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The French Real Estate Market in Q3 2013


Paris, 7 October 2013 – Investment was up at the end of the third quarter, although the rental market has suffered from the disappearance of large turnkey leases
The leasing market in the Greater Paris region

Total take-up at the end of the third quarter stood at 1.3 million sq m in the Greater Paris region, 30% down on 2012.
As we mentioned mid-year, the sharp fall in turnkey transactions, following two quite exceptional years, is having a significant impact on results for 2013. At the end of the third quarter of 2013, the shortfall in take-up in the turnkey and own account segment alone represents almost 500,000 sq m, with half as many transactions as the same period last year.

In response to the deterioration in indicators and the economic outlook since mid-2012, as well as the particularly bleak climate nationally, companies are putting off their real-estate projects, reducing their ambitions or, in many cases, renegotiating their leases. The phenomenon of lease renegotiations has increased in the Greater Paris region over the past two years. “One of the main drivers of demand over the past two years has been the search for cost savings. This driving force has now disappeared entirely, with companies whose only aim is to lower their real-estate costs now content to renegotiate their leases with landlords, who are anxious to avoid lease vacancies in their portfolios,” explains Jacques Bagge, Head of the French leasing team of Jones Lang LaSalle.

Immediately available supply further increased this quarter (by 2%) to reach 3.758 million sq m. Most increases were concentrated in Paris’s Western Crescent, a market which traditionally has a higher volume of new deliveries.
Although up this quarter, the share of new supply in immediate supply remains well below the levels of 2009 and 2010, representing 22% of immediate supply at the end of the third quarter.

Prime rents fell in the Greater Paris region's reference markets, to €705/sq m in the CBD and to €510/sq m in La Défense. These markets also experienced a strong level of rental activity, stable in the CBD and up by 49% in La Défense.
Taking into account transaction delays after the end of the third quarter, take-up in the Greater Paris region for 2013 is likely to be around 1.8 million sq m. The outlook for 2014 is more favourable, with the first signs of improvement in the global and national economy since the summer. Rental activity is therefore likely to gradually pick up from mid-2014.

Investment market in the Greater Paris region

With €3.6 billion of investment in the third quarter, the investment market recovered its momentum over the summer. Since the start of the year, €7.9 billion has been invested – an 8% increase in a year.

Following a slight decrease at the end of June, the major transactions in progress in the spring were completed as expected over the summer, particularly including the sale of the "Adria" tower in La Défense for €450 million, the sale of “Eco Campus” in Châtillon for €380 million and the sale of the “Sequana” tower in Issy-les-Moulineaux (Jones Lang LaSalle transaction). A total of 20 transactions for more than €100 million had been signed by the end of September, two more than last year.

We again note the very balanced nature of the Parisian market this year in terms of individual transaction volumes. 50% of investment volumes were in transactions for less than €100 million, with particularly strong growth in activity in the €50 to €100 million segment (+70% in volume). The share of office assets increased slightly, boosted by large transactions in the last quarter.
French investors continue to dominate the majority of the investment market, including the largest transactions, with two out of the three biggest deals concluded in the third quarter signed by the French (“Eco Campus” and “Adria”). Nevertheless, we are seeing a return of more opportunistic Anglo-American investor profiles, including HINES and BLACKSTONE which have adopted significant positions in the Paris market in recent months.

Investors’ appetite for "Core +" and "Value Add" products has been confirmed, with the current supply of products failing to meet demand. The variation in pricing between sellers and buyers is narrowing, bringing more liquidity to this market segment. Investor demand for the best products is sustained, with prime yields remaining unchanged despite the rise in interest rates since the spring.
In terms of financing, although banks continue to dominate the market, debt funds have effectively rolled out a significant proportion of their capital and new insurers have emerged. Competition over margins is partly offsetting the rise in interest rates, although overall financing costs have almost certainly reached their lowest point.

 "Some major assets are currently being sold and the acquisition teams are very busy. Since they need to provide more information to their committees, slightly slowing down the completion time required for transactions, we anticipate the investment volume at the end of the year to be between €10 billion and €12 billion,” explains Stephan von Barczy, Head of French Capital Markets Group at Jones Lang LaSalle.