansion and redevelopment projects in the years to come.

KEY OPENINGS IN 2014LOCATION SHOPPING CENTER TYPE OF DEVELOPMENT AREA M2

Villeneuve-la-Garenne (92) Qwartz Creation 63,000Marseille (13) Les Terrasses du Port Creation 61,000Saint-Pierre-du-Mont (40) Grand Moun Transfer-extension 45,000

Le Havre (76) Grand Cap Extension 23,700Mundolsheim (67) Cora Mundo’ Extension 8,500Mérignac (33) Mérignac Soleil Extension 8,300

LOCATION SHOPPING CENTER TYPE OF DEVELOPMENT AREA M2

Cagnes-sur-Mer (06) Polygone Riviera Creation 74,000Meaux (77) Les Saisons de Meaux Creation 30,000Nice (06) Nice One Creation 27,000

Paris (75019) Vill’Up Creation 24,000Beauvais (60) Le Jeu de Paume Creation 23,000

Marseille (13) Les Docks Marseille Creation 17,000Paris (75001) Forum des Halles Extension 11,400

KEY OPENINGS ANNOUNCED FOR 2015

Key shopping-center openings

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Furthermore, renewal of deteriorated city outskirts will be increasingly common, such as Ode à la Mer, undertaken by Frey in Montpellier (after Be Green in Saint-Parres-aux-Tertres, opened in 2013). Lesser projects will also contribute to the production of new retail space. With total space of 10,000−20,000 m² composed mainly of small units, these new formats announce the arrival of a new generation of retail parks located just outside midsized cities (Cormeilles-en-Parisis) or attached to existing large retail zones (Le Patio in Sainte-Geneviève-des-Bois and the project developed by Compagnie de Phalsbourg in Plan de Campagne).

TRENDS IN RENTAL VALUES

Rental values continued to rise in certain districts of Paris, especially the historic center of the city’s luxury market. The trend is nonetheless towards stability of prime retail space on major thoroughfares in the provinces and in the most established shopping centers and retail zones on the outskirts. Secondary slots, on the other hand, have experienced downward pressure. This is especially true in shopping centers of intermediate size, where some retailers have unhesitatingly pulled out.

Proof of retailers’ loss of appetite for the riskiest locations, the market’s polarization has been accompanied by a general deterioration of relations between landlords and retailers. In a tendency that reflected this decline, lease commitments were the object of bitter negotiation. Property owners were obliged to grant more incentives, particularly in the form of financial aid for fit-out contributions. In addition, retailers aimed systematically to secure their openings by including lettings clauses. While relations between the two parties are expected to remain tense, the recent adoption of the ACTPE bill could help to settle matters. The definitive text of the law indeed provides a balance in the breakdown of maintenance charges, work, and taxes.

JANUARY 2015

Key retail-park openings

KEY OPENINGS IN 2014LOCATION SHOPPING CENTER TYPE OF DEVELOPMENT AREA M2

Moulins-lès-Metz (57) The Waves Creation 38,000Saint-Paul-lès-Romans (26) Parc Saint-Paul Creation 27,000Montluçon (03) PAC Saint-Jacques Creation 18,000

Seynod (74) Arcal’Oz Extension 12,000Loches (37) Les Bons Raisins Creation 11,000Villennes-sur Seine (78) White Parc Creation 10,100

KEY OPENINGS ANNOUNCED FOR 2015LOCATION SHOPPING CENTER TYPE OF DEVELOPMENT AREA M2

Brétigny-sur-Orge (91) Les Promenades de Brétigny Creation 45,000Fenouillet (31) Toulouse-Fenouillet Creation 33,500Chambray-les-Tours (37) La Petite Madelaine Creation 31,400

Terville (57) Supergreen Creation 28,000

Saint-Nicolas-de-Port (54) Frun Park Creation 19,500Saint-Maximin (60) St Max Avenue Creation 17,300

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TRENDS IN SHOPPING-CENTER PRIME RENTAL VALUES (€ / M2 / YEAR)*

ILE-DE-FRANCE 2014 2013 TREND 2015

Regional shopping centers 2,000 2,000Large shopping centers 950 950

PROVINCESRegional shopping centers 1,400 1,400Large shopping centers 700 700

*For very well-situated 150 m² of retail space (clothing or services) in existing centers that are leaders in their catchment areas.

2014 2013 TREND 2015ILE-DE-FRANCE 180 180PROVINCES 170 170

*For 1,000 sq. m. and new space in top slots in strong catchment areas.

2014 2013 TREND 2015

PARIS

Champs-Élysées 18,000 18,000Avenue Montaigne 12,000 10,000

Rue du Faubourg Saint-Honoré 12,000 10,000Boulevard Haussmann/Grands Magasins 8,000 6,000Boulevard Saint-Germain 6,500 6,500Rue de Rivoli 4,500 4,500Rue des Francs-Bourgeois 4,500 4,500

PROVINCES

Lyon / Rue de la République 2,200 2,200Lille / Rue Neuve/Béthune 2,000 2,200Marseille / Rue Saint-Ferréol 2,000 2,000Bordeaux / Rue Sainte-Catherine 2,200 2,200Nice / Rue Jean Médecin 2,200 2,200Toulouse / Avenue Alsace-Lorraine 2,200 2,200Cannes / Croisette 8,000 6,500Strasbourg / Place Kléber 2,000 2,000

TRENDS IN HIGH STREET PRIME RENTAL VALUES (ZONE A, € / M2 / YEAR)

TRENDS IN RETAIL-PARK PRIME RENTAL VALUES (€ / M2 / YEAR)*

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OUTLOOK FOR THE FRENCH RETAIL MARKET Anemic economic growth, high unemployment, and unattractive occupancy-cost ratios will continue to weigh on the French retail-property market in 2015. Hurt by retailer arbitrage, secondary markets will likely experience rising vacancy rates over the next few months. Although the principal high streets are expected to remain desirable, business may be slowed by an increase in property values in some cities and by the lack of quality opportunities. The next few months should also see more arrivals of upscale and original retail formats that meet both retailer demand and consumer expectations.


JANUARY 2015

INVESTMENT

GLOSSARY

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JANUARY 2015

ASSET MANAGER Professional responsible for creating an investment fund. He/she defines the fund strategy and structure, raises funds from investors, and oversees the fund throughout its life.

FAMILY OFFICE

Private structure for high-net-worth families whose assets require sophisticated management. The principal function of a family office is to optimize, organize, protect, and increase the family’s assets, whatever they may be. The family’s own wealth, often accumulated over several generations, constitutes the financial capital of the structure.

INSTITUTIONAL INVESTORSProfessional that collects long-term savings from individual investors to invest on their behalf. This category includes sundry institutions: mutual funds, insurance companies, pension funds, banks, property-investment firms, other retirement funds, etc.

INVESTMENT FUND Investment vehicles, often collective (multiple ownership), that comprise financial or real-estate assets; managed by regulated and certified structures (investment companies).

INVESTMENT VOLUMEVolume of all transactions recorded by Cushman & Wakefield concerning standard commercial-property transactions (offices, shopping centers, high-street shops, retail parks, logistics warehouses, and manufacturing premises) of more than €1 million (including sales to occupiers) over a given period.

NET INITIAL YIELD Percentage rate expressing the ratio at a time “t” between a building’s income (net of unrecoverable costs) and its purchase price (sale price plus fees and transfer duties).

OPEN-END FUND Fund with no limit on the number of shares it may issue.

OPCI (FRENCH REAL-ESTATE INVESTMENT TRUST)

Mutual savings scheme designed for retail or institutional investments in property assets. OPCI portfolios must include investments in property assets (at least 60%) and in cash or cash equivalents (at least 10%). Like SIICs (listed real-estate investment companies), OPCIs are tax exempt, provided they pay out dividends. Because they are not listed, OPCIs are not subject to market fluctuations.

OPPORTUNISTIC FUND Fund that targets maximum profitability, using one or more of the following: high added value, significant risk exposure, and high leverage.

PENSION FUNDFund specialized in raising capital from individual savers and investing it in financial markets, in order to provide those investors with retirement income through funded pension plans. Such funds are often risk averse.

PRIME/CORE ASSET Asset of excellent quality, exceptionally located, and under a firm, long-term lease with one or more rental commitments.

PROPERTY COMPANY Commercial company whose purpose is the establishment, management, and operation of a property portfolio, in order to maximize profitability.

SCPI (REAL-ESTATE INVESTMENT TRUST)

An investment trust whose exclusive purpose is to own and manage a portfolio of rental properties. At least 90% of an SCPI portfolio must consist of property assets. An SCPI’s purpose is to sell shares in acquired buildings to shareholders. SCPIs are not traded on a stock exchange, are financed by savings from the public, and are exempt from corporate tax. Individual shareholders must pay tax on any income received from the trust.

SPECULATIVE DEVELOPMENT Building whose construction has begun without prior sale or lease to an occupier.

VEFA(VENTE EN L’ÉTAT FUTUR D’ACHÈVEMENT)

Forward sale, or the sale of a property asset before it has been completed. In a forward sale, the vendor transfers immediately to the purchaser all property rights and ownership of the buildings as they are completed.

INVESTMENT

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GLOSSARY


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AVAILABLE SUPPLY Total amount of space available to let in existing buildings within six months.

AVERAGE RENT Average rental values (headline rents stated in transactions), all areas included, of refurbished and second-hand properties.

ILAT (rent index for tertiary activities)

Rent index for tertiary activities composed of three indexes calculated quarterly by INSEE: the consumer-price index (IPC), the construction-cost index (ICC), and the index for gross domestic product (PIB). These periodic means are combined in the following proportions: IPC 50%, PIB 25%, and ICC 25%.

PRIME RENT Average of top five lettings transactions (more than 1,000 sq. m.) in terms of headline rents.

TAKE-UP Total number of square meters let, pre-let, or sold to occupiers.

VACANCY RATE Ratio of volume of available supply for the next six months to total office inventory.

LOGISTICS WAREHOUSES

ICPE (classified installations for environmental protection)

Premises operated or owned by any individual person or legal entity, public or private, that may present dangers or risks. Depending on the nature of the risks, the premises may be: unclassified; classified and subject to declaration at the prefecture; classified and subject to authorization by the prefecture; classified and subject to registration at the prefecture.

IN-HOUSE LOGISTICIAN In the industrial and retail sectors, firm that provides logistics services for its own goods.

LOGISTICS PROVIDER Specialized firm that provides complete logistics services to companies seeking to outsource their logistics requirements.

SUPPLY CHAIN Comprises the optimization of the entire production cycle, from suppliers and raw materials to final customers.

TAKE-UP Total number of square meters let, pre-let, or sold to occupiers.

OFFICES

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CDAC / CNACCreated by the Economic Modernization Act (LME, enacted in 2008) as replacements for CDECs and CNECs, these département and national retail-development commissions oversee the openings of retail spaces of 1,000 sq. m. or more, in accordance with criteria for urban planning and sustainable development.

FLAGSHIPA retailer’s finest, largest, or most important store, used primarily to promote the brand. Flagship stores, which concern all business sectors and may be any size, are always located in the most desirable and prestigious shopping districts.

ILC (INDEX OF RETAIL RENTS)

Weighted-average index comprising indices representing trends in consumer prices, construction costs, and retail sales. The ILC is used as a benchmark for the review of commercial leases.


For further information, please contact:

David Bourla Head of Research France +33 (0)1 53 76 91 91 [email protected]

C&W is the world’s largest privately-held commercial real estate services firm. Founded in 1917, it has 250 offices in 60 countries and more than 16,000 employees. The firm represents a diverse customer base ranging from small businesses to Fortune 500 companies. It offers a complete range of services within five primary disciplines: Transaction Services, including tenant and landlord representation in office, industrial and retail real estate; Capital Markets, including property sales, investment management, investment banking, debt and equity financing; Client Solutions, including integrated real estate strategies for large corporations and property owners, Consulting Services, including business and real estate consulting; and Valuation & Advisory, including appraisals, highest and best use analysis, dispute resolution and litigation support, along with specialized expertise in various industry sectors. A recognized leader in global real estate research, the firm publishes a broad array of proprietary reports available on its online Knowledge Center at: www.cushmanwakefield.fr

This report has been prepared solely for information purposes. It does not purport to be a complete description of the markets or developments contained in this material. The information on which this report is based has been obtained from sources we believe to be reliable, but we have not independently verified such information and we do not guarantee that the information is accurate or complete. Published by Corporate Communications.

©2015 Cushman & Wakefield, Inc. All rights reserved.

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French Property market 2015 - Cushman & Wakefield

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