Skip Ribbon Commands
Skip to main content



The French Real Estate Market in Q2 2014

Paris, 17July 2014 - The rise in demand we detected last quarter has been fully confirmed. The rental market is returning to rude health after a year best forgotten in 2013. More than €1.1 million sq m of take-up had been recorded mid-year, thanks to a particularly strong second quarter. The rental market has therefore grown by 24% in a year (representing an additional 200,000 sq m approximately). This growth was driven by large transactions.

Rental demand from large companies was particularly dynamic. This market segment recorded around 30 transactions for 500,000 sq m, representing 45% of take-up in the first half of the year. Although the number of transactions increased only slightly, the floor areas leased were much larger. In the second quarter alone, no fewer than five leases were recorded for more than 30,000 sq m, including KPMG (La Défense), L’Oréal (Levallois) and Solocal (Boulogne).

La Défense has finally returned to growth – takeup in the first six months of the year has already reached the same level as the whole of 2013 (approximately 100,000 sq m). We should also note that the Central Business District recorded strong performances in the first half-year (up 33%).

New offices still fetch a premium. One in two transactions relates to latest generation buildings, the vast majority of which are still under development. The quality of the location and the external and internal environment are essential for attracting and retaining the best staff. The attractive rental conditions being offered in some areas with a plentiful supply of new large properties are also winning over companies looking to consolidate their staff on a single site. Prime rents are still at the lower end of their values.

In the Central Business District, the prime rent stands at €735, with the most expensive transactions failing to break through the €750 mark in the last year. The situation is different in La Défense. There, prime rents have plummeted to €505. “As we mentioned last quarter, we believe that La Défense has now reached its lowest point in terms of rental values. The first large tenants for new, recently delivered building will probably give a new impetus to the market, although for the time being La Défense is still tring to find its correct rental level,” says Jacques Bagge, Head of the French leasing team of JLL.

Supply, meanwhile, is completely flat. Immediate supply remains at around 3.9 million sq m, representing 7.5% of commercial real-estate in the Greater Paris Region. The proportion of new buildings available remains stable at 20%. Most large tenants signed in the first half of the year are pre-lettings, which will have no impact on the supply of existing offices. We note that although supply remains limited in Paris (5% vacancy rate), availability in the Western Crescent remains at around 1 million sq m. La Défense is beginning to see a decline in supply however, with the vacancy rate having fallen to just below 12%.

Against this backdrop, no boom in rental activity is to be expected in the second half of the year. Nevertheless, the promise of a better 2014 seems likely to be fulfilled. The trend observed seems set to continue, with the 2 million sq m mark expected to be reached this year. In terms of rental values, it is difficult to say when exactly the rebound will happen and on what scale.

For supply, in the absence of a clearly defined recovery companies will continue to pursue streamlining policies rather than growth. Supply is therefore not likely to fall significantly in the short term

The investment market
The volume invested in the first half of 2014 reached a record level since the peak in 2006 and 2007. As we forecast, the Greater Paris Region investment market continued to rise in the second quarter, reaching a previously unseen level of €5 billion in investment. In all, almost €8.2 billion was committed in the first six months of the year, an 85% increase in a year.

Large transactions again made a significant contribution to this strong performance, with two large sales recorded in the second quarter (Risanamento portfolio sold to Olayan Arabian Packaging Company and Chelsfield for €1.1 billion and “Beaugrenelle” sold to a consortium of French investors made up of Apsys, the
Madar Group and Financière Saint-James for €700 million). If we exclude exceptional transactions, the market still grew by 14% compared with the first half of 2013 to reach €5 billion, an equivalent level of activity to 2012.

French investors continue to play a significant part in transactions for more than €100 million, accounting for eight of the 12 transactions in the second quarter. International investors are meanwhile making a winning return, representing 54% of total amounts invested out of the half-year’s large volumes. In fact, the quarter’s largest transaction was by foreign buyers (Olayan). While investors’ remain focused on prime property – notably including the sale of 49-51 Avenue George V to a core American investor (Prudential) – they are also showing interest in other asset types although supply remains insufficient to attract British and American opportunists.

In terms of the forward-purchase market, after a sluggish first quarter with just one transaction, the second quarter recorded no speculative forward-funding sales and just two off-plan sales were finalised (the “SFR Campus” and towers 1 and 3 of the “CityLights” development).

Although offices remain investors’ favourite hunting ground, retail property accounted for 16% of investment volumes. This strong performance is due to the sale of “Beaugrenelle” and the Carrefour portfolio for €400 million. As for logistics, one large transaction was recorded in the second quarter, the sale of the “Loren” portfolio by Foncière des Régions to Logicor for an estimated €285 million. Logicor is the Blackstone group’s asset management arm, which is looking to achieve a dominant position in European logistics.

In terms of prime yields, the CBD remains stable in a range of between 4.00% and 4.50%. In La Défense, these yields have contracted slightly and now range from 5.50% to 6.00%. Despite prime yields being close to their record low, historically low yields from OAT treasury bonds, at around 1.60 %, are maintaining an attractive risk premium of around 230 base points.

Considering the products currently on the market and products which could become available over the year, the second half should return to a usual level in terms of amounts invested.

Staffing problems for both buyers and sellers are slowing transaction times, which is having a knock-on effect on market activity. “It is regularly taking an extra 1 to 2 months to complete on all deals”, says Stephan von Barczy, Head of French Capital Markets Group at JLL, adding, “we are already working on products that will be sold next year”.
We therefore anticipate the investment volume at the end of the year to be between €12 billion and €14 billion.