Paris vision

Investment Be-bop Tempo

2018

4 Partner KnightFrankLLP CEO ParisOffice PHILIPPE PERELLO EDITO of theseisFive Guys,operatinginthe foreign retailers. Oneof themostdynamic tourists andthearrivalinFrance ofnew consumer confidence,the of return is benefitingfrom in asharpupturn business models.Theretail market have animportantrole toplayinweb As thedigitaleconomygrows, stores understanding thecomingmonths. Vision 2018,givesussomecluesto one ofthekeycommentatorsinParis (France) andASPIM inflows. TheChairmanofSwissLifeREIM investors andrecord property investment transactions, thedominationofFrench was boostedbytheproliferation oflarge second-best yearever. Thisperformance In 2017theinvestmentmarketrecorded its exceptional strength. market boastingexcellentresults and 2018 describesacorporatereal-estate Ten yearson,inanewera,ParisVision depth oftheParisregion market. stands outaboveallistheresilience and of visibilitywere attheirpeak,yet what crisis. Atthattime,uncertaintyandalack financial crisis,followedbytheEurozone economy faltered inthewakeof the2008 in thelastdecade,particularlyasglobal long term.Thishasnotalwaysbeeneasy provide aforward-looking analysisoverthe The secondaimofParisVisionwasto them all. their strategy. Iwould liketosincerely thank vision withusandtotellmore about each yearhavebeenkeentoshare their Frank teams,aswellofourclients,who reflected the real experiencesoftheKnight different kindofstudy, avibrantreport that The originalaimwassimple:toproduce a environment –infact,almostanotherera. in 2008aquitedifferent market publication, whichwasfirstproduced [1] celebrating the10 This isaveryspecialeditionsinceweare I ampleasedtopresent ParisVision2018. Dear friends, Companies). (French AssociationofRealEstateInvestment

Association desSociétés dePlacementImmobilier th anniversaryofthe [1] , Frédéric Bôl, 10 I wouldliketotaketheopportunityofthis corporate real estate. looks settobeanexcitingonefor moment andcertainlyanewera–which We are withoutdoubtseeingaFrench in coworkingspaces. Regus, setsoutthevisionofthispioneer Europe,Southern AfricaandBrazilat of thereport, PauloDias,the CEOof illustration ofthisand,inathird section development ofSpacesisanexcellent spaces tailored tonewhabits. The constantly innovatetocreate working investors, developersandoccupiers experienced suchtransformation,as Finally, never has corporatereal estate Paris Vision. depth atthestartofthisnewissue is examinedbyDanielCoheningreater Paris Express. This“French moment” the backdrop ofcompletion oftheGrand host theOlympicGamesin2024against confidence andParishasbeenchosento average, thebusinessworldhasregained growth isnowinlinewiththeEuropean activity hasnodoubtplayedarole. French segment. Theaccelerationineconomic intense activityinthelarge-transactions highest levelsince2007andparticularly region isalsobuoyant,withtake-upatits The office rental marketintheParis its ambitionsforthecomingyears. adopted bythenewkingofburgersand Cebral, setsoutthereal-estate strategy issue, itsDevelopmentDirector, Philippe very buoyantrestaurant sector. Inthis I hopeyouenjoyreading thisissue. your plansareality, thisyearandbeyond. Paris Vision2018willhelpyoutomake confidence andloyalty, inthehopethat th anniversarytothankyouforyour PARIS VISION 2018 5 6 the international stage reflects France's ascendance to Olympic Games toParis also The decisiontoaward the2024 opinion 2018, asare mostobservers. shouldn't havealong-termimpact. Iamtherefore optimisticfor increase ininflationandpartlyasa result oftaxation,butthis France inthefirsthalfofyear, dueinparttotheshort-term slowdown inthegrowth ofconsumerpurchasing powerin employment andsalariesare pickingup.There maybeaslight 2018. Investmentbycompaniesandhouseholdsisrobust and predicted tocomfortablyachievegrowth ofaround 2%,for 2%. Thelatestindicatorsfrom InseeshowthatFranceisalso growth inglobaltradeof5%andEurozone growth ofalmost which israre. TheOECDisforecasting globalgrowth of4%, coming toanend.Allindicatorsare good,andinallcountries, say thatthedecadelostasaresult ofthefinancialcrisisis Daniel Cohen:Confidenceiscertainlyhighandwecannow that oftheotherOECDcountries? with thepaceofFrench economynowalignedwith optimistic. Iimaginethatthisoptimismisnowconfirmed, your analysesoftheFrench economy were cautiously general economicclimate.Lastyear, forthefirsttime, 10 great yearsonParis Vision, enlighteningusonthe Philippe Perello: DearDaniel, you'veworkedwithusfor Applications). Director ofCEPREMAP(Centre pourlarecherche É Founding memberofthe supérieure deParis Professor andDirector oftheEconomicsDepartment ofÉcolenormale Daniel Cohen É cole d'É conomie deParis conomique et des conomique etdes PARIS VISION 2018 7 PP: Without wishing to give way to excessive optimism, PP: Brexit, which has entered the second phase of aren’t we experiencing a “French moment”, as our negotiations, appears more as an opportunity for country gains special influence and appeal due to the Europe to reinvent and strengthen itself. Do you agree? current geopolitical context? The organisation of the What impact do you think it will have on the French Olympic Games in 2024 is part of this movement. Do economy? We are seeing the first effects of Brexit on our you expect a significant impact from the Games on corporate real-estate markets with the announcement of investment in the city or its appeal? relocations to Paris, which appear to me to show Paris clearly becoming more appealing to large international DC: France is undoubtedly finding its feet on the international companies, compared with other global cities. What do stage. After an annus horribilis in 2016, during which Brexit you think are the levers to continue along this path and and Trump's election appeared to indicate an unstoppable take advantage of this success? rise in populism around the world, the election of Macron, on an explicitly pro-European ticket, elicited surprise. Many DC: Overall, I found that Europe's reaction to Brexit was weak. factors obviously came together to make his election possible, No momentous idea has yet emerged, apart from a promise to particularly the collapse of the traditional parties, but he do better. From an institutional perspective, everyone knows successfully seized the opportunity, and there have also been what they need to do: complete the banking union, overhaul comments showing admiration for his personal achievements the European Stability Mechanism and, as proposed by in the international press. Macron may embody the new face President Macron, give the Eurozone its own budget, approved of a more ambitious Europe, although at the end of the day, by a parliamentary vote in which only Eurozone MEPs are everything will depend on the quality of the Franco-German eligible to take part. But, if we look in greater detail, we see that relationship. The good news is that Germany's grand coalition, everything is very complex. Will the ESM be reformed according if confirmed, gives him a fantastic opportunity to advance his to the German idea of, in practice, strengthening its inter- European agenda. governmental dimension? Will the budget be a minor gadget or will it actually have macroeconomic importance, capable of The decision to award the 2024 Olympic Games to Paris also withstanding crises as severe as the one we have just been reflects France's ascendance to the international stage... What through? is most interesting is that the Games will come at the same time as the expected completion of the Grand Paris projects. Paris In terms of the City's role, it will obviously be reduced after and its suburbs may emerge totally reinvented from this dual Brexit. But I don't think that one city in particular will take over stimulus. the leadership it held. Frankfurt is in a good position, but Paris, Dublin and even New York will also benefit, while London will also long continue to host part of the global financial activity. PP: In your opinion, what are the main challenges our country must tackle to support vigorous and sustainable PP: Since spring 2016, the Haut Conseil de Stabilité growth? Do you think that the reforms that have been Financière (HCSF - High Council for Financial Stability) implemented or announced are heading in the right has issued several warnings about the level of prices for direction? commercial property. From our perspective the market DC: All developed countries have faced the same dilemma in fundamentals remain healthy, with controlled supply the last 30 years – how to revive their economies’ structural and a positive trend in demand from both occupiers and growth. We have entered an upswing in the cycle, which investors. What is your analysis in this respect? will unblock all sorts of initiatives. For French growth to be DC: Real estate in general, and commercial property in sustainable, it needs to be inclusive, which means that young particular, remains very dependent on the question of future people looking for their first job and a career, the long-term interest rate movements. For several years, as a result of the unemployed and those who have lost out to new technologies crisis and incredibly weak inflation, we have benefited from must benefit from this upswing to become firmly rooted in a very loose economic policy in both the United States and economic life. It's not just about finding a job, but about Europe. Mario Draghi will hand over to a new head of the ECB contributing to overall economic productivity, improving quality, in 2019. If a moderate successor is appointed, like Mr Powell in making the best use of new technologies to include as many the United States, I think we can avoid major disruption to asset people as possible in the growth cycle. The government is values. One parameter I think it is vital to monitor – which could backing radical reform of vocational training, which is indeed prove a fly in the ointment – is movements in the euro. Europe vital, but universities and career paths need to be completely has immense trade surpluses and, from the point of view of overhauled if we want France to fully embrace the 21st century the rest of the world, the euro generally appears undervalued. digital economy. Avoiding excess strengthening will be one of the ECB's (implicit but important) targets post-Draghi… be-bop Tempo INVESTMENT

The ride cymbal keeps time in bebop. An unrestrained, feverish tempo which provided jazz with denser, faster, more complex forms and rhythms. Much more than an evolution, bebop was nearly a revolution from the aesthetic commonly heard in the 40’s and 50’s. This new music allowed Charlie Parker, Dizzy Gillespie and Thelonious Monk to express the passion of their epoch’s hopes and dreams.

Far from the music, this diabolical tempo can today be found in the investment market of the Paris region. A market that moves fast. Very fast. A market undergoing profound change, gaining in complexity, yet brimming with optimism. Listen to the ride cymbal. Bebop!

HIGHLIGHTS OF 2017

Investment in office property amounted to €18.9 Even more than in recent years, the Paris region billion in Île-de-France in 2017, down 7% from 2016. attracted mainly French investors, who accounted for 72% of all investment. Volume in 2017 was nonetheless at historically high levels. For the first time ever, the market exceeded While the trend is towards more stable prime yields, the €15 billion mark for the fourth consecutive year. top assets in markets just outside the CBD still experience occasional declines. Highly focused on office properties, the market was driven by large deals. French provincial markets outperformed Île-de- France in 2017. The year 2017 was especially good for La Défense and the western crescent. The CBD and the rest of The outlook for 2018 is positive for the investment inner Paris did not perform as well. market, which is expected to remain very active. With their higher yields, core-plus and value-added assets came back into favour in 2017. The share of forward speculative sales also rose significantly. PARIS VISION 2018 9 Something Old, Something New

Something Old, Something New: the title of one of Dizzy Gillespie’s key albums says it all. Change, even the most radical, is always made on the basis of tradition. A tradition which is transformed but never entirely disappears. That is precisely what is occurring today in the investment market. The famous trumpeter took inspiration for this title from a tradition in Victorian England: on her wedding day, at the start of a new life, the bride wore something old and ... something new. But it doesn’t end there: ‘Something old, something new, something borrowed, something blue.' #01 - Amounts invested

now considered one of the five big international Blue Note property markets. Paris can stand tall opposite Trends Something blue... In jazz there is the ‘blue London! note’, a note played with a slight drop, usually a half-tone. This blue note could For the first time ever, 2017 was be heard in the 2017 investment market, the fourth consecutive year with as reflected by sums invested in the Paris region. investment of more than €15 billion, proof that the Paris region market has taken on a new –7%: with €18.9 billion in 2017, dimension. investment in Île-de-France declined. However, it remains The year 2017 will also go down in history as 38% above the ten-year average. bebop because of the incredible crescendo in activity as the year progressed. After a disappointing start, the year ended in triumph, –7%: That’s the half-tone, a small blemish on an with investment of nearly €8.8 billion in the otherwise excellent year. It corresponds to the fourth quarter alone. A level never before seen decline in 2017 of office property investment in Île-de-France! Of course, much of that in Île-de-France. At €18.9 billion, the result is performance was due to the sale of Cœur less than the €20.4 billion invested in 2016. The Défense for €1.8 billion, but there’s no doubt decline is real, but it is small if one takes into that the market has taken on a new dimension. consideration that 2016 nearly exceeded the record-setting 2007. Ten years later this record There was little at the beginning of the year to still stands, but that doesn’t change the fact hint at the extraordinary performance to come, that 2017 experienced one of the market’s best especially given the robust second half of 2016. performances ever, well above (38%) the ten- Arbitrage decisions had been encouraged by year average of €13.7 billion. A year that was an amendment to the France–Luxembourg definitely bebop! tax agreement, which brought to an end, as of 1 January 2017, the tax exemption for The year 2017 was also the fourth consecutive Luxembourg-registered companies with regard year to end above €15 billion. This was a first to gains realized from sales of property assets in for the Île-de-France market, since the €15 France. Numerous investors, both French and billion mark had previously been reached international, had enhanced their Luxembourg only twice, in 2006 and 2007. That is, the structures in order to trade on the French current situation is anything but banal. What market. For arbitrages planned for the short or we are seeing is a transformation of the scale medium term, it became urgent to act no later and size of the Île-de-France market. It has than the end of 2016. This incentive created increased in depth and attractiveness, and is 10 up previously existingtrends. The marketfounditsfootingbyramping ACTIVITY BYTRANSACTIONAMOUNT help from thelargereconomy. contrary to2016,itwasachievedwithout was allthemore remarkable because, de-France market,whoseperformance decline wascompensatedforbytheÎle- the declineinfirsthalfof2017.This The resulting ‘hangover’partially explains – thosemostsoughtafterbyinvestors. resulted inadepletionofprime assets an accelerationeffect andcould have Source: KnightFrank Change ininvestmentÎle-de-France Paris market, aswell thesignificant therefore reveal investorconfidence inthe at greater risk. Recentperformances play, becausesuchassetsputthebuyer driver hadbeendifficult tobringinto and portfolios.Previously thisgrowth but alsothedisposalsoflarge assets in salesvaluesfornumerous buildings, Such extreme concentrationreflects arise nearly 40in2015. result ittook35transactionsin2016,and half themarketin2017.Forsame months. Just28transactionsmadeup steadily confirmedoverthepastfew This wasalready thecase,andhasbeen handful oflargeandverydisposals. focus oftheinvestmentmarketona The firstofthesetrends isthegrowing only 28transactions. in 2017wasachievedthrough Half oftheParisregionmarket 1 1 1 1 1 1 1 1 1 1 2 2 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 ,0 ,0 ,0 ,0 ,0 ,0 ,0 ,0 ,0 ,0 ,0 ,0 ,0 ,0 ,0 ,0 ,0 ,0 ,0 ,0 ,0 ,0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

In million € q1 20 q2 2007 q3 q4 q1 8 q2 2008 q3 q4 q1 2 q2 200 q3 q4 q1 8 €1 billion,for9placeVendôme. year, thelargest salehadbeenfor‘only’ Crédit AgricoleAssurances. Theprevious deal comprisingAmundi,Primonialand Défense for€1.8billionthrough a club A goodexamplewasthesaleofCœur investment. available cashearmarkedforproperty Source: KnightFrank Concentration ofinvestmentactivityinÎle-de-France q2 2010 q3 q4 Half ofinvestmentvolumes: q1 11 q2 2011 28 transactions q3 q4 2 0 1 q1 7 121 q2 2012 q3 q4 q1 11 q2 2013 q3 q4 q1 1 q2 2014 q3 q4 Half ofinvestmentvolumes: q1 10 q2 35 transactions 201 q3 2 q4 0 1 q1 6 20 q2 2016 A q3 q4 q1 18 q2 2017 q3 q4 PARIS VISION 2018 11 Market concentration came at a price of a market that inspires confidence and the decline in total investment in Île-de- of a slight decline in the number of attracts strong demand. However, this France. transactions, which over 12 months same concentration also exposes the dropped from 444 to 410. The decrease market to potentially high volatility, and is The share of retail has fallen concerned mainly acquisitions of less than therefore only a stopgap measure. sharply. The €1.2 billion €50 million, but it was also felt at higher prices. Sales of assets for more than ACTIVITY BY ASSET CLASS decline from 2016 for this €200 million accounted for 38% of total asset class corresponds investment in 2017 (compared with 34% The investment market in Île-de-France roughly to the decline of the in 2016). Such amounts are now more was concentrated in another way too in Paris region market. commonplace because of higher individual 2017: offices monopolized a considerable share of the market. While the Paris asset prices, and help compensate for the Aside from a few large transactions on market has always been dominated decline in the number of transactions. leading high streets (Montaigne, Champs- by office properties, this tendency was Elysées, Faubourg Saint-Honoré), the However, this compensation is inadequate especially pronounced last year. More than share of retail assets in investment fell for certain categories, particularly €16.3 billion was invested in this asset sharply over the year, from 14% to 8%. transactions of €100–200 million, which class, or 87% of total investment in 2017. are in decline in both volume and number. In 2016, the share was ‘only' 81%. Though historically rare in the Paris region because of issues related to cost and scarcity, industrial properties performed Investment in Île-de-France, by Office assets have long relatively well. Numerous sales of French transaction amount dominated the Paris region and pan-European logistics portfolios, Source: Knight Frank market, and in 2017 their including Paris region assets, favoured this share grew to 87% of total asset class. investment.

Not that investors lacked enthusiasm 20% for other asset classes, but the scarcity 38% of buying opportunities was even more severe in those other classes than in the 2017 office sector. 16% This was especially the case for retail deals. Despite the high purchase prices and low yields for office properties, 26% demand remains strong in Île-de-France. As soon as well-located, high-quality assets appear on the market, investors rush to buy them.

23% The slowdown in retail property sales 34% appears all the more severe, given their performance in 2016, when they 2016 contributed significantly to the Île-de- 13% France market. The retail market was boosted last year by arbitrages of large, mixed-use assets (e.g. 9 place Vendôme, 30% 65–67 Champs-Elysées and the Interstellar portfolio). However, this flow did

< €50 million not continue into 2017. Owners of retail assets held on to them, since they had no €50 to €100 million reinvestment opportunities. Although retail €100 to €200 million investment attracted nearly €2.8 billion in > €200 million 2016, it generated less than €1.6 billion in 2017. This growth engine has clearly One of the keys to the success of 2017 stalled, a counter-performance that largely was the concentration of activity, which explains the decline in the investment provided a floor for maintaining investment market in 2017. The €1.2 billion missing at historically high levels. This is the sign from retail corresponds more or less to

PARIS VISION 2018 13 Investment in Île-de-France, by the Singapore sovereign-wealth fund GEOGRAPHIC DISTRIBUTION OF by asset class* GIC of Westin Paris Vendôme. The historic ACTIVITY Source: Knight Frank hotel (428 rooms, including 80 suites) was bought by Henderson Park for nearly The restrictions of the investment market €550 million. can be seen in the underperformance of the central business district (CBD) in 4% Already owner of the largest hotel in Paris, 2017. Although the sector attracted more 8% the Méridien Etoile, Henderson Park than €6.1 billion in investment in 2016, has deep insight into the hotel sector. or 30% of the Île-de-France market (excl. However, the sector isn’t exclusively for regional portfolios), investment volume specialists. It also attracts the interest fell to just over €3.4 billion in 2017. The 2017 of investors who have been absent decline was brutal, finally stopping at hitherto. For example, Mata Capital, a –44%. Unsurprisingly the ‘centrality’ of real estate asset manager for private and this market was weakened, and its share institutional investors, has completed in regional activity fell to 18%. In reality, 87% a large acquisition through the Simply the CBD suffered from an exceptionally portfolio. The acquisition comprises strong 2016, which resulted in a scarcity 45 economy hotels in Paris and the of acquisition opportunities in 2017. In provinces, with a total of nearly 3,300 5% addition, high prices and yields at historic rooms. The acquisition was motivated by lows dissuaded some buyers from acting, 14% an opportunistic strategy of medium-term or at least slowed the completion of valuation, which allows for a debt ratio of certain transactions. 2016 more than 60%. What is the reason for this growing interest in hotels in general, and for Paris Paris CBD underperformed in hotels in particular? There are a bundle of 81% 2017, with investment of €3.4 favourable and diverse factors, including billion (–44%). a healthy tourism sector, significant available capital and interest rates which Encouraged by the solid take-up and low have stayed low. In its press release for Of ces tenant risk in Île-de-France, investors have Retail the Westin acquisition, Henderson Park explored alternative solutions to the CBD. Industrial noted: ‘The Macron effect has boosted They are interested in areas that had been business confidence, which can be felt * Excluding non-divisible portfolios. less active and are thus likely to provide both inside France and internationally. more opportunities. Many locations are Specialization necessarily limits investor The Rugby World Cup in 2023 and the trading at a significant discount to CBD leeway, as well as the investment market’s Olympic Games in Paris in 2024 will only prices, thereby providing higher yields capacity for growth. Substitutions have enhance Paris’s status as a leading tourist despite recent compression. It was in been sought in the form of alternative destination.[1] such a context that La Défense proved assets, such as clinics, nursing homes, to be the big winner in 2017. To a lesser student housing and hotels. Interest in extent, the western crescent also turned in these asset classes is clear, even though Despite a few spectacular a good performance. these niche sectors have their own deals, such as the sale of specific ways of functioning. Their results the Westin Vendôme for are not accounted for in our analysis. €550 million, investment in The recovery of La Défense alternatives declined in 2017. continued in 2017. At nearly Substitutions were sought in €3.5 billion, investment rose the form of alternative assets, Notwithstanding these expressions 40%. but these niche sectors have of interest and several noteworthy transactions, investment volume for The recovery of La Défense began in their own specific ways of alternatives, particularly in hotels and functioning. 2016 and gathered steam in 2017. During health care, ended the year on a downturn this time, investment volume rose 40%, because of a shortage of large portfolio from less than €2.5 billion to nearly €3.5 The trend for hotels, already highlighted sales. A similar drop affected retail billion. La Défense achieved its second- in the previous Paris Vision, has been properties, for which a relative lack of best results ever and accounted for 18% reaffirmed. This asset class stood out at opportunities hampered activity. of total investment in Île-de-France in the very end of 2017 with the finalization 2017 (compared with 12% the previous one of the largest deals in years, the sale year). Naturally this performance owes [1] Les Echos, 14 December 2017. 14 imminent finalization of the Window sale. imminent finalizationofthe opportunities. Anddon’t forgetthe under wayatLaDéfenseoffers new the future, asthedevelopmentprojects One examplethatcouldbeimitatedin Hekla tower, formore than€550million. speculative salesof76,000sqminthe towers, asreflected by recent forward to investorsinsearch ofhigh-quality office properties, LaDéfenseremains attractive a significantshortageofhigh-quality event. Inaregional contextdefined by the LaDéfenseperformancetothisone However, itwould beamistaketoreduce pace. Défense willbeabletokeepupsucha exceptional, anditisunlikelythatLa sector. Atransaction ofthatscaleremains more thanhalfoftotalinvestment inthe Défense, whichaloneaccountedfor a great dealtothehugesale ofCœur * Alltypesofassetscombined Source: KnightFrank Geographic andquarterlydistributionofinvestmentactivityinÎle-de-France* market accounted for25%ofregional crescent, a riseof11%from 2016.This billion wasinvested inthewestern performed solidlyin2017.Nearly €4.8 crescentfor LaDéfense,thewestern On thebasisofargumentssimilar tothose high-quality officetowers. Défense isattractivewithits scarce high-qualityassets,La In aregionalcontextof IER RI €2,180 million WESTER CRESCET €4,790 million

1 2 3 4 5 6 7 ,0 ,0 ,0 ,0 ,0 ,0 ,0 €3,445 million 0 0 0 0 0 0 0 CD 0 0 0 0 0 0 0 2017 a €3

million D é ,4 fe 7 n 5 s investment). accounted for‘only’14%oftotal mega-deals (i.e.theEcowesttransaction crescent marketislessdependent on contrary toLaDéfense,thewestern Plaza, fornearly€475million.Notethat, for justunder€700million,andSoOuest core assetsinLevallois-Perret: Ecowest, attributable mainlytothesaleoftwolarge activity. These high-qualityresults are markets - Location ofinvestmentactivityin2017andcomparisonchangesvarious e 201 S 201 201 €3 R million PARIS e s Crescent ,110 Western + 11% t OF 25 % Source: KnightFrank Q4 Q3 Q2 Q1 Défense + 40% 18 % La

inner rim €2,466 million - 44% 18 % Paris CBD western crescent €4,310 million Moulineaux) aswellPéri-Défense Boulogne-Billancourt andIssy-les- loop(especially 3.25%. Thesouthern 2017. Yields havefallentolessthan crescent)investment inthewestern in than €2billionininvestment(42%of Neuilly-Levallois received slightly more the principalbusinesspoleforarea. the abovementionedsalesandisnow of Neuilly-Levalloishasbenefitedfrom crescent,Inside thewestern thesubsector of Inner - 8% 17 % 1 2 3 4 5 6 7 Paris Rest ,0 ,0 ,0 ,0 ,0 ,0 ,0 €6,106 0 0 0 0 0 0 0 million 0 0 0 0 0 0 0 cbd 2016 a €2,475

million D é - 12% fe 12 % Inner Rim n s e €3 R million paris e s ,379 t of PARIS VISION 2018 15 (mainly Nanterre) were the other principal jazz. While there are star soloists, it is the sites for activity in the western crescent, collective talent that shines. In this way the with investment close to €1.2 billion each. saxophonists on the bandstand can either stand out or lay back through the chorus of trombones, trumpets, and rhythm On the basis of arguments section. Or vice versa. And very often, the similar to those for La public goes wild with applause. Défense, investment in the western crescent rose 11%, to nearly €4.8 billion.

By the end of 2017, with the exception of La Défense and the western crescent, market conditions in the Paris region had declined. Inner Paris (except for the CBD) has still not regained its footing. Activity is slowing, despite large deals in the 12th and 13th arrondissements (Vivacity, Kadence and Parc Avenue), and is holding steady at a little over €3.1 billion. The decline is modest (–8% from 2016) only because of the second half's forward sale for 50% of the Duo towers for nearly €550 million (18% of total investment).

The decline could have been worse, like the –12% experienced by the inner suburbs. However, recovery in forward sales for the inner suburbs was insufficient to avoid a decline in investment, which stayed at a little more than €2 billion. The inner suburbs still seem riskier than the western suburbs, regardless of the subsector. The attachment of Clichy to the northern inner suburbs has not allowed the latter to gain ground on the southern or eastern suburbs, despite the robustness of rental activity. Encouraged by the outlook for the Grand Paris Express and the Olympic Games, mentalities could change rapidly, as long as take-up holds firm.

Underperformances are rarely definitive in the investment market. Early 2018 should allow certain markets to rebound, such as inner Paris.

Underperformances are rarely definitive. The first few months of 2018 should provide proof, as several significant transactions in inner Paris (excl. the CBD) are in the process of being completed (e.g. Fhive and Cœur Marais). This is one of the strengths of Paris-region big band 16 so low. decade thattheshare ofcore assetswas very dramatic,anditwasthefirsttimeina buildings. Thechangewasnonetheless of veryexpensivetrophy assets and large category stilldominatesfortheacquisition with 67%ayearearlier).Ofcourse,this only 49%ofmarketactivity(compared share fellsharplyin2017, accounting for of investmentintheParisregion. Their assets monopolizedmore thantwo-thirds investment marketin2016,whencore medium term)wasthemaindriverof assets, withnoriskintheshortor on core assets(i.e.thehighest-quality in 2017wasthatofsecurity. Thefocus The first‘tradition’calledintoquestion very Free Jazz market whosekeywillultimatelybe in 2017ontheinvestmentmarket.A tradition: thesethingsalsotranspired Change, stretch out,break with born. spontaneity. ThatishowFree Jazzwas leaves room more totheirmoodsand improvisation, amusicalformthat harmony inorder tofocusmore on gradually movedawayfrom traditional and CecilTaylor, manymusicians Inspired Coleman byOrnette Free Jazz #02 -Investorstrategy other hand,itwas thenotionofriskthat This isstillvery much thecase.On classes, yetata moderatelevelofrisk. in comparisonwithotherinvestment popular becauseitoffers attractiveyields Investment inoffice properties remains has changedyetisstillrecognizable. jazz, investmentinoffice properties as Free Jazzremains fundamentally How shouldthisbeinterpreted? Just of totalinvestment. 2017 accountedforonly49% share hasfallensharplyandin the best)assetsisfading;Its The obsessionwithcore(i.e. are seeking higher yields. AfterÎle-de- 3% in2016.Clearly thisiswhere investors 10% ofthemarket, compared withonly schemes. Theseschemesaccounted for spectacular forforward speculative with 11%in2016),growth hasbeen on therise(i.e.13%in2017,compared forward sales.Whiletheiroverallshare is tenant riskisreflected inthesuccessof This increasing acceptanceofcontrolled year. moving from 15%in2016to23%last without secure lettings)hasalsogrown, be redeveloped orunderdevelopment The share ofvalueadded(buildingsto region, compared withonly18%in2016. for 28%oftotalinvestmentintheParis revaluation potential.Theynowaccount which are partiallyvacantor have redefinition are thecore-plus buildings The mainbeneficiariesofthisrisk value of? develop ortoincreasethe is ittoacquireabuilding high-quality stock,howrisky suffering fromashortageof ebullient lettingsmarket redefined in2017.Inan The notionofriskwas of buyingopportunities. major obstaclepresented bythe shortage Furthermore, itprovides awayaround the raises thepossibilityofhigheryields. This approach lowersriskexposure and on core-plus andvalue-added assets. shifted theirriskexposure byfocusing of theirportfolios,manyinvestorshave strategy onthebasisofsizeandtype While investorsmustdefinetheirown pay a(too)highprice–isoverexposure. development orredevelopment –orwho investors whowishtoacquire abuildingin high-quality properties, themainriskfor market suffering from ashortageof investors in2017.Inanebullientlettings was redefined byagrowing numberof with 3%ayearearlier. market in2017compared accounted for10%ofthe speculative sales,which in thesuccessofforward level oftenantriskisreflected The acceptanceofacertain glaring shortageofhigh-qualitysupply. on thelettingsmarket,forwhichthere is a These forward salesare inhighdemand and LaDéfense(themostliquidmarkets). speculative sales:74%are ininner Paris in thegeographicbreakdown of forward This changeinriskperception is reflected they hadmadetherightdecision. properties), itisclearthatinvestorsfelt supply (comprisingonly13%ofGradeA stock reduced tojust6.1%oftotal than 2.6millionsqm,andwithavailable France ended2017withtake-upofmore PARIS VISION 2018 17

Investment in Île-de-France, by risk profile (for transactions of at least €20 million) Property markets, at least on a European Source : Knight Frank scale, are now considered a single entity for purposes of strategy, risk and yield. OPCIs and SCPIs now invest approximately one-fourth of their funds outside France. Insurers are not waiting 23% 10% 15% 3% on the sidelines. For example, Amundi 12% acquired Atrium, a 60,000 sq m building in 13% Amsterdam, while Axa recently acquired a 2,700 sq m retail property in Venice. 2% 2017 48% 18% 2016 49% 59% This focus on synergies and 67% 8% complementary assets also drove Unibail- 26% Rodamco’s acquisition of Westfield, which 28% made it the leader in jumbos (i.e. the largest shopping centres). Core incl. pre-let forward sales Financial flows outside France are Core Plus growing, bringing French investors into incl. partially let forward sales a global movement from which they had Value Added long been absent. incl. forward speculative sales

For alternatives to traditional core investments, investors also looked outside Prime yields in Europe (end of the 4th quarter 2017) - Source: Knight Frank classic office property assets by acquiring alternative assets such as hotels, tourist City Offices Logistics Shopping centres residences, residences providing medical Amsterdam 3.60% 5.00% 4.75% assistance, clinics, and residences for the elderly or for students (see ‘Breakdown Barcelona 4.00% 5.75% 4.25% by asset class’). The provinces have also Berlin 3.10% 4.50% 3.75% been relatively successful. Investment there rose in 2017, as opposed to a Brussels 4.50% 5.50% 4.25% decline in the Paris region. While it is true Budapest 6.00% 7.75% 5.85% that this performance was boosted by Dublin 4.00% 5.25% 4.50% pan-European deals – particularly sales of logistics and retail portfolios – and Frankfurt 3.25% 4.75% 3.75% that regional markets remain partially Hamburg 3.20% 4.50% 3.75% uncorrelated from Île-de-France because they have their own specific players, Lisbon 4.75% 6.50% 5.00% opportunities identified in the provinces are London 3.50% (West End) 4.00% 4.50% now systematically considered. The goal is Madrid 3.75% 5.75% 4.25% always the same: to secure a satisfactory return on investment and to reduce risk. Milan 4.00% 6.50% 5.00% This aim has served to broaden investor Moscow 9.75% 11.00% 10.25% horizons despite low individual investment amounts and reduced liquidity, to the Prague 4.75% 6.00% 4.75% extent that investors no longer stop at Stockholm 3.50% 5.50% 4.25% national borders. Warsaw 5.25% 6.75% 5.50% 18 made awinning comeback,focusing class. Overthe past decadetheyhave rediscovered theappealofthisasset properties, French investors have by performancesachievedwith office of fundstobeplaced,andinspired regulations, prompted bythe scale by stricterstandards andprudential Things havechangedindeed.Inspired today. investment marketwassmallerthanitis Their role wasallthelargerbecause German, SpanishandAnglo-Saxon. players,mainly the doortointernational to largeresidential portfolios,opening of disinvestment,especiallywithregard estate. Furthermore, theywere inacycle ones, hadshownnospecialinterest inreal French investors,particularly institutional of Europe’s markets. mostinternational the crisis,Île-de-Francehadbeenone However, itwasn’t alwaysthisway. Before economic crisisbroke outin2007–2008. in Île-de-Francesincethefinancialand dominated theFrench investment market not exactlynew. French investorshave investors. Buttheirpre-eminence is What isthedominantfamily?French Tree ofÎle-de-Franceinvestors. Let’s trytomakesenseoftheFamily change. change atleastasmuchitinspires despite itsvariousbranches,adaptsto there isanultra-dominant familywhich, underlying relationship. That’s right, disguise thefeelingthatthere isan the individualfactorsatworkcannot market. Whenwelookbackat2017,all watching theÎle-de-Franceinvestment An appealingapproach forthose title ofhisfirsttrioalbum,Family Tree. family tree… ofjazz!Thisinspired the and risingtalent,undertooktocreate a coherence –Grégory Privat,jazzpianist music –bothinitscomplexityand To understandthereality ofhis They bearastrikingresemblance. Family Tree #03 -buyers influence onthe marketin2017. these largetransactionshada profound Défense, formore than€550million.All purchase oftheHeklatowerinLa a clubdealwithPrimonialfor forward Billancourt fornearly€450million, andin for theacquisitionofIn/OutinBoulogne- Amundi remained visible,actingalone La Défense,formore than€270million. Paribas REIMboughtPalatin2and3,in in Montreuil, for€185million,whileBNP Française acquired theCityscopetower funds alsodeployedsignificantcash.La billion investmentinCœurDéfense.Other acquisition oftheyear, withtheir€1.8 Assurances, originatedthelargest in associationwithCrédit Agricole For example,AmundiandPrimonial, investment intheregion. market, accountingfor43%ofall to takethelion’s share oftheinvestment war chest,French investorswere able from 2016.Backedbysuch apowerful billion for2017,ariseofmore than 6% money, which isexpectedtoexceed€10 They tookinarecord amountoffresh lay behindmuchoftheyear’s success. Specialized real estateinvestment funds 66% to72%. capital investedinÎle-de-Francerose from investors grew considerably. Theirshare in To thecontrary, thedominanceofFrench The year2017didnotbuckthistrend. France. for fundsinvestedinÎle-de- from 66%to72%yearon investors hasgrown,rising The dominationofFrench market. change inthescaleofParisregion appetite thatinparthasprompted a especially Île-de-France.Itisthisvery logically onthedomesticmarket, headquarters inthe15 Prédica acquired theformerLaPoste exposure toverylargeassets. advantage ofspreading riskandlessening clubs deals.Suchassociationshavethe quickly formassociationsbymeansof players whichhavethecapacityto favour, especiallyforlocallyestablished acquisitions was,onthewhole,intheir The market’s focusonexpensive is nottheonlyreason fortheirdominance. The financialfirepower of French investors million. West ParkbuildinginNanterre for€185 acquired byACM.AXApurchased the in Neuilly. Also inNeuilly, Alegriawas than €120million)and164avenuePeretti €150 million),20ruedelaBaume(more flagship at51avenueMontaigne(nearly CNP madeseveralacquisitions:theFendi towers inthe13 forward purchase ofhalftheDuo example, NatixisAssurancesmadea including severalnoteworthydeals.For investment intheParisregion in2017, the French. Theygenerated 13%oftotal another categorylargelydominatedby SCPIs, insurancecompaniesconstituted Although lessactivethantheOPCIsand Ile‑de-France. for 56%oftotalinvestmentin two categoriesaloneaccount investment market.These French dominationofthelocal are largelyresponsiblefor Investment fundsandinsurers investors. were favourableforFrench well asthestrengthened euro expensive acquisitions as The market’s focuson th arrondissement, and th arrondissement. PARIS VISION 2018 19

Investment in Île-de-France in 2017, exception of prime shops, which appeal region market could have been even by investor type to some North American specialists stronger and should be long-lasting. Source: Knight Frank (e.g. Thor Equities, which acquired 32 rue des Archives), most North America The rest of the eurozone plays only investors are focused on value added a secondary role, limited to deals of assets. Redtree and Invesco bought the less than €50 million: for example, the 2% 7% Cèdre tower in La Défense, and LIM has acquisition of 63 rue Jeanne d’Arc (13th 3% 25% acquired the former RTL building, rue arrondissement) by the Belgian AG Real Bayard (8th arrondissement). Nonetheless, Estate, and the purchase of prime retail 13% despite the success of value added assets assets by the Dutch investment firm in 2017, North American investors are Vastned. 7% content with keeping the same place in the Paris region as last year. Notwithstanding these transactions, French investors have remained at the However, they have not hesitated to helm. The 2017 market felt like old home 43% explore opportunities to be found in week indeed. provincial markets, where they have run into Asian and Middle Eastern investors. Funds Real estate investment rms The latter two groups have become SCPIs/OPCIs very active on the French market, the Insurers result largely of the Logicor mega-deal Sovereign funds carried out by the Chinese fund CIC. Private investors However, they have slowed activity in Others Île-de-France, despite major deals such as the acquisition of Ecowest (by Middle Finally, the stronger euro deterred some Eastern funds represented by AGC Equity buyers from other currency zones, as Partners), and of So Ouest Plaza (Vestas French investments grew more expensive. Investment Management acting on behalf of Korean funds). While investors outside the eurozone remain in second place, they contributed only 8% of total investment, compared German investors are back, with 9% in 2016. Their decline would have and their interest in various been greater were it not for the acquisition buildings suggests that their at the end of the year by Norges Bank of return is sustainable. 6–8 Haussmann (9th arrondissement), for more than €460 million. Without this major acquisition by the Norwegian sovereign- In investment volume rankings they are wealth fund, the decline of investment by followed by eurozone funds, whose share Europeans outside the eurozone would grew slightly, to 5% of total investment. have been worse. For example, British After selling off numerous assets in recent investors have abandoned core office years, the Germans have become buyers property in the Paris region in order to look once again, investing nearly €900 million in the provinces, through the acquisition in several sizeable acquisitions, such as th of national portfolios (especially in retail Grand Central in the 8 arrondissement and logistics). In Île-de-France, retail parks (Union Investment) and Bords de Seine 1 and office stock with asset revaluation in Issy-les-Moulineaux (Deka). potential have retained their attention. Other German investors have expressed This opportunistic strategy has come interest in various buildings. This shows straight from North America. With the that the return of Germans to the Paris 20 Market share inacquisition: Market share inacquisition: 2017 2017 72% 5% eurozone France 2016 2016 66% 4% invested inÎle-de-France Europe outsideeurozone Source offunds Asia/middle east Market share inacquisition: Market share inacquisition: 2017 2017 7% 8% 2016 2016 9% 9% Market share inacquisition: Market share inacquisition: north america 2017 2017 1% 7% others 2016 2016 5% 7% PARIS VISION 2018 21 #04 - Prices and yields How High the Moon

This song's refrain asks how high the highest prices, and for the first time has This uneven change in prices influenced moon is, in a jazz standard interpreted outperformed Paris 5/6/7. Paris 12/13 has yields. While yields for top assets remain by many great musicians, from Ella also seen prices rise by 8% (to €14,800/ stable in the CBD, they lost as much as Fitzgerald to Art Tatum. A big question, sq m), to as much as La Défense’s 50 basis points in 2017 in Paris 12/13, and one contemplated by many great (€12,200/sq m). La Défense and Neuilly-Levallois. The minds. Especially since the moon, as contraction was less severe in Paris near as it seems when full and shining, 5/6/7, Paris 14/15, Péri-Défense and remains accessible only to astronauts It was outside the CBD that the southern loop – perhaps for no other and dreamers. rising market prices could be reason than a lower number of deals for found in 2017. Paris Centre core assets – and totalled around 25 basis Much more down to earth, this same Ouest, Paris 12/13 and La points. question continues to inspire the Défense experienced hikes of investment market, though here we’re not talking moon but price. Purchase between 8% and 11%. While yields remained stable prices and yields from real estate in the WBD, they lost up to 50 investment. ‘How high the yields?’ But it was markets long in the shadows of basis points in Paris 12/13, La skyrocketing prices that experienced the Défense and Neuilly-Levallois. Like the moon, acquisition costs remain biggest increases in 2017. Prime market high. However, 2017 was not a record values rose by 20% over 12 months in year for the CBD. The prime market value the southern loop, to €12,000/sq m, and At the end of 2017, yields for prime office for office stock contracted slightly, slipping by 21% in Neuilly-Levallois (€15,700/ assets in the CBD stood at between to under €25,000/sq m in Q4 2017 (–3% sq m). The inner suburbs also continued 3.00% and 3.25%, a level that we from 2016). to rise significantly, though from a much consider standard for core office assets. Rather than ‘decline’, however, the lower starting point (€7,800/sq m for the Yields of less than 3% have occasionally operative word here is ‘stabilization’, northern inner suburbs). appeared for a few mixed-use trophy because after four years of CBD price assets. hikes this little correction constitutes a The year 2017 was thus one of narrowing minor event. value gaps for prime assets between the CBD and other markets in the Paris region. While there are still considerable The year 2017 was not a differences, the CBD is now ‘only’ €6,600/ record year for CBD values. sq m ahead of its closest competitor, The prime market value for compared with €8,100/sq m at the end of office stock declined slightly 2016. in 2017 but remains near historic highs. Change in prime yields in Île-de-France - Source: Knight Frank

Yet while the CBD may serve as a price 7.00 % Of ces indicator for the market, it doesn't 6.50 % Retail reveal the various changes that might 6.00 % occur elsewhere in Île-de-France. The 5.50 % stabilization of prime values was not 5.00 % widespread, however, and they continued 4.50 % to rise in markets around the CBD. 4.00 % Benefiting from a growing phenomenon 3.50 % of so-called backwardation as well as 3.00 % 3.00 % from an increasingly attractive image, 2.50 % 2.75 % Paris Centre Ouest saw market prices 2.00 % for its best buildings rise 11% in 2017. Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 This sector is now in second place for the 2007 2008 200 2010 2011 2012 2013 2014 201 2016 2017 22 PARIS VISION 2018 23 Given the market values of retail stock The Île-de-France investment market in the CBD, yields of high street shops True, the best buildings have therefore seems far from overheating, as remain lower than those of offices and are been breaking price records long as yields shown during acquisitions close to yields of a year ago (i.e. around since the end of 2016, but remain only initial yields. However – and 2.75%). However, yields fell so sharply their yields continue to offer this is another key difference from 2007 – before 2017 that it would be hard to rents are no longer at the top of the cycle. imagine further compression. a very wide spread against After several years of moderate rent hikes, bonds (256 basis points at and given the scarcity of top-quality stock, At the end of 2017, prime the end of 2017). many landlords now plan to raise rental office yields were between revenues during the life of the asset, with higher yields as a bonus. 3.00% and 3.25% in the Does this suggest a growing sentiment WBD. For high street shops, that core assets are overvalued? That is unlikely, though records are no longer yields remained around being broken for prices paid, and investors 2.75%. are showing more conservatism with regard to their investments in real estate. In short, there was stabilization in the CBD With prime yields at current levels, the with occasional compression elsewhere. market remains below its previous low As for market values, the spread between point recorded before the financial crisis of the CBD and other markets narrowed over 2007–2008. Of course, the top buildings the year. It now stands at between 25 and have been breaking price records since 50 basis points in relation to inner Paris the end of 2016, but their yields should (except for Paris 18/19/20) and is at 100 be compared to those of other assets, basis points in relation to La Défense. At either stocks or bonds. Yet yields property the end of 2016, the spread stood at 150 yields remain superior! At the end of 2017, points. the spread with 10-year Treasuries was 256 basis points, well above the 10-year Asset valuation differences determined average of 224 basis points. Furthermore, on the basis of location have narrowed real estate’s lead grew in 2017, as the somewhat. Yet considerable differences spread had fallen to 238 basis points by can arise within a given market, on the the end of 2016. basis of a building’s intrinsic qualities. This phenomenon became even more visible in 2017, with the success of assets to Range of prime office yields, by location -Source: Knight Frank be developed or revalued. Although it is still difficult to determine a reference 5.50 % value for value added yields, given the 5.25 5.00 extreme differences among investment 5.00 % 4.75 programmes, it is clear that core assets 5.00 4.75 4.50 are receiving a premium. This premium 4.50 % 4,25 4.25 4.25 is generally between 125 and 150 basis 4.50 4.00 4.25 points in inner Paris, 250 and 300 basis 4.00 % 3.75 3.75 3.75 3.75 4,00 points in La Défense, and can even 4.00 4.00 3.50 3.75 exceed 400 basis points in peripheral 3.50 % 3.25 3.50 3.50 3.50 zones. With such premiums being paid, 3.40 it is easier to understand why many 3.00 % 3.20 3.00 investors have agreed to take on tenant risk for a building with development 2.50 % s e e 1 7 3 5 0 i / s s 1 1 2 1 o / / / / 6 l n n l / 2 4 0 9 CBD e e potential. a

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s P i é P P L s y r i l l r P a i a Nothern Bend u P Southern Bend P e N Eastern Inner Bend Nothern Inner Bend Southern Inner Bend 24 the french market those oflessthan€20million(–11%). between €20millionand€50(–12%),aswell declined 9%from 2016,witha marked fallinoperations depth oftheFrench market.However, themarket France. Thishighfigure reflects the robustnessand In 2017there were 717transactionscompletedin BIG ISBEAUTIFUL Source: KnightFrank Change intotalinvestmentvolumeFrance,allassettypes [1] deals. At€18.9billion,itsshare totalled 76% 7% in2017,Île-de-Francestillaccountsforthebulkof year’s investment.Althoughinvestmentvolumefell months oftheyearaccountedfornearlyhalf quarter. Withinvestment of€13.2billion,thelastthree performance wasattributabletoanexceptionalfourth market history, equalto2016andbehind2007.This average, 2017wasthesecond-bestyearinFrench market. Withresults 47%better thantheten-year the excellentmomentumofFrench investment result isnearlyidenticaltothatof2016,andconfirms In 2017,€26.9billionwasinvestedinFrance.The NEAR THESUMMIT rhythm section–nothingwasmissing! From thesaxes,trumpetsandtrombones, tothe performance, worthyofthegreatest BigBands. was particularlyup-tempoandswinging.Agreat the market’s musicevenbetter. In2017,thestyle slightly different drummer, adifference thatmakes dominant role. Therest ofthecountryisfollowinga the Parisregion, eventhoughthelatterplaysa Real estateinvestmentinFranceisnotlimitedto Big BandOrchestra In million € Excluding non-divisibleportfolios. 1 1 1 1 1 2 2 2 2 2 3 3 3 3 2 4 6 8 0 2 4 6 8 0 2 4 6 8 0 2 4 6 ,0 ,0 ,0 ,0 ,0 ,0 ,0 ,0 ,0 ,0 ,0 ,0 ,0 ,0 ,0 ,0 ,0 ,0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 0 0 7 Share of Île-de-France Annual investment Île-de-France Annual investment Provinces 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 [1] 2 . 2 0 1 3 2 0 1 4 2 0 portfolios acquired byCICandGLP, respectively. acquired byTikehau,andtheLogicor andGazeley and pan-European portfolios suchastheSofiloportfolio of DocksdeMarseille,andthesaleseveralnational in regional markets:forexample, Amundi’s acquisition Hekla, SoOuestPlazaandIn/Out),thoughafewwere Île-de-France (e.g.disposalsofCœurDéfense,Duo, in 2017,anetriseof28%yearonyear. Mostwere in 5 formore than€500million) totallingnearly€10billion €200 million. There were 19 such transactions (including This vitalityisduemainlytotransactionsofmore than 37% ofvolume. of morethan€200millionaccountedfor attributable tolargedeals.Transactions The Frenchmarket’s performancewas were completed. fourth quarter, when29outoftheyear’s 64transactions France in2017.Businesspickedupsignificantlythe on yearandaccountedfor61%oftotalinvestmentin 2017 (compared with73in2016),volumerose 7%year previous year’s performance.With64transactionsin in decline,theyallowedtheFrench markettoequalthe While transactionsofmore than€100millionwere also 1 5 2 0 1 6 26,900 2 7 6% 0 1 7 6 6 7 7 8 8 9 9 1 0 5 0 5 0 5 0 5 0 % % % % % % % % 0 %

25 26 provinces. the keystohigherinvestment inthe sold grewin2017,and wasoneof The shareoftheprovinces inportfolios Reim, respectively). Héritage portfoliosacquired byTikehauandPrimonial and evenformixed-useassets(e.g.theSofilo the HexagoneportfoliosoldbyAmunditoEurosic), Bricks andQuickportfolios),foroffice properties (e.g. logistics, butalsoforretail (e.g.theSolstice,Ekinox, volume intheprovinces. Thiswasthecasefor transactions formore than€50millionhelpedboost Two &OnlyandInterstellar).In2017,nearly 20 composed mainlyofParisregion buildings(Alpha, with 2016,whenthelargest portfoliossoldwere has declined.Thisisoneofthebiggestdifferences weighted towards assetsinÎle-de-France, theirshare 2017. Althoughportfoliossoldin2017were still 21% ofinvestmentinFrance2016to19% remained virtuallyunchanged yearonyear, from Sales ofportfolios(alltypesandassetsizes) Source: KnightFrank Investment volumeinFrance,byamounts > €1 €5 < €50million €2 0 0 0 to 0

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million 8 % 2 8 % 2 2 3 2 0 0 % 1 1 6 7 1 2 2 4 9 4 % % % 1 6 % of theHexagoneportfolio). portfolio disposal,andthesalebyAmunditoEurosic sold byANFtoPrimonialReimaspartoftheHéritage by thesaleofafewportfolios(e.g.office portfolio assets (LesDocksinMarseille,soldtoAmundi),and France wasboostedbysalesoflarge mixed-use Furthermore, 2017office investmentoutsideÎle-de- Unofi byGreentech inLillefor more than€25million. Marseille formore than€40million, andthesaleto the acquisitionbyDeutscheAMofCapJoliettein among the20orsosuchtransactionsin2017were between €20millionand€50million.Notable addition, there wasasignificant riseintransactions business parkof48,000sqmlocatedinToulouse. In Primonial Reimfornearly€90millionofGolfPark,a in Lyon formore than€100million,andthesaleto deals in2017were Deka’s acquisitionofNewDeal wider contextofrisingtake-up.Amongthelargest scale dealswere madeinmajor regional cities,ina excellent results oftheFrench market.Severallarge- The provinces were alsoactiveincontributingtothe accounted for86%ofalloffice investmentin2017. was slightlylessthanin2016,thoughaloneit While stilldominant,theshare oftheParisregion cities. benefited mainlythelargestprovincial The riseininvestmenttheprovinces exceptional. nearly 50%abovetheten-yearaverage,were dominance wasunsurprising,theresults of2017, figure virtuallyunchangedfrom 2016.Whilethis investment inFrancelastyear, or€18.9billion,a driver. Thisassetclassaccountedfor70%ofall Offices are byfarthe real estatemarket'sbiggest OFFICES: PREMIUMFORTHEBIGGESTCITIES possibility ofplacing larger amounts. Asthemain provide greater assetliquidityandoffer investorsthe is confinedto the largest regional capitals,which (N2 Office) parksinBordeaux. Finally, themarket the Euratlantique(Tour Innova)andBassinsàFlot the Euratechnologiesparkin Lille (Greentech) and as wellnew, growing tertiaryzones:forexample, (Euroméditerranée inMarseille,LaPart-DieuLyon) mainly themost-establishedbusiness districts d’Ascq, etc.).Inaddition,investorstargeted 1, andtheCrystallininLyon, HéliosinVilleneuve secured bylong-termleases(e.g.NewDeal,Silex provinces wenttoneworrecent assets,ortoassets security inregional markets.Mostinvestmentinthe Le Vendôme inNantes,etc.),investorsagainsought in 2017(Silex2Lyon, LeKarré inVaulx-en-Velin, Although severalforward speculativesalesoccurred assets, incontrastwithÎle-de-France. In theprovincesinvestorsseeksecure most prestigious high streets (Fendi onavenue finalization of several large dealson some ofParis’s French retail marketin2017,boosted inpartbythe They accounted for39%oftotalinvestment inthe shops retained asignificantshare ofthemarket. Though lessprevalent thanin2016,highstreet totalling €2.7billionin2016. €100 million,totalling€1.4billion, compared with14 market there were onlynine transactionsformore than limits large deals,andin2017ontheFrench retail secondary locations.Assetscarcity automatically the market,andtoinvestorprudencewithregard to to thelimitednumberofprimeassetsplacedon investment washardly surprising.Itwasattributable Although notasbadexpected,thedeclineinretail was notassevereexpected. fell sharplyin2017,althoughthedecline Investment inretailpropertiesFrance well belowthefive-yearaverage(24%). 2017 (allassettypes),thelowestlevelsince2008and represented only14%oftotalinvestmentinFrance hardly surprising.Withinvestment of€3.9billion,retail investment intheFrench retail marketwastherefore in activitytheParisregion. Thedecline (–19%)of a dominantpositionfurtherenhancedbythedecline for nearly60%ofretail investment inFrance2017, that foroffices. Asa result, theprovinces accounted For theretail market,thesituation istheoppositeof RETAIL: SHARE AT LOWESTSINCE2008 Investment volumeinFrance,byassettype- of Docks),Toulouse andLille. of theAix-Marseilleconurbation(boostedbysale Lyon received more than€600millionin2017,ahead beneficiary ofoffice investmentoutsideÎle-de-France, 1 1 2 3 4 5 6 7 8 9 0 0 0 0 0 0 0 0 0 0 0 0 % % % % % % % % % % % 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 Source: KnightFrank 2 0 1 4 2 0 1 5 as Deka’s acquisitionofL’Aubette inStrasbourg, Nonetheless a few large dealswere finalized, such shortage ofsupply meetingtheirinvestment criteria. segment washurtbyinvestor prudenceandbya performance of47%(ten-year average).Thismarket investment in2017,remaining undertheirlong-term Shopping centres accountedfor33%ofretail caution. the shortageofsupplyandbyinvestor shopping centremarketwashurtby Except forafewlargedeals,the Courtepaille portfolios). to Amundi,andtheAubert,Buffalo Grill,Quickand (e.g. theEkinoxportfolioassets,soldbyGrosvenor benefited from numerous salesof‘retail box’portfolios in Gennevilliers.Activityperipheralzonesalso and theacquisitionbyTHRealEstateofEnox by Immochanof50%thePromenade deFlandre, Orens, nearToulouse, for€97million,thepurchase ImocomPartners ofa53,000sqmcomplexinSaint- in 2017,Theseacquisitionsincludedthesaleto between €20millionand€100were completed portfolio ofthree retail parks,sixtransactionsof In additiontoPradera'sacquisitionfrom Ikea ofa Sales ofretail parkscomprised alarge partofactivity. that investorinterest isgrowing forthisassetclass. it wasnonethelessanexcellentresult, confirming While notarepeat ofthe2016record performance, the French retail market,alittlemore than€1billion. active andtookin28%ofallinvestment2017on long-established neighbourhoods,investorfocusfalls Investors continuetolookforsecurity. Favouring Honoré andKikoonavenuedesChamps-Elysées). Montaigne, LanvinonrueduFaubourg Saint- 2 0 Of ce Retail I 1 n 6 d u s t r ial 2 7 1 1 0 0 5 5 1 % % % 7 The retail parkmarketisstill Aix‑enProvence. Strasbourg, andCoursMirabeauin and ruedelaHauteMontéein Metz, ruedesGrandesArcades street locations:rueSerpenoise in contains three excellenthigh from Grosvenor. Theportfolio bought theSolsticeportfolio portfolio from ANF, whileAmundi Reim acquired theHéritage the high-street market.Primonial significantly raisetheirprofile on Reim andAmunditorapidly large portfolios,allowingPrimonial boosted mainlybysalesoftwo provinces, investmentvolumewas by ThorEquities,etc.).Inthe and 32ruedesArchives, acquired rue deRivoli,boughtbyGenerali, sales were alsocompleted(74 more modestindividualasset naturally onParis,where several

27 the Parisregion. acquisitions byBaringsandCBRE GlobalInvestorsin made speculativeforward purchases lastyear, such as already visiblein2016.Consequently, afewinvestors sector, aswelladeclineinriskaversion, atrend illustrates growing investorinterest inthe logistics 12% abovetheten-yearaverage. Thisperformance Even withoutthem,2017results wouldhavecomein wasn’t confinedtothesetwoexceptionaltransactions. of GLP’s acquisitionofGazeley. However, themarket transaction boostedthelogisticssector, intheform for nearly€1.6billion.Anotherhigh-profile corporate mega deal,thesaleofLogicorportfoliotoCIC perspective, however, bythepreponderance ofone property marketin2017.Thisresult shouldbeputin accounting for16%oftotalinvestmentinthe in industrialassetsexceededinvestmentretail, in 2007wasalsobroken. Furthermore, investment which wasalready averygoodyear. Therecord set industrial marketin2017,37%more than in2016, Just over€4billionwasinvestedintheFrench RECORD YEARFORINDUSTRIALASSETS €80 million in RoubaixandCalais(Bricksportfolio)formore than from Unibail-Rodamcotwo shoppingcentres located €200 million,PrimonialReimhasrecently acquired sold byResolutionProperty in2016 formore than completed eachyear. After theMcArthurGlenportfolio specificity ofthisassettypelimitsthenumberdeals factory outletsremains consistent, eventhoughthe Lastly, itisworthnotingthatinvestordemandfor of NiceEtoilebyUnibail-RodamcotoAllianzin2015. This wasthelargest single-assetdealsincethesale Place desHallesinStrasbourg fornearly€300million. Nancy, andespeciallythesaletoLaSalleIMof acquisition byAEWCilogerofSaint-Sébastienin Amundi's purchase ofDocksde Marseille,the Retail investmentvolumeinFrance,byassettype- 1 9 8 7 6 5 4 3 2 1 0 0 0 0 0 0 0 0 0 0 0 0 % % % % % % % % % % % 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 Source: KnightFrank 4 Shopping centres R High street shops e 2 t a 0 i Mercialys) finalizedlarge dealsinthe retail sector. firms specializedinlarge retailers (e.g.Immochanand logistics market,whileafewproperty-investment several large transactions.Argan stoodoutonthe total investmentinFrance2017,theyoriginated Though theseplayersaccountedfor‘only’7%of and property-investment firmsalsoplayedapart. the onlymarketdrivers.Insurers, privateinvestors performance. However, OPCIsandSCPIswere not being firstinline–contributedsignificantlyto French The largest funds–AmundiandPrimonialReim segments, inbothÎle-de-Franceandtheprovinces. to theoffice sector. Theyare activeinallmarket not focusedonlyonmegadeals,norare theylimited (e.g. CœurDéfense,Hekla,Intown).TheFrench are 64 transactionsofmore than€100 millionin2017 transactions. French investorsoriginated 45outof but since2016thefocushasbeenonverylarge dominated theFrench marketfor thepastdecade, full year, thesame as lastyear. French investorshave rose significantlyinthesecond half,to67%forthe The share ofinvestmentin FrancebyFrench investors THE FRENCHEXTENDTHEIRLEAD BNP ParibasReim). Toulouse) andinNîmes(saleofanAuchanplatformto acquired byInvescoandWDP in Montbartier, northof the pastdecade. have dominatedtheFrench marketfor total investmentinFrance in2017.They French investorsaccounted for67%of l 1

P 5 a r k s 2 0 1 6 2 3 2 3 0 9 7 4 1 % % % 7 Easydis andActionplatforms the Toulouse region (e.g.two city centre alsostoodout:in axis, afewsectorsoutsidethe these lieonthenorth-south €30 million.Whilemostof more than15dealsforatleast assets were alsostrong, with portfolios). Salesofsingle Anchor, GaliaandAcropolis €50 million(Logicor, Axxel, to adozendealsformore than for 76%ofallactivity, thanks Portfolio disposalsaccounted record. market setanew the industrialproperty invested inFrance, justover€4billion With

29 30 the Asians. Theirshare reached 9% oftotalinvestment phenomenon in 2017waswithoutdoubtthe arrivalof sold toThorEquities). However, themost striking retail (32rue desAchivesand54ruede Rennes, also onthelookoutformarket opportunitiesinprime addition tologistics,NorthAmerican investorswere share cameto7%oftotalinvestmentin2017.In strategy closetothatoftheNorth Americans,whose investors haveshownspecial fondnessforlogistics,a active. Whilepresent inallmarketsegments,British than €450million.Britishinvestorshavealsobeen acquired 6–8Haussmannfrom ADIAin2017formore acquiring Vendôme Saint-Honoré in2016for€1billion, the caseofNorwegiansatNorges Bankwho,after active, thoughinasmallernumberofdeals.Thiswas Deutsche AM).OtherEuropean investorswere also Deka, andCapJolietteinMarseille,purchased by Strasbourg, acquired by Lyon andL’Aubette in provinces (NewDealin Investment) andinthe Central, soldtoUnion deals inParis(Grand market sawseverallarge return totheFrench market. TheGermans’ countries enlivenedthe Several European 10% oftotalactivity. active, andaccountfor or not,remain themost whether intheeurozone 2017. TheEuropeans, acquisitions inFrance accounted for33%of Foreign investors Change innetfundinflowtoSCPIsandOPCIsFrance- 1 1 1 1 2 4 6 8 0 2 4 6,0 ,0 ,0 ,0 ,00 ,0 ,0 ,0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 0 0 7 2 0 0 8 2 0 0 9 2 0 with yieldsfallingbelow4%in Lyon. crescent andtheinnersuburbs)inprovinces, Île-de-France (i.e.Parisoutside theCBD,western low. Yields alsodeclinedinothertertiarysectors in have rangedbetween3.00% and 3.25%,anhistoric Since mid-2016,primeyields foroffices intheCBD OCCASIONAL COMPRESSIONOFPRIMEYIELDS for more than€450million. Korean investorsofSoOuestPlazainLevallois-Perret the Logicorportfolio,andacquisitionbySouth which includedtheChineseacquisitionfrom CICof in France,boostedbyamodestnumberofdeals, 1 0 2 0 1 1 2 0 1 2 2 O S 0 C P 1 P C 3 I I -Dedicatedtothegeneralpublic 2 0 1 4 Source: ASPIM 2 0 1 5 2 0 1 6 2 0 1 7 f 31

Investment volume in France, by nationality - Source: Knight Frank A limited 100 % compression of 90 % prime office yields 80 % has been observed 70 % 67% 67% in the provinces and 60 % in a few markets 50 % in Île-de-France. 40 % However, the trend 30 % is towards greater 20 % 33% 33% stability. 10 % 0 % Prime retail yields have 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 reached their lower limits. They now stand at between Share of foreign investors 2.75% and 3.00% for stores Share of French investors with the most attractive Paris locations. There were yield reached 5% in markets on the north-south almost no prime transactions in the shopping centre axis. Prime assets, both new and secured by long- segment. The trend nonetheless appears slightly term leases, also experienced downward pressure positive (4.00%), thereby narrowing the spread in secondary markets, where yields are now below between this asset class and retail parks, which were 5.50%, the lowest ever seen. stable in 2017 (4.75%).

As a result of the popularity of logistics among investors, the prime yield has declined to 5.00%.

Industrial assets are singing a different tune. Strong investor demand sent activity soaring and contributed to a decline in yields. For ‘classic’ logistics, the prime 32 outlook Our LoveisHere toStay in 2018? therisk/return comparisonremainin order favourabletoproperty toraiseincomeandlowerrisk.Will risky ornotprofitable enough,andhaveinspired manyinvestorstoincrease theirproperty exposure attractive incomparisonwithstocksandbonds.Thelatterassetclassesare considered eithertoo The successofoffice assetshasbeenduelargelytotheirbalancedrisk/return ratio,considered INVESTMENT AMOUNTSANDBUYERS standard, rendered byLouisArmstrong eternal andEllaFitzgerald:‘OurLoveisHere toStay.’ but thisloveissolid.Solidenoughtolast.To borrow from theGershwinbrothers’ great jazz There seemstobenodoubtthatitwill.Thehorizonmaynotcloudlessorwithoutacare, properties toinvestors.Butisthisalovethatwilllast?Willitmakethrough 2018? experienced unprecedented volumeforthepastseveralyears,isproof oftheappealoffice Investors likereal estateassets.Thegrowth ofthe Île-de-Franceinvestmentmarket,whichhas [1] Les Echos, 5January2018. euphoria.’ as theyended2017:withoptimism,even ‘Global marketsbegantheyear2018just slowdown. Brokerage Aurel BGCstated, pound. Thenewyearhasnotledtoa rose 7.6%in2017,boosted byaweak of theBritisheconomy. TheFTSE100 forBrexitconcerns andtheslowdown participated inthisjubilantclimate,despite leapt 29%.EventheLondonmarket since 1958)andtheNasdaqComposite 11 consecutivepositivemonths,afirst where theDowJonesrose 25%(including modest compared tothoseinNew York, dollar. Asaresult, thisperformanceseems andthusexposedtothe very international since alargepartoftheFrench market is the euro’s strengthening againstthedollar, in fouryears.Itwasslowednonethelessby CAC 40rose 9.2%,itsbest performance tremendous yearin2017. In Paris,the Financial marketsexperienceda the news'approaches. legislation hasbeen voted,thetimeto'sell for corporateprofits but,nowthatthe help make2018anotherpositive year ‘bought therumour'in2017.This should momentum inNewYork. Themarketplace States were largelyresponsible forthe term arguments.Tax cutsintheUnited the day, butitisbasedlargelyonshort- limited. Optimismmaybetheorder of This trend shouldnonethelessremain detriment ofotherassetclasses. their appealtosomeinvestors,the shares –conditionswhichcouldreinforce seemfavourablefor investmentin Winds [1] . PARIS VISION 2018 33

the last eight downturns began with real reduce their positions in real estate The consensus among rates of less than 2%[5]. assets, especially since their exposure is major asset managers is that relatively low. 2018 will not equal 2017’s Expected monetary tightening performance on the stock should raise borrowing costs The context remains market. and lead to a higher bond favourable for real estate. The yields. golden age (annual volume If we look ahead a few months, things of more than €15 billion) aren't nearly so clear. As debate on The monetary tightening will also affect enjoyed by the Paris region the fair value of shares becomes more bond markets. The ECB’s gradual and more strident, many analysts now market these past four years shutdown of its quantitative easing consider them overpriced in the United is expected to continue. programme should result in higher States. Europe is no exception. Even bond yields in H2 2018. Agence France if indexes are not breaking record after At mid-January 2018, completed sales Trésor (AFT), which manages the French record, contrary to the Dow Jones and and sale agreements in the Paris region state’s debt, forecasts 10-year yields Nasdaq, and even if the markets still amounted to more than €2.5 billion, (TEC 10) of 1.85% by the end of the have some room to run, performances to which €2.6 billion can be added for year, well above the 0.65% average in are expected to remain moderate. exclusive rights. With arbitrages expected 2017. However, even if such optimistic For example, Société Générale states for several large buildings, and given forecasts were confirmed (as a reminder, that ‘there isn’t much meat left on the the vitality of cash inflow to funds, the AFT based its 2017 financing programme bone’[2]. A return of volatility (true, already outlook for 2018 is positive. While it may on an assumed 1.25% at the end of the expected for 2017) could really happen be difficult to forecast the amount of year, whereas in fact the year ended this time. investment in Paris region properties in with a TEC 10 averaging 0.57% in 2018, all indications are that it will be at December), the rise would never lead In all advanced economies, the least €15 billion. A prudent forecast, but to the conditions seen in May 2014. consensus among major asset managers one that confirms the attractiveness and So this is not a revolution, but rather an is that stock markets will be less ebullient increasing importance of the investment [3] improvement of bonds that may make in 2018 . The time seems to have market in Île-de-France. Love is here to them more attractive to investors. come for profit taking, and all the more stay. now that investors have digested a rate hike, whose extent and effects remain Any bond arbitrage is likely to to be seen. The Fed is about to change remain limited. presidents with the arrival of Jerome Powell in February 2018. At the European Bond arbitrage should remain limited, Central Bank (ECB), three governors, first because, at least in the eurozone, including the German Jens Weidmann, government financing is expected to have said they are in favour of more contract, especially under the impetus of aggressive monetary tightening than that Germany and the Netherlands, thereby promoted by the ECB’s president, Mario restricting the possibility of higher long- Draghi[4]. term yields. The second reason is that One thing is sure: the world is headed the ECB's actions, even downward, towards standardised monetary policies, should continue to cover most issues with liquidity conditions that are more of sovereign debt. Central banks have severe and more expensive. There will learned to remain prudent in order not to be consequences with regard to the trigger instability. financing of businesses and their growth With the potential for higher stock market capacity. Stock markets will be hit too, volatility on the one hand, and limited even if we are still far from the conditions bond hikes on the other, the context needed for a market reversal. JP Morgan should remain favourable for real estate recently reminded investors that none of investment, which could be an advantage [2] ibid. to underlying tangible assets. Therefore investors have little reason to significantly [3] Les Echos, 29 décember 2017.

[4] Les Echos, 21 décember 2017. [5] Reuters, 04 décember 2017. 34 yields. into doubtthegradualstabilisationof These fewoperationsshouldnotbring Express. Olympic GamesandtheGrandParis stock, andanoptimisticoutlookforthe lettings market,ashortageofhigh-quality long quietbutnowawakenedbyarobust is simplyacatch-upeffect formarkets innersuburbs.Butthis in thenorthern innersuburbs,and4.00% in theeastern resulted inunprecedented yields:4.75% inner suburbs.Afewrecent dealshave central Paris,outsidetheCBDand tertiary sectorswhichare nonetheless in of 2018forcertainless-established couldoccurinthefirsthalf downturns Additionally, intheprime segment, speculative orundervaluedbuildings. tenant riskcouldleadtoloweryieldsfor always possible.Investorvaluationof Of course,occasionalexceptionsare the mostpart,behindus. The declineofyieldsis,for environment ofrisingmarketvalues. confirms theirhesitationtocommitinan are more profitable thanprimebuildings, core plusandvalueaddedassets,which part behindus.Thefocusofinvestorson CBD, yieldcompression isforthemost 2017 inseveralmarketsjustoutsidethe After thedownward pressure exertedin YIELDS our outlookon investment volume). probably at around 100basispoints(see tend tolimitthe extentofthechange, from H22018.However, severalfactors rise, withchangeexpectedmainly as well asbondyields.Allare expectedto the financingofcertainacquisitions as direction ofprimerates,whichdetermine triggers thechangewilldependof trend willinvertsoonerorlater, butwhat After mid-2018,canyieldsstillrise?The in 2018. to absordhigherbondyields historic high,andleavesroom estate spreadremainsatan At 256basispoints,thereal cymbal. Andwe’re stillbebop! jazz musiciansare stillfollowing the ride the meantime,brassandstringsof assets willnotinvertuntilafter2018.In to rise,theyieldcurveforreal estate If primeratesandbondyieldscontinue after 2018. is notexpectedtooccuruntil The riseofrealestateyields vacancy ratesare keptundercontrol. rental marketcontinuestogrow andif estate market.They’lldoitagain,ifthe theirbacksontherealwithout turning themselves withanarrower spread, In thepast,investorshavecontented to absorbpartoralloftheespectedrise. allows property investmentthecapacity estate yieldswashistoricallywide.This the spread betweenbondyieldsandreal At 256basispointsattheendof2017, PARIS VISION 2018 35

frédéric bôl

Chairman and CEO of Swiss Life REIM (France) and President of ASPIM*

*Association des sociétés de placement immobilier. (French Association of Real Estate Investment Firms).

In 2017 we began to adjust our portfolios and to reposition ourselves on assets with valuation growth potential. We plan to continue this work in 2018. questions for 36 that reduces riskand increases investmentopportunities –andasector and competitive. We haveoptedfor aEuropean allocation –achoice In atoughmarketplace, theSCPIPierre Capitalemustbeboth original or directly bymeansoftheSCPI. retail investorsviathelifeinsurancechannel,usuallythrough theOPCI, beginning of2017,anSCPI,Pierre Capitale. We are thusabletotarget offer comprisingaretail OCPI,SwissLifeDynapierre, and,sincethe 2016 webuiltateamaround NicolasKertdedicated topromoting an FB :TheaimofSwissLifeREIM(France) istogrow itsretail offer. In product performedinthefewmonthssinceitwaslaunched? Capitale. Whatare thefund’s mainfeatures, andhowhasthisnew KF: In2017SwissLifeREIM(France)launcheditsfirstSCPI,Pierre potential. We plantocontinuethisworkin2018. portfolios andtoreposition ourselvesonassetswithvaluationgrowth provide expertadvicetoourinvestors.In2017webeganadjust market offallingyieldswewillneedtobehighlyselectiveandable to the comingyearwillbeoneoftransitiononinvestmentfront. In a will investinnursinghomeswithasignificantsocialfocus.However, way forourclubdeals,aswellthecreation ofanewfundwhich first quarterisalready verybusy, withtwocapitalincreases under In 2018weplantofinalizeworkwhichwasundertakenin2017.The student housingandhotels. ESG ratingsystembyapplyingittoresidential property, healthcare, sustainable developmentstrategy. Consequentlywehavehonedour We attachgreat importancetotheongoingimprovement ofour abandon anattractiveacquisitionproject. Italy andSpain,thoughunfortunatelyeventsinCataloniaforced usto and Germany. Inaddition,wehaveworkedhard todevelopsourcing in investing outsideFrance,notablyseveralacquisitionsinLuxembourg offer, astheSCPIPierre CapitaleandtheOPCIDynapierre havebegun a hotelfundandretail fund.Thisactionhasalsoinfluencedour retail funds bothforinstitutionalinvestorsandasaclubdealbymeansof Asset Managers,wehavefinalizedtheintroduction ofpan-European thesupportofotherreal estateteamsofSwissLife this zone.With many contactsandnowhaveaccesstosignificantsourcing within Belgium, Luxembourg,Spain,PortugalandItaly).We haveestablished investment networkintheSwissLifeAssetManagerszone(i.e.France, the Europeanization ofourportfoliosandtheimplementation we havebeenfollowingforseveralyears.Thestrategybeganwith In 2017,SwissLifeREIM(France)continuedtodevelopthestrategy desired sector(e.g.sitesforlogistics,demographicshealthcare). relationship. Ingeneral,welookforzonesthatare suitableforthe us tobemore selectiveifwewanttomaintainanattractiverisk-return normally offer anattractiveriskpremium compared tooffices, forcing spreads havenarrowed forassetsinhealthcare andlogistics,which and retail are breaking records wheneverlocationisthefocus.Similarly, allocation. Forexample,acquisitioncostsinsectorssuchasoffices crosses allassetclassesandhaschangedthegameintermsof challenging becauseofthescarcity ofproducts. Thisshortagenow years, butwithoneslightdifference: investmenthasbecomemore Frédéric Bôl:Theyear2017wasveryrichandexciting,likeprevious for 2018? 2017 forSwissLifeREIM(France),andwhatare yourobjectives inflows. Givensuchacontext,whatconclusionsdoyoudrawfrom enthusiasm forSCPIsandOPCIs,whichenjoyedrecord cash investment market.Lastyearalsoreaffirmed retail investor Knight Frank:Theyear2017wasanexcitingonefortheFrench international cities (Milan,Madrid,Brussels,etc.),because thereinternational are attractive opportunities. Ingeneral,ourinvestments targetdynamic, the realization ofcertaindeals.Belgiumand Luxembourgalsooffer This hard workisnowbearingfruit,andin2018should result in 2017 tobuildsolidlocalnetworks that wouldprovide qualitysourcing. offices, retail, healthcare andhotels. Substantialefforts were madein several portfoliosunderconsideration invarioussectorssuchas and Italy, whichoffer numerous advantages,andforwhichwehave In 2018weintendtopursueoursourcing efforts, especiallyinSpain strategy. everything hascometogetherfortheimplementationofourinvestment Germany, theUKand ofcourseFrance,withSwissLifeREIM(France), billion ofAUMattheendJune2017andwithteamsinSwitzerland, real nearly €68 estateinvestorbyProperty EUinOctober2017.With FB: SwissLifeAssetManagerswasagainnamedtheleadingEuropean intend tofocusonin2018? strategyandtellusthecountries andassetsyou international the European investmentmarket.Couldyousummarizeyour KF: SwissLifeREIM(France)isalsoasignificantplayerin mitigate overdependence ontheeconomy. to suitthedesired business/pleasure mix,anapproach designedto a widerangeofproducts. We makesure thatourhotelsare located remain verybullishonthesector, whichoffers attractiveyieldsand the acquisitionoftwohotelsinItalyandanewhotelGermany. We portfolio, comprisingtenhotelsinGermany. We are currently finalizing division. Attheendof2016wefinalizedacquisitionPearl we havemadeonemajoracquisitionperyearsincestartingourhotel but inwhichweare extremely selectivefor France. Inthehotelsector student housingornursinghomes,anothersectorthatweknowwell the selectionandanalysisofprojects. Operatorsare ofteninvolvedin Between thetwosectorsthere are numerous similaritieswithregard to be veryhelpfulforthedevelopmentofourretirement housingfunds. on behalfofdedicatedfunds.Ourstudenthousingtrackrecord will second clubdealwillsoonfinalizeitsowninvestments,butalsothose portfolio yield.Studenthousingstillattractssignificantinvestment.Our assetclasses,whichprovidealternative diversificationwhileoptimizing the specificskillsetnecessarytoprovide ourinvestorsaccessto changed sincewecreated thecompanyin2007.We aimtodevelop Indeed itdoes.We remain faithfultoourpositioning, whichhasnot with investors,stilloffer opportunities? development? Doesthesegment,whichisincreasingly popular hotels, studenthousing,etc.).Isthisapriorityassetclassfor significant playerin‘alternative’ real estateassets(e.g.healthcare, KF: ForthepastseveralyearsSwissLifeREIMhasbeena these yieldsalready takeintoaccountwithholdingtaxpaidinGermany. average foroffice SCPIs),andittargets4.50%for2018.Notethat In itsfirstyeartheSCPIdelivered ayieldof4.25%(veryclosetothe (e.g. hotels),where demandisstrong andsupplystillweak. rents afterrent hikes.InGermanyweare sectors focusingonalternative are compatiblewiththeSCPI’s distributionpolicy, whileharnessing the primesectors.We are thereby abletomaintaininitialyields which invests inoffices. In2017thefocuswasoninnerParis,thoughoutside economies withuncorrelated marketcycles.Furthermore, theSCPI invests inFranceand,forstrategicpurposes,Germany, twodifferent approach focusedonoffice assets.Concretely, andalternative theSCPI PARIS VISION 2018 37 sometimes significant differences within a given country. In France we reacted immediately when the IFI was announced. This tax condemns plan to be highly selective, given current yields. However, there are real estate investment, a sector that is a critical link in our economy, still opportunities in the provinces for offices, housing and retirement creates jobs, fulfills vital functions (e.g. housing) and meets new needs housing. The arbitrages that we choose to perform in France will make such as the ageing population. We will continue in 2018 to reply to our portfolios more international. these questions, and ASPIM will be a source of strength whenever necessary.

Fresh money is expected to continue to arrive in 2018. The challenge KF: With the repercussions from Brexit, Paris’s successful bid will be to invest it prudently and on the basis of fundamentals. I for the Olympic Games in 2024 and the response to the call for wish to reiterate that there are still attractive opportunities, and that projects for 'Inventing Greater Paris’, the appeal of the Paris geographical diversification plays an important role in risk reduction. market was a major topic in 2017. Swiss Life REIM (France) is investing in Ile-de-France, but it is also a major investor in the provinces. How do you see the regional markets? What are their main strengths and weaknesses?

FB: The effects from Brexit are beginning to be felt in France and Luxembourg, mainly with business relocations. This movement, which is expected to grow more intense in the months ahead, is energizing a lettings market which was already trending upwards in 2017. It is also enhancing the appeal of the Paris market.

The stakes of Grand Paris (‘Greater Paris’) are very high for the entire real estate sector, as well as for all residents and occupiers. We are following the project development very closely, because it is the future of our buildings which is at stake in a business where location remains the main investment criterion. We take great care to analyze the impact (positive or negative) of Grand Paris on all potential acquisitions. The report of the Cour des Comptes (the French Court of Auditors) has raised political questions which could slow the completion of infrastructure. The uncertainty surrounding the projects is harmful for both investment and France's image abroad. It seems absolutely essential to us that this ambitious project – a giant step towards the future of Paris – not be hampered in any way.

We believe there are still interesting opportunities in the provinces. Lille, Lyon, Nantes, Bordeaux and Marseille all seem attractive to us. As they grow, these cities will continue to create much of the country’s economic and demographic growth. We especially like the new business districts near the TGV stations (e.g. Bordeaux Euratlantique). We have also been investing for many years in Lille, Lyon and Marseille, although yields in these cities have fallen significantly.

In other areas, we are helping to serve the needs of the local population by keeping an open mind with regard to investment location, and by remembering that the trend of metropolitan transformation is potentially harmful to certain zones.

KF: You have been the President of ASPIM since 2016. After a record year in 2017, what is the outlook for 2018 in terms of investment inflow, and where do you see yields headed? In addition, in the coming months new measures will affect taxes on core assets, especially the IFI (French tax on real estate wealth). How could these measures impact certain real estate investments?

The real estate asset management industry is undergoing a profound transformation. Challenges are posed by the sector’s consolidation, by the digitalization of the industry, by an increasingly strong commitment to SRI, and by the unceasing change of the fiscal and regulatory environment. Needless to say, ASPIM has a very important role to play. By acting as spokesman for the diverse stakeholders, ASPIM could guarantee greater consistency with regard to these matters, thereby providing clarity for the various regulatory and other bodies. Therefore I 38 2017 KEYFIGURES Paris 18/19/20 Paris 3/4/10/11 Paris Centre Ouest(horsQCA) QCA Paris III/IV/X/XI Paris Centre WEST(excl.CBD) Paris CBD Paris XVIII/XIX/XX Malmaison Rueil- Malmaison Orsay Rueil- Villacoublay Les Ulis Vélizy- Nanterre Orsay Villacoublay Les Ulis Bièvres Saint- Cloud Vélizy- Sèvres Nanterre Suresnes Bièvres Saint- Cloud Sèvres Meudon Villejust Suresnes Palaiseau Villebon-sur- Igny Meudon Billancourt Boulogne- Puteaux Villejust La Garenne- Yvette Palaiseau Colombes Villebon-sur- Igny Courbevoie Billancourt Boulogne- Puteaux Colombes La Garenne- Yvette Colombes Courbevoie le-Buisson Colombes Verrières- Plessis- Clamart Robinson le-Buisson Le- XVI Châtenay- Verrières- Moulineaux Malabry Colombes Plessis- Clamart Robinson Issy-les sur-Seine Le- XVI Bois- Châtenay- Moulineaux Neuilly- Malabry Colombes Issy-les La Défense Paris 14/15 Paris 12/13 Paris 5/6/7 sur-Seine Bois- Neuilly- Massy La Défense Paris XIV/XV Paris XII/XIII Paris V/VI/VII Seine Asnières- Levallois- Massy Fontenay- Gennevilliers Roses Seine Perret Châtillon sur- Asnières- Levallois- aux- Fontenay- Gennevilliers Roses Vanves Perret Châtillon sur- Sceaux aux- XV Malakoff Vanves Sceaux XV Malakoff Antony Antony XVII Clichy XVII Clichy Bagneux Montrouge Bagneux VIII VII Montrouge VIII Bourg- VII Villeneuve- Bourg- Reine Villeneuve- Reine la- Garenne la- Garenne XIV Fresnes XIV Fresnes Wissous Wissous Cachan Cachan Ouen la- Ouen la- Arcueil Arcueil St- St- VI VI l’Haÿ-les- l’Haÿ-les- IX IX Gentilly Gentilly Roses Roses Ile-St-Denis Ile-St-Denis I I XVIII XVIII II II Chevilly- Chevilly- Larue St-Denis Bicêtre Larue Rungis St-Denis V Kremlin Bicêtre Rungis V Kremlin Le Le Villejuif IV XIII Villejuif Vieille- Paray- III IV Poste XIII Vieille- Paray- III X Poste X Southern OuterRim Southern bend Southern Péri-Défense Bend Nothern XI Aubervilliers 2 Boucle Sud Péri-Défense Boucle Nord XIX XI Aubervilliers sur-Seine Thiais XIX ème sur-Seine Thiais Vitry-sur-Seine Ivry- Vitry-sur-Seine Ivry- XII Couronne Sud Orly XX XII Orly XX Charenton- Pantin le-Pont Charenton- Pantin le-Pont Alfort- LesLilas ville St- Mandé Choisy- Alfort- Bagnolet LesLilas le-Roi ville St- Mandé Choisy- Bagnolet le-Roi Vincennes Maisons- Bobigny St-Maurice Alfort Vincennes Maisons- Bobigny Montreuil St-Maurice Alfort Créteil Montreuil Créteil Le Pré-St-Gervais Fontenay- sous-Bois Joinville- Le Pré-St-Gervais le-Pont sur-Marne Fontenay- sous-Bois Nogent- Joinville- le-Pont sur-Marne Nogent- Southern InnerRim Southern InnerRim Eastern InnerRim Nothern Neuilly/Levallois 1 Neuilly/Levallois 1 1 ère ère ère Couronne Sud Couronne Est Couronne Nord PARIS VISION 2018 39

Prime Yields High end market value(*) Submarket Investment volume Q4 2017 Q4 2017

Evolution Evolution Volume (in €) (in %) (€/sq m) 2017/2016 (**) 2017/2016

Paris CBD 3,445,000,000 3.00 / 3.25 25,900

Paris Centre West (excl. CBD) 110,000,000 3.25 / 3.50 18,100

Southern Paris

Southern Paris / Paris V/VI/VII 50,000,000 3.50 / 3.75 18,000

Southern Paris / Paris XII/XIII 1,590,000,000 3.40 / 3.75 14,600

Southern Paris / Paris XIV/XV 600,000,000 3.50 / 3.75 15,300

Total Southern Paris 2,240,000,000

North Eastern Paris

North Eastern Paris / Paris III/IV/X/XI 440,000,000 3.50 / 3.75 15,500

North Eastern Paris / Paris XVIII/XIX/XX 320,000,000 4.50 / 4.75 8,100

Total North Eastern Paris 760,000,000

Inner Paris portfolios 60,000,000

Total inner Paris 6,615,000,000

La Défense 3,475,000,000 4.00 / 4.25 12,500

Western Crescent

Croissant Ouest / Northern bend 275,000,000 5.00 / 5.25 4,700

Croissant Ouest / Neuilly Levallois 2,010,000,000 3.20 / 3.50 13,100

Croissant Ouest / Péri-Défense 1,200,000,000 4.00 / 4.25 7,200

Croissant Ouest / Southern bend 1,265,000,000 3.75 / 4.00 11,500

Western Crescent portfolios 40,000,000

Total Western Crescent 4,790,000,000

Inner Rim

Inner RIm / Northern Inner Rim 770,000,000 4.00 / 4.25 8,800

Inner RIm / Eastern Inner Rim 665,000,000 4.75 / 5.00 6,100

Inner RIm / Southern Inner Rim 745,000,000 4.25 / 4.50 7,700

Total Inner Rim 2,180,000,000

Outer Rim 1,220,000,000 5.50 / 6.50

Île-de-France portfolios 650,000,000

Total Île-de-France 18,940,000,000

Source: Knight Frank (*): Representative high end market value, calculated from the high end rent held for each greographical sector and the Prime rate of return (**): The volume invested and the market value are considered to be stable, while their annual evolution, both upwards or downwards, is between -2% et +2% 40 Knight Frank Sources usedinthisreport: ORIE,INSEE. England. Knight FrankLLPisalimitedliabilitypartnershipregistered in Knight FrankSNCisthefrench branchofKnightFrankLLP. Knight Frank Commercial Research. of thisreport inwholeor partisallowedwithproper reference to SNC inrelation toparticular properties orprojects. Reproduction material doesnotnecessarilyrepresent theviewofKnight Frank from thecontentsofthisdocument.Asageneralreport, this Research orKnightFrankSNCforanylossdamageresultant responsibility canbeacceptedbyKnightFrankCommercial analysis, viewsandprojections presented inthisreport, nolegal standards havebeenusedinthepreparation oftheinformation, This report ispublishedforgeneralinformationonly. Althoughhigh Knight FrankResearch Reportsare alsoavailableat KnightFrank.fr their specficneeds. recognise theneedforexpertindependantadvicecustomisedto corporate institutionsandthepublicsector. Allourclients worldwide includingdevelopers,investors,fundingorganisations, consultancy servicesandforecasting toawiderangeofclients Knight FrankCommercial Research provides strategicadvice, © KnightFrankSNC2018 consultant ofchoice. integrity, Knight Frankisincreasingly establishingitselfasthe Drawing ontheconstantsupportofitsclientsandrecognised the worldofreal estateconsultancy. dedicated totheirclients,KnightFrankenjoysauniquepositionin in tertiaryandresidential real estateandemployingprofessionals A globalplatformandanindependentpartnership,specialising professionals, workingfrom 418offices worldwide. operating in60countries.Itoffers itsclientstheskillsof15,020 a Britishcompanyfoundedmore than120yearsandnow Knight FrankFranceistheFrench branchofKnightFrankLLP, France. Knight FrankValuation, alsosupporttheirclientsthroughout Markets department,alongwiththeindependentsubsidiary La DéfenseandtheWestern SuburbsofParis. TheCapital of expertiseandisnowarecognised consultantinareas including centre ofthecapital,companyhasgraduallywideneditsfield from Paris.Historicallyspecialisinginthereal estatemarketinthe The KnightFrankFranceteamincludes80professionals working Frank (aspatialdesignconsultancy). Property Management,KnightFrankValuation andL'AtelierKnight organised intosixbusinesslines:Offices, Retail,CapitalMarkets, Knight FrankFrancewasfoundedover40yearsagoandis investors andtenantcompanies. Knight FrankFranceservestwoseparategroups ofclients:owner logistics buildings. market, mainlycomprisingoffices, retail premises andindustrialor In France,thecompanyoperatesincorporatereal estate realKnight Frankisaninternational estateadvisor. Istock Images Marketing &Communication C. Jaffrès /A.Alexandre /L.Gatepaille Graphic Design Research Cyril Robert/DavidBourla Editor [email protected] +33 (0)143168890 Head ofCapitalMarkets Bollaert Vincent Investment [email protected] +33 (0)143165596 Head ofResearch Cyril Robert [email protected] +33 (0)143165575 Chief Economist David Bourla [email protected] +33 (0)143168886 CEO ParisOffice -PartnerKnightFrankLLP Philippe Perello Contacts [email protected] +33 (0)1410502 Galivel &Associés Carol Galivel [email protected] +33 (0)143165593 Head ofMarketing&Communication Ludivine Leroy Press [email protected] +33 (0)143168892 OccupierServices andOfficeHead ofInternational Agency Marc HenriBladier Office [email protected] +33 (0)143168864 Head ofRetailLeasing Antoine Salmon [email protected] +33 (0)143168870 Head ofRetailServices Antoine Grignon Retail