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Office market in the greater Paris region Q3 2013
Office market in the greater Paris region Q3 2013
Office market in the greater Paris region Q3 2013
Office market in the greater Paris region Q3 2013
Office market in the greater Paris region Q3 2013
Office market in the greater Paris region Q3 2013
Office market in the greater Paris region Q3 2013
Office market in the greater Paris region Q3 2013
Office market in the greater Paris region Q3 2013
Office market in the greater Paris region Q3 2013
Office market in the greater Paris region Q3 2013
Office market in the greater Paris region Q3 2013
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Office market in the greater Paris region Q3 2013

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- The leasing market continues to slow, impacted by the sharp drop in turnkey transactions. …

- The leasing market continues to slow, impacted by the sharp drop in turnkey transactions.
Immediate supply continues to rise while new supply remains contained.
- Rents remain under pressure.
More than €7.9 billion has been invested since the beginning of 2013, an increase of 8% in a year.
- Twenty transactions exceeding €100 million were recorded in the first nine months of the year.
- The key prime yield in the Central Business District is stable in a range between 4.50 and 5.00%.

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  • 1. The office market in the Greater Paris Region – 3rd quarter 2013 Between light and shadow The leasing market continues to slow, impacted by the sharp drop in turnkey transactions. Immediate supply continues to rise while new supply remains contained. Rents remain under pressure. More than €7.9 billion has been invested since the beginning of 2013, an increase of 8% in a year. Twenty transactions exceeding €100 million were recorded in the first nine months of the year. The key prime yield in the Central Business District is stable in a range between 4.50 and 5.00%.
  • 2. On Point • The office market in the Greater Paris Region – Q3 2013 Page 2 Downturn in the leasing market Ratio of turnkey transactions in the total take-up (yoy change) The large turnkey transactions have been absent this year, with 440,000 sq m missing At the end of Q3, the leasing market was down by 30% compared to last year, with 1.3 million sq m of take-up in the Greater Paris Region. This difference is no surprise since solely Q3 of 2012 was exceptionally active, with the completion of transactions by the In million sq m 2,0 1,8 1,6 1,4 1,2 1,0 0,8 0,6 0,4 0,2 0,0 Excl. turnkeys 1,302,000 32% 11% Q3 2012 Ministry of Defence (135,000 sq m in the 15th district), France Télécom (70,000 sq m in Châtillon), Sanofi (50,000 sq m in Gentilly) Turnkeys 1,848,000 Q3 2013 Source: Jones Lang LaSalle or Thalès (49,000 sq m in Vélizy). As we already mentioned mid-year, large transactions are lacking this year. The sharp drop in turnkey transactions, after two Macro-economic data as at Q3 2013 (yoy change) exceptional years, has greatly impacted the 2013 results. Indeed, it is interesting to note that the share of these tailor-made transactions 2013 Yoy change GDP (2nd quarter) +0.5%  11% in 2013. In fact, although the drop in activity appears exposed Salaried employment (1st quarter) +3,594  at the moment, in 2011 and 2012 leasing activity was "boosted" by Business climate (Sept.) 94  in take-up fell from 24% in 2012 (32% at end of September 2012) to these specific major transactions. Source: INSEE There were no such transactions in 2013. But those, which have long gestation times, are difficult to gauge in terms of a calendar year. And then some companies, faced since mid-2012 with the Greater Paris Region KMI’s Q3 2013 (yoy change) downturn in indicators and economic outlook, as well as a sluggish Q3 2013 national climate, have postponed their real estate projects, curbing Yoy change For two years the phenomenon of lease renegotiations has grown in the Greater Paris Region. According to Jacques Bagge, Head of the French leasing team at Jones Lang LaSalle, “One of the key drivers of demand in the past two years, was looking for savings. This has now halted, the companies whose sole motivation was to lower their real estate costs being satisfied to renegotiate their leases with landlords, careful to avoid the leasing vacancy in their assets.” Total take-up 1,302,172 sq m  Immediate supply their ambitions or renegotiating their lease. 3,758,000 sq m  7.2%  Prime rent €705 /sq m/pa  Average 2nd hand rent €312 /sq m/pa  Immediate vacancy rate Source: Jones Lang LaSalle/ImmoStat/ORIE
  • 3. On Point • The office market in the Greater Paris Region – Q3 2013 Page 3 CBD and La Défense have experienced a good level of leasing activity, despite the widespread drop Number of large transactions > 5,000 sq m (as at 3rd quarter of the year) From a geographical point of view, activity has varied greatly from one sector to another. In Paris, demand fell 23%. Although all the Parisian markets are lagging behind, Paris Centre West and Central Business District are resistant and have performed well. The correction in leasing values today allows many companies to claim a Parisian location, or around the capital, in traditional business districts. Moreover, there are twice as many big deals as last year in this sector: the largest transaction was the Tribunal de Grande Source: Jones Lang LaSalle/ImmoStat Instance (30,000 sq m) in the 17th district. Indeed, the institution will Take-up change by surface area (12 months change) move its entire workforce, currently on the Ile de la Cité, to the new courthouse, which will be located in the Clichy Batignolles urban development zone, by 2017. In million sq m 3,0 < 5,000 sq m > 5,000 sq m 2,5 In La Défense leasing activity also increased significantly, thanks to a particularly active Q3 with, amongst others, the signatures of ERDF in the “Tour Blanche” in Courbevoie (22,000 sq m), delivered 2,0 1,5 in early 2014, and Allianz in “Easy Building” in Puteaux 1,0 (11,500 sq m). 0,5 35% 34% 42% 41% 0,0 In the rest of the Western Crescent, performances were variable. Neuilly-Levallois and the Northern Bend are having a good year. In Q3 we particularly note the pre-let of “Unicity” (~35,000 sq m) by Source: Jones Lang LaSalle/ImmoStat Cetelem to Levallois, which should be delivered in 2016. The results of the Southern Bend have been sustained through the partial prelet of the “City-Light” transaction in Boulogne-Billancourt by GE (38,000 sq m), which is scheduled for completion in 2015. In general, the abundance of quality supply in these outlying areas, which are accessible and close to Paris, has attracted companies that benefit from very attractive lease terms. In the Inner and Outer Southern Suburbs, lettings have dropped sharply, due to very large transactions signed last year in these sectors, such as France Télécom in Châtillon (70,000 sq m), Sanofi in Gentilly (50,000 sq m), Thalès in Vélizy (49,000 sq m), EDF in Palaiseau (~30,000 sq m) or Casino in Vitry-sur-Seine (~25,000 sq m) for Q3 alone. © Fernando Javier URQUIJO « Eqho » Tower - La Défense 42% 43% 45% 48% 48% 48% 38%
  • 4. On Point • The office market in the Greater Paris Region – Q3 2013 Page 4 Take-up change as at Q3 2013 (split by sub-market) Source: Jones Lang LaSalle/ImmoStat
  • 5. On Point • The office market in the Greater Paris Region – Q3 2013 Page 5 The threshold of 3.7 million sq m available has been crossed Grade A ratio in the immediate supply > 5,000 sq m (split by market) In one year, the stock of available office space will have increased by 6%. Therefore, supply continues to rise and reached a new Immediate supply > 5,000 sq m Grade A ratio milestone with more than 3.7 million sq m available, which Outer Suburbs 438,000 sq m 19% represents 7.2% of the Paris tertiary stock. However, the share of Inner Suburbs 277,000 sq m 30% new supply in immediate supply, although up this quarter, remains Paris 115,000 sq m 13% contained at a much lower level than in 2009 (~30%) and Western Crescent 621,000 sq m 44% represented 22% of immediate supply at the end of Q3. La Défense 306,000 sq m 66% Source: Jones Lang LaSalle/ImmoStat Most of the increases were concentrated in the west of Paris, a market where new deliveries this quarter were particularly high: not less than 140,000 sq m of projects delivered, including 80,000 sq m in La Défense with the “Eqho” tower. Not surprisingly, vacancy rates are trending upwards: 10% in La Défense and 13.6% for the Western Crescent. Immediate supply and vacancy rate change (by building quality) Second hand supply New/Refurbished supply Vacancy rate In million sq m 4,5 4,0 Supply also remains high in the Inner Southern and Inner Northern Suburbs with vacancy rates around 10%. However, the Paris market 3,5 5% 2,5 4% 2,0 4.9% for the Central Business District. 1,5 Leasing values are under pressure 3% 2% 1,0 0,5 28% 24% 0,0 2008 Key prime rents in the Greater Paris region are trending downwards 26% 24% 20% 22% 2009 2010 2011 2012 Q3 2013 Source: Jones Lang LaSalle/ImmoStat/ORIE to €705/sq m in the Central Business District and to €510/sq m in La Défense, given the scarcity of transactions at exceptional rent levels. Moreover, it is interesting to note that in the Central Business District there have only been a handful of transactions signed Immediate supply as at Q3 2013 (split by market) exceeding €700 since the start of the year, a number four times 8% lower than last year during the same period. 10% 30% Generally, rents are still under pressure, with a few exceptions. The overall market remains well supplied. “Actual rents, which have fallen sharply, should remain at low levels in the coming months, with negotiating conditions still very advantageous for companies,” 7% 6% 3,0 is still under supplied with a very low vacancy rate (less than 5%): 8% 28% 14% 10% commented Jacques Bagge. Source: Jones Lang LaSalle/ImmoStat Paris CBD Paris (excl. CBD) Western Crescent La Défense Inner Suburbs Outer Suburbs 1% 0%
  • 6. On Point • The office market in the Greater Paris Region – Q3 2013 Page 6 Vacancy rate as at Q3 2013 (split by sub-market) Source: Jones Lang LaSalle/ImmoStat/ORIE Prime rent as at Q3 2013 (split by sub-market) Source: Jones Lang LaSalle/ImmoStat/ORIE
  • 7. On Point • The office market in the Greater Paris Region – Q3 2013 Page 7 Outlook Given the drop in activity observed at the end of Q3, take-up in the Greater Paris region for 2013 is expected to be around 1.8 million sq m. The outlook for 2014 is more favourable given the first signs of improvement in the global and national economy since the summer. Thus, leasing activity should gradually recover from Projects under construction and available up to 2015 (spli by market) In sq m 300,000 250,000 TOTAL Inner Suburbs Western Crescent Paris (excl. CBD) Outer Suburbs La Défense Paris CBD mid-2014. 200,000 The available supply remains significant, especially in the suburbs, even if certain new buildings, some of which have been vacant for several years, have gradually found tenants following adjustments in their leasing values. The arrival on the market of new projects, in La 150,000 100,000 50,000 Défense and in the Southern Bend in particular, should reinforce or even increase market disparities. Therefore, some vacancy rates 2013 58,000 sq m may rise again in the coming months. Source: Jones Lang LaSalle Indeed, although today speculative launches of real estate transactions remain limited, most of these developments, currently under construction and available for letting (~760,000 sq m in total), are concentrated in western Paris (45%). In this context, still favourable to tenants, landlords remain attentive to the operational and financial constraints of companies, and will not fail to take this into account in their proposals, in order to avoid the leasing vacancy in their assets. Renegotiations should therefore remain numerous. Companies, whose sole motivation is to lower their real estate costs, often will prefer to stay put in their current premises, thus limiting the risk to the workforce and cost of moving. 2014 376,000 sq m 2015 324,000 sq m 2013 - 2015 758,000 sq m
  • 8. On Point • The office market in the Greater Paris Region – Q3 2013 Page 8 Rise in the investment market compared to last year The business district of La Défense gets its head above water with more than €750 million of investment since the start of the year. With €3.6 billion invested in commercial real estate in the Greater Paris region in Q3, the investment market found its second wind during the summer. In total, over €7.9 billion have been invested since the start of the year, an increase of 8% in a year. Sharp growth in activity in the segment of intermediate size transactions After a slight drop at the end of June, large transactions that were in progress during the spring were completed on schedule during the summer: they are the only three transactions worth more than €300 million signed since the start of the year. These are the sale to PRIMONIAL of the “Adria” tower for €450 million in La Défense, that of PREDICA of “Eco Campus” for €380 million in Châtillon, and the Tour « Sequana » - Issy-les-Moulineaux Macro-economic data as at Q3 2013 (yoy change) sale of the “Sequana” tower to HINES (on behalf of a third party) in Q3 2013 Issy-les-Moulineaux. Yoy change In the end, 20 deals exceeding €100 million were signed at the end GDP +0.5%  of September, two more than last year. ECB headline rate 0.50%  10-year-bond 2.342%  3-months-Euribor-rate 0.225%  5-year-SWAP-rate 1.26%  We note again the very balanced nature of the Greater Paris Region market this year with regard to the unit volume of transactions. 50% of the amounts invested were on transactions of less than €100 million, with a particularly strong growth in activity in the Source: INSEE / Agence France Trésor / euribor-rates.eu / Jones Lang LaSalle-Thomson Reuters intermediate segment transactions (between €50 and €100 million). Greater Paris Region KMI’s as at Q3 2013 (yoy change) There were 30 transactions recorded for over €2 billion, compared to only 19 for close to €1.2 billion in the same period last year, i.e. Q1-Q3 2013 an increase of 67% in volume. Investment volumes Yoy trend €7,919 M  As for very large transactions, in excess of €500 million, they have Average investment deal €51 M  been down up until now. This trend may change in the coming Number of transactions of which over €100m 155 20   4.50 – 5.00  months because large portfolios are currently being negotiated. Prime office yield Source: Jones Lang LaSalle/ImmoStat
  • 9. On Point • The office market in the Greater Paris Region – Q3 2013 Page 9 Quarterly investment (in volume) The Paris Inner Ring captured almost half of the capital The three largest transactions recorded since the start of the year having been completed in the Paris Inner Ring, Inner Paris did not drain, as it usually does, the majority of capital. More than €1.5 billion was invested in the Paris Inner Ring (“Eco Campus” in Châtillon) and in the Western Crescent (“Sequana” in Issy-les-Moulineaux) respectively. In €Bn 14 Q4 Q3 Q2 Q1 12,12 12 10 4,77 8 2,4 6 The business district of La Défense continued its strong momentum 4 begun in the last quarter, with €758 million invested since the start 2 of the year (4 transactions). +8% 7,92 0 Two transactions exceeding €100 million were recorded in this market, and after the sale by IVANHOE CAMBRIDGE of the “Pacific” tower for €228 million to TISHMAN 3,51 1,44 2008 2009 2010 2011 2012 Source: Jones Lang LaSalle/ImmoStat SPEYER PROPERTIES in Q2, TESTA sold the “Adria” tower to PRIMONIAL for €450 million in Q3. 2013 is likely to be one of the best years recorded on the La Défense market since 2008. Investment split by individual lot-size as at Q3 2013 (in number of deals) < €50 M The “Eco Campus” sale boosted the forward funding market in Q3 From €100 to €300 M 11% 2% From €50 to €100 M After a slow start to the year, the forward funding market picked up in Q3 with a large-scale forward funding sale completed during the summer. Thus, PREDICA purchased “Eco Campus” from NEXITY From €300 to €500 M > €500 M Source: Jones Lang LaSalle/ImmoStat and INTERCONSTRUCTION for €380 million. This transaction of 70,000 sq m of office space developed on behalf of FRANCE TELECOM in Châtillon should be delivered in 2015. The other forward funding sale of the quarter was the sale by BNP Investment volume as at Q3 2013 (by asset class) PARIBAS REIM of the extension of “Moulins de Pantin” (13,000 sq m) to LA FRANCAISE for an amount exceeding €65 million. This is half pre-let to BNP. We note that a single unsecured transaction has been sold since the start of the year, thus the share of unsecured forward funding sales fell from 50% of transactions at the end of Q3 2012 to 17% at the end of September 2013 Source: Jones Lang LaSalle/ImmoStat 19% 68% 2013
  • 10. On Point • The office market in the Greater Paris Region – Q3 2013 Page 10 The market remains focused on the traditional players French investors still largely continue to dominate the investment market with 73% of amounts committed in the Greater Paris region. Usually strongly present on volumes of less than €100 million, in Q3 Forward funding ratio in the total office investment Q3 2013 (in volume) In €Bn Offices's sales (excl. forward funding sales) Offices' forward funding sales 14 they made up the majority of the largest transactions, as 2 of the 3 12 largest transactions in the quarter were acquired by the French 10 (“Eco Campus” and “Adria”). 8 6 However, we have seen the return of more opportunistic investors of 4 Anglo-Saxon origin such as HINES (“Perspectives Défense” and 2 “Sequana”) or BLACKSTONE (“Colisée III & IV” and a portfolio of 0 logistics warehouses) that have been positioned substantially in the Paris market in recent months. 0,96 1,55 1,47 1,92 2,23 1,60 1,61 1,32 Source: Jones Lang LaSalle/ImmoStat As for the Germans, they mostly bought retail assets or office buildings in Inner Paris: - DEKA purchased the commercial part of “T8” and “33 rue Investment split by nationality as at Q3 2013 (en volume) Lafayette”, - UNION bought “Les 3 Moulins” shopping centre, - and PRAMERICA bought “118 Avenue des Champs Elysées”. Stability of yields in all sectors Investor appetite for “Core+” and “Value Add” products is confirmed, although the supply of products is not yet sufficient. We note that the pricing differences between sellers and buyers tend to be reduced, providing greater liquidity in this market segment. Investor appetite Source: Jones Lang LaSalle for the best products cannot be denied, with the prime yields remaining unchanged despite rising rates of French treasury bonds since the spring. 0,90 1,09 1,28 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2011 2011 2011 2011 2012 2012 2012 2012 2013 2013 2013 Prime yields as at Q3 2013 (split by sub-sector) Thus, the key prime yield in the Central Business District is stable in a range between 4.50 and 5.00%. Source: Jones Lang LaSalle
  • 11. On Point • The office market in the Greater Paris Region – Q3 2013 Page 11 Outlook According to Stephan von Barczy, Head of French Capital Markets Group at Jones Lang LaSalle “Large transactions are currently Consensus forecasts (as up to 2014) underway and acquisition teams are very busy. They must September 2013 undertake more substantial educational work with their committees, June 2014 slowing slightly the rate of completing transactions.” GDP (year end)   As a result, we anticipate that the investment volume at the end of 10-year-bond   the year will be in the range of €10 to €12 billion. 3-months-Euribor-rate   Sovereign funds that strongly led the market last year have hardly been present on the market since the start of the year. However, they have not deserted the market since two transactions, for around €1 to €2 billion, are currently under negotiation. As for the forward funding market, it should not end the year on an equal to last year's level (around €1 billion), especially as investors for unsecured transactions are still rare. In terms of funding, although banks continue to dominate the market, debt funds have effectively deployed a good part of their funds and new insurers have emerged. Competition on margins partly offsets the increases in rates, but overall funding costs have probably reached a low point. Source: Consensus forecasts – June 2013
  • 12. Jones Lang LaSalle French Offices Paris 40-42 rue La Boétie 75008 Paris Tél. : + 33 (0)1 40 55 15 15 Fax : + 33 (0)1 46 22 28 28 La Défense Building Le Berkeley 19-29, rue du Capitaine Guynemer 92903 Paris La Défense Cedex Tél. : + 33 (0)1 49 00 32 50 Fax : + 33 (0)1 49 00 32 59 Saint-Denis 3, rue Jesse Owens 93210 Saint-Denis Tél. : + 33 (0)1 40 55 15 15 Fax : + 33 (0)1 48 22 52 83 Le Plessis-Robinson “La Boursidière” BP 171 92357 Le Plessis-Robinson Tél. : + 33 (0)1 40 55 15 15 Fax : + 33 (0)1 46 01 06 37 Lyon 55, avenue Foch 69006 Lyon Tél. : + 33 (0)4 78 89 26 26 Fax : + 33 (0)4 78 89 04 76 Contacts Virginie Houzé Director Research Department Paris +33 (0)1 40 55 15 94 virginie.houze@eu.jll.com Sophie Rozen-Benaïnous Research Manager Research Department Paris +33 (0)1 40 55 85 15 sophie.rozen@eu.jll.com Manuela Moura Consultant Research Department Paris +33 (0)1 40 55 85 73 manuela.moura@eu.jll.com www.joneslanglasalle.fr COPYRIGHT © JONES LANG LASALLE IP, inc. 2013 - No part of this presentation may be reproduced or transmitted in any form or by any means, or stored in any database or retrieval system of any nature, without prior written permission of Jones Lang LaSalle except for any permitted fair dealing in accordance with all applicable copyright laws. Full acknowledgement must be given for any such use. This presentation is based upon materials either compiled by us through independent research or supplied to us by third parties. Whilst we have made every effort to ensure the accuracy and completeness of the data used in the presentation, we cannot offer any warranty that no factual errors are present. We take no responsibility for any direct or indirect actual or potential damage or loss suffered as a result of any inaccuracy or incompleteness of any kind in this presentation. We would, however, like to be told of any such errors in order to correct them. These forecasts are generated from a range of statistical techniques, including econometric models. They are subject to errors stemming from three main Source: measurement and statistical errors, which relate to raw data and the econometric model, as well as errors arising from assumptions regarding the future behaviour of explanatory variables. As a result, we place greater emphasis on trends and turning points than on precise values. Jones Lang LaSalle takes no responsibility for any damage or loss suffered by reason of the inaccuracy or incorrectness of this report.

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