www.ca-suisse.comReal EstateMonitor: ParisOverview and Outlook of Paris’s Office and Residential Real Estate MarketsMarket...
Real Estate Monitor: ParisReal Estate Monitor: Paris - 1Executive SummaryOur latest Real Estate Monitor examines the recen...
Real Estate Monitor: ParisReal Estate Monitor: Paris - 2Office marketEconomic contextFrance weathered the Big Recession be...
Real Estate Monitor: ParisReal Estate Monitor: Paris - 3Household Savings Ratio: France and JapanSource: FactsetInvestment...
Real Estate Monitor: ParisReal Estate Monitor: Paris - 4In this weakened economic context, office take-up,which represents...
Real Estate Monitor: ParisReal Estate Monitor: Paris - 5The office vacancy rate in the Paris Region is one of thelowest in...
Real Estate Monitor: ParisReal Estate Monitor: Paris - 6Since 2007 average rents only increased in Northernand Southern Pa...
Real Estate Monitor: ParisReal Estate Monitor: Paris - 7La Défense has seen weak levels of investment activityfor a number...
Real Estate Monitor: ParisReal Estate Monitor: Paris - 8Housing marketSecond-hand Apartment Price IndexSource: INSEE, Nota...
Real Estate Monitor: ParisReal Estate Monitor: Paris - 9Average Lending Rates (bank loans only)Source: Observatoire du Fin...
Real Estate Monitor: ParisReal Estate Monitor: Paris - 10During 2012 prices have remained rather sticky in spiteof lower t...
Real Estate Monitor: ParisReal Estate Monitor: Paris - 11Sources1Eurostat data2IMF, “France : Selected Issues”, IMF Countr...
Real Estate Monitor: ParisReal Estate Monitor: Paris - 12Paris Region office submarketsSource: Immostat / CBRE*Data points...
Real Estate Monitor: ParisReal Estate Monitor: Paris - 13© 2012, CREDIT AGRICOLE (SUISSE) SA all rights reservedThis docum...
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A serious report about Paris office market by Credit Agricole. Worth reading by anyone interested in office market trends, French economy and general understading of office and financial markets.

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Real estate monitor paris 032013

  1. 1. www.ca-suisse.comReal EstateMonitor: ParisOverview and Outlook of Paris’s Office and Residential Real Estate MarketsMarket and Investment SolutionsMarch 2013
  2. 2. Real Estate Monitor: ParisReal Estate Monitor: Paris - 1Executive SummaryOur latest Real Estate Monitor examines the recenttrends in Paris’s office and residential markets andpresents their outlooks for 2013.Office MarketThe worsening Eurozone crisis, economic slowdown,political and tax uncertainty have put the brakes on theParis Region office market during 2012. Although take-up figures were sustained by large occupiers rationalis-ing costs by grouping staff into built-to-suit officebuildings, these types of real estate operations oftenresult in a reduction of the amount of space used perperson. According to CBRE, the Paris Region only saw24,000m² of net office absorption during 2012, whichcompares poorly to an annual average of 726,000m²since 2001.On the positive side, the region’s office vacancy rate isone of the lowest in Europe, and has been stable sincemid-2011. This is due in part to a fairly conservativesupply pipeline. Vacancy does vary by submarket,however (lower in central Paris and higher outside cen-tral Paris) and the gap between them has widened.As a result of increasing vacancy rates, prime rentshave continued to fall this year in the Western Crescentand La Défense. Elsewhere they have remained broadlystable. With the exception of Northern and SouthernParis, which currently have the lowest vacancy rates inthe Paris Region, average rents are lower than theywere five years ago throughout.Although office investment volumes during 2012 weredown on 2011 levels, they held up rather well givendepressed demand and weakening rents. The main rea-son was that international investors, sovereign wealthfunds in particular, were very active. Paris Centre Westand Northern Paris prime yields fell by 25 bps thisquarter, as investors are still focused on more ‘secure’assets. They remained flat everywhere else bar the Out-er Rim, where they increased by 25 bps.With a weak GDP and worsening employment outlook,we do not expect a recovery in demand for offices in2013. Prime rents will continue to fall in La Défenseand Western Crescent and stay flat everywhere else atbest. Average rents will continue to soften throughoutthe region.Sovereign wealth fund activity will persist during 2013and prime Paris Centre West yields are therefore likelyto fall this year. Prime yields in other submarkets, onthe other hand, are likely to increase slightly given theexpected stagnation in rents and rising trend in bondyields. In the Western Crescent and La Défense, theyare likely to see a more important upward trajectory in2013 due to worsening fundamentals.Housing MarketFrance weathered the Big Recession better than manyother countries. Prudent lending practices and con-servative construction levels helped prevent the excess-es that destabilised other countries’ financial systemsand economies. Second-hand apartment prices only fellby around ten per cent during 2008-2009. Due to strongfundamentals, once economic growth returned during2010-2011, so did price growth.In Paris, second-hand apartment prices literally soaredduring 2010-2011, principally due to a marked safe-haven effect and particularly weak supply. The north-ward trend in prices seems to have come to an end in2012, however, as the same factors that had a negativeeffect on the office market made consumers wary ofsuch a big investment such as buying a house. Addingto this, a plethora of tax increases have been introducedto balance the government’s budget, many of whichtarget the housing market. Also, in spite of low interestrates, lending standards are reported to be tightening.Residential transaction levels are therefore significantlydown on an annual basis. During 2012, prices have re-mained rather sticky, however. The French housingmarket does not have many ‘forced sales’ and vendorsare currently not prepared to lower their asking prices.Buyers, on the other hand, are biding their time andhave become more picky. At the end of 2012, residen-tial prices have finally begun heading South. In Paris,second-hand apartment prices fell by two per cent inthe fourth quarter of 2012 compared to the previousquarter, and in the Paris Region they fell by 1.4 percent.With a stagnant French economy in 2013, an unem-ployment rate that will continue to creep up and taxesbeing more of a burden to consumers, housing sales arelikely to remain depressed. In Paris in particular, pricesare still very high, which is a deterrent for many. CreditAgricole Economic Research forecast a 5-6 per centdecline in second-hand residential prices nationally in2013, and a fall of 3 per cent in second-hand apartmentprices in Paris (from end 2012 to end 2013). There will,of course, be local variations.The economic risks in France are, however, to thedownside. If they materialise, real estate price declinescould be more marked and incur over a longer period.
  3. 3. Real Estate Monitor: ParisReal Estate Monitor: Paris - 2Office marketEconomic contextFrance weathered the Big Recession better than manyother countries, being spared the credit-financed hous-ing boom and bust that so rattled the US, the UK, Ire-land and Spain. The banking system has its weaknessesbut nothing on the scale of what has been seen in theEuropean countries that have sought financial aid fromthe European Union. Moreover, deleveraging and theraising of capital ratios is well underway in France.France’s economic problems lie mostly in the country’slack of competitiveness. It is not as dependent on ex-ports as is Germany for instance, but it is neverthelessmore open than the US. In the current business cycle,where private and public consumption are depressedand investments are weak, the external sector is the areathat could bring some fizz to Europe’s ailing econo-mies.France’s main export destination is the EU and, withinthe EU, France exports relatively more to the Union’sSouthern European members than do other union adher-ents – twice as much as do Belgium and the Nether-lands for instance.1Overall, almost two thirds of Frenchexports are to EU destinations, thus leaving a relativelysmaller minority share for the faster growing markets indeveloping Asia. In addition to this structural vulnera-bility to the EU business cycle, France has lost competi-tiveness over the 1997-2011 period. The IMF calculatesthat France is among the advanced countries that haveseen their share of world exports decline the most, bothin terms of goods and services.2It is thus crucial forFrance’s economic growth that competitiveness is re-stored and that new export markets are developed.France: Government Budget DeficitSource: FactsetIn addition to the competitiveness gap, France has astructural financial problem. For over 30 years, thecountry has not had a single year of budget surplus. Ithas thus accumulated a hefty stock of debt over theyears, rising from some 20 per cent of GDP in the early1980s to around 90 per cent currently.3Not surprisingly, France has high structural unemploy-ment. Since the early 1980s the unemployment rate hasnot dipped below seven per cent. It now stands at 10.6per cent, with the youth unemployment rate at over 25per cent for young women and just under 25 per centfor young men.4With a relatively high minimum wageby international standards (60 per cent of the medianwage in France compared to some 47 per cent in theUK and under 40 per cent in the US5), it is clear that thebarrier to hire young and inexperienced workers is sig-nificant.100,000 temporary jobs were destroyed from Q3 2011to Q4 2012. According to Oxford Economics, agency or‘interim’ workers account for about 3 per cent of theprivate sector workforce and the evolution of their num-bers is a good indicator of business sentiment vis-à-visemployment. Since France is facing pressure from Eu-rope to speed up budget cuts, the public sector willstruggle to create jobs to make up for those that havebeen lost in the private sector.Evolution of Temporary Work Posts in FranceSource: INSEELuckily for France, the savings ratio stands at over 16per cent. The high savings ratio is highlighted whencompared against for example the Japanese, who in thepast were equally keen on setting funds aside for a rainyday, but have now seen a spectacular drop in savings.The high savings ratio is a potential arrow in theFrench’s quiver – were they to draw down on their sav-ings, personal consumption could add positively togrowth. Such a break with past behaviour looks unlike-ly this year though, given the high current rate of unem-ployment.-250-200-150-100-50050100150Q11991Q41991Q31992Q21993Q11994Q41994Q31995Q21996Q11997Q41997Q31998Q21999Q12000Q42000Q32001Q22002Q12003Q42003Q32004Q22005Q12006Q42006Q32007Q22008Q12009Q42009Q32010Q22011Q12012Q42012Thousands(levelscumulatedoverfourquarters)-8-7-6-5-4-3-2-10Dec-93Apr-94Aug-94Dec-94Apr-95Aug-95Dec-95Apr-96Aug-96Dec-96Apr-97Aug-97Dec-97Apr-98Aug-98Dec-98Apr-99Aug-99Dec-99Apr-00Aug-00Dec-00Apr-01Aug-01Dec-01Apr-02Aug-02Dec-02Apr-03Aug-03Dec-03Apr-04Aug-04Dec-04Apr-05Aug-05Dec-05Apr-06Aug-06Dec-06Apr-07Aug-07Dec-07Apr-08Aug-08Dec-08Apr-09Aug-09Dec-09Apr-10Aug-10Dec-10Apr-11Aug-11Dec-11%ofGDP
  4. 4. Real Estate Monitor: ParisReal Estate Monitor: Paris - 3Household Savings Ratio: France and JapanSource: FactsetInvestments are not apt to increase much in the nearfuture. Capacity utilisation is at the lowest level duringthe past 30 years barring the 2008-2009 recession. In-vestments tend to increase when the capacity use is over80 roughly speaking, and it now stands at 75. Neverthe-less, investment levels remain positive and contributed0.7 percentage points to growth in the fourth quarter of2012.France: Capacity Utilisation and Total InvestmentSource: FactsetOffice DemandParis Region Office Net AbsorptionSource: CBREDemand for office space in the Paris Region (see mapon page 12) was relatively resilient during the recessionof 2008-2009. This has been largely attributed to thediversified economic base of the region. The worseningEurozone crisis, economic slowdown, political and taxuncertainty finally caught up with the occupier marketduring 2012, however. Office tenants postponed theirrelocation plans and reassessed space requirements, andin many cases have extended their leases at lower rents.The poor net absorption (the level change in occupiedstock6) figure for 2012 (24,000m2), which is way belowthe long-term average of 726,000 m2, is a reflection ofthis. Net absorption measures ‘real’ demand, becauseunlike take-up, it takes into account space given back tothe market.Large companies in the Paris Region have been reduc-ing overhead costs by decreasing the amount of officespace used per employee. This is often achieved inmodern office buildings that offer ‘open plan’ seatingsolutions. Companies have also sought cost reductionsby moving to cheaper locations. This has been detri-mental to more expensive submarkets and submarketswithout the type of supply that occupiers are lookingfor. In 2008 and 2009, for example, Paris Centre Westexperienced significant negative net absorption(240,000 m2). Small and medium-sized occupiers, verypresent in this submarket, were hit hard by the GlobalFinancial Crisis and Big Recession. Large corporateoccupiers have also been actively regrouping staff fromcentral, expensive, often old, disparate offices in centrallocations to cheaper, new offices in the Inner Rim sub-market.7This resulted in the vacancy rate of Paris Cen-tre West increasing from three per cent in the first quar-ter of 2008 to 6.2 per cent in the fourth quarter of 2009,leading to a decrease in prime and average rents hereduring this period.Paris Region: Take up by SubmarketSource: CBRE0500100015002000250030002001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012ThousandsquaremetresInner Rim Northern Paris Outer Rim Paris Centre WestLa Défense Southern Paris Western CrescentLong-term average-500050010001500200025002001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012ThousandsquaremetresInner Rim Northern Paris Outer Rim Paris Centre WestParis La Défense Southern Paris Western Crescent Paris Region-50510152025Mar-66Mar-67Mar-68Mar-69Mar-70Mar-71Mar-72Mar-73Mar-74Mar-75Mar-76Mar-77Mar-78Mar-79Mar-80Mar-81Mar-82Mar-83Mar-84Mar-85Mar-86Mar-87Mar-88Mar-89Mar-90Mar-91Mar-92Mar-93Mar-94Mar-95Mar-96Mar-97Mar-98Mar-99Mar-00Mar-01Mar-02Mar-03Mar-04Mar-05Mar-06Mar-07Mar-08Mar-09Mar-10Mar-11%disposableincomeFrance Japan161718192021222324657075808590Dec-81Aug-82Apr-83Dec-83Aug-84Apr-85Dec-85Aug-86Apr-87Dec-87Aug-88Apr-89Dec-89Aug-90Apr-91Dec-91Aug-92Apr-93Dec-93Aug-94Apr-95Dec-95Aug-96Apr-97Dec-97Aug-98Apr-99Dec-99Aug-00Apr-01Dec-01Aug-02Apr-03Dec-03Aug-04Apr-05Dec-05Aug-06Apr-07Dec-07Aug-08Apr-09Dec-09Aug-10Apr-11Dec-11Aug-12%ofGDP%Total Capacity Utilisation Rate, Industry. S.A. (LHS) Total Investment (RHS)
  5. 5. Real Estate Monitor: ParisReal Estate Monitor: Paris - 4In this weakened economic context, office take-up,which represents the total net floor space let, pre-let,sold or pre-sold to tenants or owner-occupiers,8wasboosted in 2011 and 2012 by some very large deals(often initiated well in advance). These include the ac-quisition for owner-occupation of 124,000m2in St Den-is (Inner Rim submarket) by SFR, Carrefour renting85,000m2in Massy (Outer Rim), Thalès’s turnkey9dealof 78,600 m2in Gennevilliers (Western Crescent sub-market) and France Télécom’s turnkey deal of69,100m2in Chatillon (Inner Rim submarket).The space-optimisation fashion espoused by large cor-porations has benefitted submarkets accessible to cen-tral Paris that propose new energy-efficient buildingswith lower rents and potential long-term cost efficien-cies for the occupier. The Inner Rim, in particular, sawtake-up increase by 44 per cent from 2011 to 2012.According to CBRE, more than 60 per cent of occupierdeals over 5,000m2in 2012 were pre-sales and pre-lets,which means that the types of properties that larger oc-cupiers are targeting, are not often readily available inthe desired localities. The same source reports that newand redeveloped offices accounted for 41 per cent oftake-up in 2012, compared to renovated offices (27 percent) and second-hand offices (32 per cent). Given this,investment in the development of new buildings thatmeet current occupier requirements and are well locatedcould be regarded as an opportunity. According to asurvey of 200 corporate occupiers carried out by Ipsosfor BNP Paribas Real Estate, 55 per cent of respondentsare considering a move in the short-to medium-term,even if the business climate is frozen.10Take-up in 2012 was also boosted by a couple of verylarge deals originating from the public sector. Accord-ing to CBRE, this sector accounted for 20 per cent ofthe total in 2012, mainly due to an 135,000 m² officedevelopment by the Ministry of Defense in the 15thar-rondissement of Paris. By comparison, the finance andinsurance sector was very quiet during the year (6 percent). The broadly-defined industry sector, which ac-counted for 30 per cent of take-up and the transport/logistics/distribution sector (16 per cent) took up thebaton, however. More than 30 per cent of Fortune 500companies are represented in the Paris Region. The di-versified international occupier base of the region al-lows for continually robust take-up levels, as well aslower rental volatility than, for example, London.11SupplyAnother strength of the Paris Region office market isthat it has a relatively controlled supply pipeline. Anoffice construction boom that resulted from the relaxa-tion of planning laws from 1985 to 1990 resulted in va-cancy rates rising from 3 to 12 per cent. Planning lawswere tightened in 199012and since, the Paris Regionoffice market has witnessed under two per cent of totaloffice stock complete each year.Annual Forecast Completions as a Percentage of Total Submarket Stock (Q42012)Source: CBRESome submarkets are expecting more new completionsthan the average over the next two years, however, no-tably La Défense. In 2013 we can expect the refurbish-ment of Tour Eqho (78,000m2) to finish and the con-struction of Carpe Diem (44,000m2) to complete. TourMajunga (63,000m2) and Tour D2 (45,000m2) are ex-pected to deliver in 2014.13These buildings are stillwithout occupiers at a time when there is a preferencefrom the part of large occupiers for low-rise, environ-mentally-certified, campus-style buildings with cheaperrents. Tour First, the tallest office building in France(80,200m2), which completed in 2011, still has to fill upthe remaining 20 per cent of its space.14Although LaDefénse is next to central Paris, its popularity is dimin-ished by the fact that transport links to and from thebusiness district are saturated and rents here are higherthan in the Inner Rim.VacancyVacancy Rate by SubmarketSource: CBRE0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%4.0%4.5%Paris Centre West Outer Rim Southern Paris Ile-de-France Northern Paris Western Crescent Inner Rim Paris La Défense2013 2014024681012Northern Paris Southern Paris Paris Centre West Outer Rim Paris Region Paris La Défense Inner Rim Western CrescentPercentQ4 2009 Q4 2010 Q4 2011 Q4 2012
  6. 6. Real Estate Monitor: ParisReal Estate Monitor: Paris - 5The office vacancy rate in the Paris Region is one of thelowest in Europe, and has been more or less stable ataround 6.5 per cent since the third quarter of 2011. Thevacancy rate varies significantly by submarket, howev-er. The lowest can be found in the central Paris submar-kets of Northern Paris, Southern Paris and Paris CentreWest, and the highest in the Western Crescent and InnerRim. The gap between the lowest and the highest hasactually widened in recent quarters.Outside central Paris, the obsolescence of vacant supplyis becoming an issue due to advancing workplace re-quirements and evolving employer requirements.15Thisis worsened by increasing environmental legislation.According to the Observatoire Régional de l’Immobilierd’Entreprise en Ile-de-France (ORIE), in 2005 12 percent of vacant buildings have been vacant for four yearsor more. This percentage increased to 18 per cent in Q22012.16RentsParis Region Prime Office Rents by SubmarketSource: CBREPrime office rents17have fallen over the past four quar-ters in the Western Crescent and La Défense as bothsubmarkets have seen their vacancy rates increase. Else-where prime rents have remained broadly stable.Since 2011, prime rents in the 7th arrondissement ofParis (Southern Paris submarket) have caught up tothose of the CBD. These rents have been achieved inrenovated 19thcentury buildings situated in prestigiousaddresses. At €830 per m2per year, prime rents inSouthern Paris are now slightly above those of theCBD. This is due to four consecutive lettings at 23 ruede l’Université during 2011-2012: McDermott Will &Emery, Tai Ping Carpets, Capital Fund Managementand AT Kearney.The 7th arrondissement of Paris has traditionally beenassociated with embassies and ministry buildings, butthe French General Review of Public Policies, whichaims to reduce public spending, has led many govern-ment entities to sell off buildings that have become ex-pensive to refurbish to current standards. 23 rue del’Université, for example, was the old building of theCustom House. Government bodies have vacated sever-al buildings in the area, including 15, avenue de Suffren(former home of the Planning Department) and 103, ruede Grenelle (former home of the National EducationMinistry). Many government entities have also beenrequired to move to locations where rents do not exceed€400 per m2per year, like the Eastern Inner Rim.18These dynamic presents opportunities for investors, be-cause high-quality refurbished offices in prestigiousaddresses in this micro-market have become a viablealternative to the CBD for occupiers.19According toCBRE, companies that were based in the right bank ofParis, have moved to the left bank of Paris in the pasttwo years (examples include Alcatel, Boston ConsultingGroup, McDermott and Capital Fund Management).Average Weighted Rents for New, Restructured and Renovated Office SpaceSource: CBRE, ImmostatAverage rents have headed South everywhere over pastyear with the exception of Northern Paris. The strongestfalls since 2007 were seen in the Western Crescent (-16per cent for new, restructured and renovated, or NRRspace and -15 per cent for second-hand space), the InnerRim submarket (-12 per cent for NRR space and -14 percent for second-hand space) and La Défense (-14 percent for second-hand space and -9 per cent for NRRspace).200300400500600700800900Q42003Q12004Q22004Q32004Q42004Q12005Q22005Q32005Q42005Q12006Q22006Q32006Q42006Q12007Q22007Q32007Q42007Q12008Q22008Q32008Q42008Q12009Q22009Q32009Q42009Q12010Q22010Q32010Q42010Q12011Q22011Q32011Q42011Q12012Q22012Q32012Q42012EuropersquaremetreperyearInner Rim Northern Paris Outer Rim Paris Centre West Paris La Défense Southern Paris Western Crescent901101301501701902101998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Index100=1998Paris Centre West Southern Paris Northern Paris La Défense Western Crescent Inner Rim Outer Rim
  7. 7. Real Estate Monitor: ParisReal Estate Monitor: Paris - 6Since 2007 average rents only increased in Northernand Southern Paris (4 and 2 per cent respectively forNRR space) and Northern Paris (1.5 per cent for second-hand space). The fact that these two submarkets areboth central and cheaper than Paris Centre West hasbeen attracting occupiers. They consequently have thelowest vacancy rates in the Paris Region. In spite of thetrend for large occupiers to regroup in modern officebuildings in the Inner Rim, cheaper submarkets in cen-tral Paris are still attractive to small and mid-sized oc-cupiers.Average Weighted Rents for Second-hand Office SpaceSource: CBRE , ImmostatInvestmentParis Region Office Investment Volumes (excluding portfolio deals)Source: CBREAlthough down by 18 per cent on 2011 volumes, invest-ment in offices was stronger than expected during 2012.International investors continued to seek the perceivedsecurity of the Paris property market; they accountedfor 47 per cent of office investment volumes during theyear and were particularly active in the larger deals(accounting for 79 per cent of deals over €200 mil-lion20). International investor interest is still strong be-cause the Paris Region continues to have relatively solidfundamentals and is one of the most liquid office mar-kets in the world. In addition, with the globalised natureof occupiers, prime assets here are more resilient thanprime assets in markets where occupiers are more ex-posed to the national economy or to one specific sec-tor.21Most Active Global Investment Markets - OfficesDeals values over €10m reported in contract or closed in past 12 monthsSource: Real Capital Analytics, 28.12.2012European, Middle Eastern and Asian sovereign wealthfunds (SWFs) have been particularly strong players inrecent years, making very large acquisitions mainly incore properties/locations. Globally they are increasingtheir allocations to real estate and reducing their alloca-tions to bonds22and in general, they are equity buyerslooking to make long-term placements (e.g. 30 years).23Abu Dhabi Investment Authority, Hong Kong Mone-tary Authority, Qatar Investment Authority and NorgesBank Investment Management have been particularlyactive in Paris of late, but there are potentially manyother SWFs that could start buying in this market, in-cluding China, Malaysia and Singapore.24The recentactivity of some of these in London indicate that theymight move onto Paris next, as London is usually thespringboard for cross-border investment in Europe.Paris Centre West and Southern Paris were the onlysubmarkets to witness an increase in investment vol-umes from 2011 to 2012. This is not surprising sincethey were home to two of the largest deals of the year.The Qatar Investment Authority bought 52-60 Avenuedes Champs Elysees (building of 26,850m2) in the 8tharrondissement from Groupama for 547 million eurosand a yield of 3.90 per cent. It also bought 90 boulevardPasteur (building of 30,000m2) in the 15tharrondisse-ment for 252 million euros.25801001201401601802001999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Index100=1999Paris Centre West Southern Paris Northern Paris La Défense Western Crescent Inner Rim Outer Rim0200040006000800010000120001400016000180002000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012MillionEurosNorthern Paris Southern Paris Paris Centre West Western Crescent La Défense Inner Rim Outer RimLong-term average0510152025London Metro NYC Metro Paris Tokyo San FranciscoMetroHong Kong Washington DCMetroLos AngelesMetroSeoul SeattleBillion€
  8. 8. Real Estate Monitor: ParisReal Estate Monitor: Paris - 7La Défense has seen weak levels of investment activityfor a number of years. Rents have been falling here fora number of years and obsolescence is a growing prob-lem26as many buildings date from the 1970s and arefacing increasing environmental regulations.YieldsPrime Office Yields by SubmarketSource: CBREPrime office yields27in the Outer Rim have moved outby 25 basis points over the past quarter, otherwise theyhave been flat everywhere except Paris Centre West andNorthern Paris where they compressed by 25 basispoints (to 4.25 per cent and 5.75 per cent, respectively).Overseas money into Paris has been one factor helpingto push yields down.With the exception of Northern Paris, where it stabi-lised, the spread between the Paris Centre West primeyield and the prime yield in the rest of the submarketsof the Paris Region has continued to increase. Investorsare still targeting Paris Centre West, where the centralbusiness district (CBD) is located. The spread betweenthe Outer Rim and Paris Centre West is currently thehighest it has been since we 2004. The same goes for LaDéfense.Prime Yields: Spread from Paris Centre West SubmarketSource: CBREParis office market outlookConsumption is liable to make a negative contributionto GDP this year and net exports are anticipated to notmake any contribution at all. Our forecast 0.4 per centgrowth in GDP is therefore likely to come from invest-ments that will in all probability remain positive butonly a touch higher than in 2012. A stronger outlookfor 2014, at one per cent GDP growth, would rest essen-tially on the elimination of the negative contribution ofconsumption. In spite of this prudent outlook, the risksto the economy remain predominantly on the downside.A weak national GDP context and worsening employ-ment outlook will continue to weigh on a recovery indemand for offices in the Paris Region during 2013 ascompanies continue to be in ‘cost saving’ rather than‘expansionary’ mode. In spite of weak overall comple-tion levels, depressed demand means that we will con-tinue to see stagnant prime rents and weakening averagerents in most submarkets during 2013. Given higherthan average completion levels and quite a bit of obso-lete space, both La Défense and the Western Crescentare expected to see prime and average rents continue tofall in 2013.Paris Region Office Take-up versus French GDPSource: CBRE, INSEE, CAPBSWF and international institutional investment activityis likely to continue in 2013. The closing and liquida-tion of some German open-ended funds might also willalso generate investment activity. There is no particularreason, however, for investment volumes to be strongerin 2013 given the weakness of the occupier market. Theprime yield in Paris Centre West is likely to fall slightlyduring the year, but prime yields in other submarketsare likely to go up given the stagnation of rents and thefact that the bond yield trend today is up rather thandown as a result of a renewed confidence in SouthernEurope and the general switch from bonds to equities,due to the latter’s strong performance. Prime yields inthe Western Crescent and La Défense are very likely tocontinue to increase in 2013 given weakening funda-mentals.3.003.504.004.505.005.506.006.507.007.508.00Q32004Q42004Q12005Q22005Q32005Q42005Q12006Q22006Q32006Q42006Q12007Q22007Q32007Q42007Q12008Q22008Q32008Q42008Q12009Q22009Q32009Q42009Q12010Q22010Q32010Q42010Q12011Q22011Q32011Q42011Q12012Q22012Q32012Q42012PercentInner Rim Northern Paris Outer Rim Paris Centre West Paris La Défense Southern Paris Western Crescent050100150200250300Q32004Q42004Q12005Q22005Q32005Q42005Q12006Q22006Q32006Q42006Q12007Q22007Q32007Q42007Q12008Q22008Q32008Q42008Q12009Q22009Q32009Q42009Q12010Q22010Q32010Q42010Q12011Q22011Q32011Q42011Q12012Q22012Q32012Q42012BasisPointsInner Rim Northern Paris Outer Rim Paris La Défense Southern Paris Western Crescent-4%-3%-2%-1%0%1%2%3%4%-40%-30%-20%-10%0%10%20%30%40%2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013Take-up Paris Region (y-o-y change) (LHS) Annual GDP Growth France (RHS)
  9. 9. Real Estate Monitor: ParisReal Estate Monitor: Paris - 8Housing marketSecond-hand Apartment Price IndexSource: INSEE, NotairesFrench residential prices fell during 2008-2009 as a re-sult of the Global Financial Crisis and Big Recession,but only by a limited amount (10 per cent for second-hand apartments). Prudent lending practices (in Francea loan is granted depending on the household’s capacityto repay, credit does not exceed a third of householdincome and most property loans come with fixed inter-est rates and a maximum repayment period of 20-25years28) and conservative construction levels helpedprevent the excesses that destabilised other countries’financial systems and economies. France was thusspared any hangover from a housing fiesta like Spainand Ireland, and in general the country has strong hous-ing fundamentals, so once economic growth returned,so did residential price growth. From 2010 to 2011 boththe French economy and housing market recovered, andby 2011 second-hand apartment prices were higher thanthey were at their 2007 peak.Paris Second-hand Apartment Price IndexSource: INSEE, NotairesIn Paris, second-hand apartment prices literally soaredduring 2010-2011, due to a marked safe-haven effect(investors were facing highly uncertain and volatile fi-nancial markets) and particularly weak supply.29Themonetary and financial contexts at the time also encour-aged residential investment during this period.INSEE Monthly Consumer Confidence SurveySource: INSEEThe northwards trend in prices seems to have come toan end during the course of 2012, however. The samefactors that had a negative effect on the office market(economic slowdown, rising unemployment and politi-cal uncertainty) are currently making consumers waryof such a big investment such as buying a house.A plethora of tax increases have been introduced to bal-ance the government’s budget, and many of them areaimed at the housing market. This is another explana-tion for the moroseness of the market of late. Frequentfiscal changes create a sentiment of instability thatweigh down on investment projects. Changes includethe restriction of tax reductions that spurred the marketin recent years. The zero-interest loan scheme for firsttime buyers is now limited to new properties and socialhousing tenants who want to purchase their homes.30Inthe buy-to-let and secondary home markets, the intro-duction of higher tax rates on capital gains and the in-troduction of a new law announcing a ceiling limit onrents have cooled things down considerably on thehome-buying front. Considering how high prices are,yields have become less attractive with more taxes.31Other changes include tax increases on vacant proper-ties.20406080100120140Q11997Q31997Q11998Q31998Q11999Q31999Q12000Q32000Q12001Q32001Q12002Q32002Q12003Q32003Q12004Q32004Q12005Q32005Q12006Q32006Q12007Q32007Q12008Q32008Q12009Q32009Q12010Q32010Q12011Q32011Q12012Q32012IndexParis Ile-de-France (excluding Paris) French Regions-15%-10%-5%0%5%10%15%20%25%20406080100120140Q11993Q31993Q11994Q31994Q11995Q31995Q11996Q31996Q11997Q31997Q11998Q31998Q11999Q31999Q12000Q32000Q12001Q32001Q12002Q32002Q12003Q32003Q12004Q32004Q12005Q32005Q12006Q32006Q12007Q32007Q12008Q32008Q12009Q32009Q12010Q32010Q12011Q32011Q12012Q32012IndexParis Secondhand Apartment Price Index (LHS) Annual Growth (RHS)708090100110120130Jan-00May-00Sep-00Jan-01May-01Sep-01Jan-02May-02Sep-02Jan-03May-03Sep-03Jan-04May-04Sep-04Jan-05May-05Sep-05Jan-06May-06Sep-06Jan-07May-07Sep-07Jan-08May-08Sep-08Jan-09May-09Sep-09Jan-10May-10Sep-10Jan-11May-11Sep-11Jan-12May-12Sep-12Jan-13IndexLong-term average
  10. 10. Real Estate Monitor: ParisReal Estate Monitor: Paris - 9Average Lending Rates (bank loans only)Source: Observatoire du Financement des marchés Résidentiels - Crédit Loge-ment / CSAIn spite of low interest rates (the average lending ratewas 3.29 per cent in Q4 2012 according to the Observa-toire du Financement des Marchés Résidentiels), lend-ing standards practiced by French banks have tightenedslightly in Q4 2012. According to CBRE, loans havebecome more difficult to obtain, in particular, the de-posit required has gone up to 15-20 per cent of the val-ue of the property, against 10-15 per cent demandedpreviously. Notaires de Paris have also seen an increasein loans refusals. The consequence is that demand fornew housing loans has been heading South, althoughthe low points seems to have been reached in May2012.Bank Lending Survey - Lending Standards in FranceLoans to Households for House Purchase(Previous three months)Source: Bank of FranceAccording to Notaires de Paris, transactions of second-hand apartments in Paris during the last quarter of 2012stood at 5,930, which was only just above the 5,730apartments sold during Q4 2008 (the middle of the re-cession). During 2012, 27,690 apartments were sold inParis, which was 10 per cent lower than the levels trans-acted during 2011, and only just above the 26,540apartments sold during 2009 (the weakest year since1996). The same source states that from 2000 to 2010the average annual number of second-hand apartmentssold in Paris stood at 36,700. The Paris Region sawroughly the same decline in the sale of second-handapartments from 2011 to 2012 as Paris itself (11%).Second-hand house transactions fell by 14% in the ParisRegion.The decline in transactions of new apartments from2011 to 2012 was even stronger (although the newapartment segment is only 20 per cent of the Paris Re-gion and 3 per cent of Paris). It was -24 per cent in Parisand -17 per cent for the Paris Region. New houses inthe Paris Region were the worst hit from 2011 to 2012(-28 per cent).32France: Second-hand Residential SalesSources: CGEDD, Notaires, CASASecond-hand transaction levels are down but they havenot collapsed entirely, as the market still has robust de-mand drivers. These include the decreasing size ofhouseholds through social changes like ageing and ageneral trend for decreased cohabitation, the fact thatpeople still want to own and to prepare for their retire-ment and the fact that France attracts international buy-ers looking for quality of life. Interest rates are also cur-rently at the lowest they have ever been, which can onlysupport housing sales.Monthly New Lending for House Purchases - FranceSource: Bank of France2.> 0 = Tightening of lending standards< 0 = Weakening of lending standards050100150200250Q12003Q22003Q32003Q42003Q12004Q22004Q32004Q42004Q12005Q22005Q32005Q42005Q12006Q22006Q32006Q42006Q12007Q22007Q32007Q42007Q12008Q22008Q32008Q42008Q12009Q22009Q32009Q42009Q12010Q22010Q32010Q42010Q12011Q22011Q32011Q42011Q12012Q22012Q32012EstimatedQuarterlyVolumnes(ThousandUnits)-40%-20%0%20%40%60%80%020000400006000080000100000120000140000160000180000January2004April2004July2004October2004January2005April2005July2005October2005January2006April2006July2006October2006January2007April2007July2007October2007January2008April2008July2008October2008January2009April2009July2009October2009January2010April2010July2010October2010January2011April2011July2011October2011January2012April2012July2012October2012January2013EuroMillions-CumulatedoveroneyearLevel (LHS) Year-on-year growth (RHS)
  11. 11. Real Estate Monitor: ParisReal Estate Monitor: Paris - 10During 2012 prices have remained rather sticky in spiteof lower transaction levels. According to Century21,unless a forced sale takes place because of a divorce,death or the owners moving countries, current ownersdo not have to sell, and therefore are not prepared toaccept to lower their asking prices. Prudent lendingpractices and a fairly rigid labour market means thatforced sales like we have seen elsewhere have not beenreplicated in France. Buyers have also become moreselective. The average number of days it took to sell aproperty in Paris increased by 15 days from 2011 to2012, reaching 59. In the Paris Region it took 13 dayslonger to sell a property in 2012 from 2011, or an aver-age of 77 days. A lack of investment alternatives andless favourable taxation are also not encouraging peopleto sell or accept lower prices.At end 2012, prices have begun heading South. Accord-ing to Notaires de Paris, second-hand apartment pricesin Paris fell by two per cent in quarterly terms in thefourth quarter of 2012, and in the Paris Region they fellby 1.4 per cent. In annual terms, prices in Paris fell by 1per cent and in the Paris Region they fell by 0.6 percent. Second-hand houses saw smaller price falls in theParis Region.The performance of the Paris Region residential marketis very diversified. For example, in Paris itself, thestrongest median price falls of second-hand apartmentsfrom 2011 to 2012 were witnessed in the 7tharrondisse-ment (-4.8 per cent, median price in Q4 2012 of€11,740 per square metres), 20tharrondissement (-4 percent, median price of €6,900) and 16tharrondissement (-3.8 per cent, median price of €9,550). Over the sameperiod, the strongest median price increase were foundin the 10th(+5.2 per cent, median price of €7,720), the2nd(+4.6 per cent, median price of €10,000) and the 8th(+2.5 per cent, median price of €10,560).33According to CBRE, there has been a two-speed marketfor high-end properties. For properties between €2 and€5 million, the volume of sales have dropped substan-tially as buyers have become more picky. French resi-dents, in particular have become very concerned abouttaxes. Conversely, the market for properties over €5million has stayed quite active. This part of the marketis dominated by non-residents who are not dependenton financing. Uncertainty surrounding the tax status ofnon-residents has, however, had an impact in this seg-ment of the market as well. We should remember, how-ever the that high end of the market only accounts forabout 1.5 per cent of total sales in Paris.34Residential market outlookThe French economy is expected to remain stagnant in2013 (we project GDP growth to be 0.4 per cent duringthe year), which means that the unemployment rate willcontinue to creep up. French consumers are very sensi-tive to the job market situation and tax increases arereducing their spending capacity even further. All thesefactors will continue to have a negative impact on thehousing market. We expect housing sales in 2013 toremain weak both nationally and in Paris. In Paris pric-es are very high, which is a deterrent for many to buy(in certain neighbourhoods, prices increased by over 40per cent over the past five years). According to CreditAgricole Economic Research, households have beencompromising on size and location to be able to buy inthis market. There is a limit to how much householdscan concede, however, since debt repayments cannotexceed one third of income and interest rates are cur-rently at historically low levels.Given this context, Credit Agricole Economic Researchforecasts a 5-6 per cent decline in second-hand residen-tial prices nationally in 2013 and a 3 per cent fall in Par-is second-hand apartment prices (end 2012 to end2013). Globally speaking, however, the decline in resi-dential prices is expected to be limited in France sincethe country’s housing market is not in a logic of ‘forcedsales’ and fundamentals are considered to be robust.There will, of course, be local variations.The economic risks in France are to the downside, how-ever. If they materialise, house price declines might bemore marked and incur over a longer period than ex-pected.
  12. 12. Real Estate Monitor: ParisReal Estate Monitor: Paris - 11Sources1Eurostat data2IMF, “France : Selected Issues”, IMF Country Report No. 13/3, January 20133IMF data4Eurostat, total unemployment, mainland and territories5ILO data6CBRE definition7Catella, “Property Market Trends, France” March 20128CBRE definition9According to CBRE, “a transaction concluded when the building is still a project or under construction, but whose structure will be modified to suit the needsof the occupier”.10“Un marché paradoxal”, p. 3, Les Echos, 12 March 201311<http://www.joneslanglasalleblog.com/the-investor/insights-and-outlooks/paris-ample-opportunities-for-cross-border-investment>12Nappi-Choulet, I, “The Paris Office Market Crisis”, February 1996<http://knowledge.wharton.upenn.edu/papers/479.pdf>13Deloitte Drivers Jonas, “Crane Survey: Paris Offices”, Winter 2012<http://www.deloitte.com/assets/Dcom-France/Local%20Assets/Documents/Votre%20Secteur/Immobilier/Etude_Paris_Crane_Survey_12_2012.pdf>14“La tour First fait la pluie et le beau temps”, Le Parisien, 19.12.2012<http://www.leparisien.fr/hauts-de-seine-92/la-tour-first-fait-la-pluie-et-le-beau-temps-19-12-2012-2419433.php >15“Europe’s Office Buildings facing Greater Obsolescence, Value Depreciation than Ever Before”. World Property Channel, 30 April 2012<http://www.worldpropertychannel.com/europe-commercial-news/european-office-market-report-jones-lang-lasalle-offices-2020-research-programme-office-building-obsolescence-europe-commercial-property-depreciation-eurozone-debt-crisis-5582.php>16Les Echos: Immobilier Special MIPIM, Mardi 12 Mars 2013, page 2.17According to CBRE, “the prime rent should represent the ‘achievable’ open market headline rent which a blue chip occupier would be expected to pay for: an office unitof standard size commensurate with demand in each location… an office unit of the highest quality and specification…and office unit within the prime location (CBD, forexample) of a market. It is assumed that the occupier will also be agreeing to a package of incentives that is typical of the market at the time.”18CBRE, “La Rive Gauche de Paris dans un nouvel élan”, Sabine Echalier, Mars 2012.<http://www.cbre.fr/fr_fr/etudes/viewpoint/view_point_content/view_point_left/viewpoint_rive_gauche_2012.pdf>19“A Paris, lEtat vend ses bijoux de famille, les entreprises sy installent”, Challenges, 12 September 2011<http://www.challenges.fr/finance-et-marche/20110912.CHA4109/immobilier-parisien-l-etat-vend-ses-bijoux-de-famille-les-entreprises-s-y-installent.html>20CBRE data21“Sovereign wealth property could reach 20% of assets”,Property Investor Europe, p.18, Vol. 9 ed. 293 March 201322Ibid.23<http://www.lettrem2.com/edito.php?id=114>24Ibid.25CBRE data26<http://www.propertyeu.info/peu_storage_root/PEU12-MA06-068-BRIEFING-FRANCE.pdf>27According to CBRE, prime yield "represents the yield which an investor would receive when acquiring a grade/class A building in a prime location (CBD,for example), which is fully let at current market value rents".28“French Real Estate: A Little Bubbly”, Wall Street Journal, 14 September 2011,<http://online.wsj.com/article/SB10001424053111903532804576568573122088718.html>29CASA Economic Research30Global Property Guide31CBRE, Residential France, Market View, January 201332Chambre des Notaires de Paris33Ibid.34CBRE, Residential France, Market View, January 2013
  13. 13. Real Estate Monitor: ParisReal Estate Monitor: Paris - 12Paris Region office submarketsSource: Immostat / CBRE*Data points refer to Q4 2012
  14. 14. Real Estate Monitor: ParisReal Estate Monitor: Paris - 13© 2012, CREDIT AGRICOLE (SUISSE) SA all rights reservedThis document has been prepared by the Real Estate Operations department of Crédit Agricole (Suisse) SA.The information contained herein is based on indications provided by third parties which have not been independently verified by Crédit Agricole(Suisse) SA. No guaranty, representation or warranty (express or implied) can be given that such information is current, accurate or complete. Inparticular, no guaranty, representation or warranty (express or implied) can be given that the price mentioned herein (if any) reflects the fairvalue or the market price and that any report on the valuation of the object is current, accurate or complete.Internet transmission cannot guarantee the informations security and integrity and the Bank excludes all liability in this respect.This document is for information purposes only and shall not be construed as an offer, invitation or solicitation to purchase the object or as aninvestment, legal, audit, tax or other professional advice.Crédit Agricole (Suisse) SA may at any time modify this document or stop producing or updating this document.Crédit Agricole (Suisse) SA may have issued or issue in the future other documents that are inconsistent with, and reach different conclusionsfrom, the information presented in this document. Crédit Agricole (Suisse) SA is under no obligation to ensure that such other documents arebrought to the attention of any recipient of this document.This document may not be photocopied or otherwise reproduced, distributed or reused without the prior written consent of Crédit Agricole(Suisse) SA. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any otherparty without the prior express written consent of Crédit Agricole (Suisse) SA.Crédit Agricole (Suisse) SA is not responsible for the information contained in this document. To the extent permitted by applicable laws andregulations, Crédit Agricole (Suisse) SA accepts no liability whatsoever for any direct or consequential loss arising from the use of this documentor its content.