Property Market Trends MARCH - 2021

TABLE OF CONTENTS

INTRODUCTION

4 Main trends

5 Summary data

THE ÎLE-DE-FRANCE OFFICE RENTAL MARKET

8 Submarkets

10 Take-up strongly impacted by the health crisis and a cautious attitude among prospective users

19 An overall rise in vacancy rates

22 An increase in large-surface supply under construction

23 Rental values are difficult to analyse, due to the low number of transactions

THE FRENCH INVESTMENT MARKET

28 Following 2019 record performances, there has been a decline in all value ranges, especially for deals of over € 300 million

32 New properties: increased investment volumes in vacant buildings and speculative acquisitions

33 Sharper sales slump for portfolios than for single assets

34 Decrease in investment in all asset categories

37 Investment funds remain the main players in the market

39 No location was spared by the downturn but Center West and the Inner Suburbs have shown better resilience

42 Prime yields lower in several markets

CONCLUSION

This report has been written by Catella based on information from MBE Conseil and Catella Property. The assessment was concluded on March 2021. This report is based on information that we believe is reliable. Whilst every effort has been made to ensure its accuracy, we cannot offer any guarantee that it contains no factual errors and accept no responsibility for any liabilities that may arise as a result of such errors. Photo credits: Shoootin / Mateya Lux / Elise Robaglia / Laurent de Broca / Luc Boegly / Maurine Tric / Unsplach / Pexels Legally responsible publishers: Isabelle Ramond and Jérôme Kaplan Design by: www.thalamus-ic.fr To subscribe to Catella’s research, please email your request to: [email protected] INTRODUCTION

MAIN TRENDS

ECONOMY: UNCERTAINTIES REMAIN

Drop in employment in France: 29.3% en 2020 Drop in corporate margins

in 2020 vs - 1.8% 8% en 2020 + 2.1% in 2019 Unemployment rate: vs 7.9% en 2019 vs 8.5% en 2018 Limited impact on employment levels in 2020. Rise in job losses in 2021? Fear of an increase in 2021

Estimated growth rate: 2022 rate:

- 8.3% + 5% + 5% in 2020 in 2021

RENTAL MARKET TAKES A HIT… BUT INVESTMENT MARKET RESILIENT

01. RENTAL MARKET: sharp downturn in take-up, rising vacancies, no impact on headline rents in IDF

Decrease in take-up: drop in take-up under - 36% 5,000 sq.m 1,321,000 sq.m drop in take-up over - 54% 5,000 sq.m - 45% in 2020 decrease in large-surface (drop similar to 1990 crisis) - 46% preletting

Vacancy Sharp increase in Oversupply in La Défense, rate in 4.2 % vacancy in Paris PériDéfense and Paris: (6.4 % in Île-de-France) the Emerging North

FUTURE 823,000 sq.m Increase SUPPLY: under construction but not yet from 2022 commercialised of + 27%

€789/sq.m average rent for new buildings €930/sq.m RENTS top rental value in Paris in Paris CBD, driven upwards RISE 7.5 % CBD IN PARIS CBD by higher top values in 2020

4 Property Market Trends – France – March 2021 02. INVESTMENT MARKET: downturn less severe than in the rental market

LOWER investment volume RETURN TO A LEVEL €23.6 Bn in 2020 CLOSE TO THE TEN-YEAR AVERAGE (€ 25.3 Bn) (- 38 % compared to 2019)

SEVENTH YEAR WITH MORE THAN - 29% €20 BILLION INVESTED IN INVESTMENT IN PARIS CBD

FRANCE

5 TRANSACTIONS 59 % valued over €500 Mn, (i.e. €3.8 Bn in 2020), representing 16% of total investment volume

US / CAN / GB Continued strong transaction activity in the 20 % GERMANY €100 – €300 Mn range 10 % -10% compared to 2019

60 TRANSACTIONS French investors represent the largest share between €100 – €300 Mn. in 2020 of investment volume, ahead of North American, UK representing 49% of total investment volume and German investors. No direct Asian investments

PRIME YIELD IN PARIS IN 2020 2.8% 3% threshold broken

SUMMARY DATA Office market in Île-de-France in 2020

TOTAL STOCK TAKE-UP VACANCY RATE TOP RENT PRIME RENT sq.m sq.m % €/sq.m/p.a % Paris CBD 8,796,300 229,000 4.00 % 930 2.80 % West CBD 7,249,700 294,000 9.00 % 540 3.25 % Paris secondary BDs 4,188,500 92,000 4.40 % 595 3.40 % Emerging North 2,867,900 115,000 14.40 % 430 3.80 % East District 1,631,500 32,000 2.40 % 360 4.20 % South District 1,871,300 48,000 5.90 % 360 3.67 % Boucle Nord 780,500 16,000 12.70 % 260 5.40 % PériDéfense 4,082,600 159,000 12.9 % 430 4.10 % Greater Paris 58,445,300 1,321,000 6.30 % - -

Source: MBE Conseil/Catella Property/Knight Frank/Immostat

Property Market Trends – France – March 2021 5 The crisis has shown that there is still a future for offices: not only as a workplace, but as a place of socialising and exchanges. Géraldine Latham Head of Corporate – Partner » 01 Scan the QR code to play the podcast. Immoweek. of –Editor-in-Chief Bocquet Catherine by interviewed Latham, Géraldine by market rental the of analysis complete the Find The Île-de-France office rental market 01 | RENTAL MARKET

SUBMARKETS

Île-de-France office stock: 58.4 million sq.m in 2020

Airport Roissy Charles de Gaulle

2 ST DENIS ASNIÈRES COLOMBES CLICHY PANTIN LEVALLOIS NANTERRE NEUILLY SURESNES PARIS MONTREUIL RUEIL-MALMAISON

VINCENNES

BOULOGNE- BILLANCOURT ISSY-LES- MOULINEAUX

MONTROUGE IVRY-SUR-

Airport Orly

Paris CBD La Défense South district Stock: 8.8 million sq.m Stock: 3.4 million sq.m Stock: 1.9 million sq.m

Paris Secondary BDs Emerging North Boucle Nord 92 Stock: 4.2 million sq.m Stock: 2.9 million sq.m Stock: 780 500 sq.m

Other West CBD PériDéfense East district Stock: 3.8 million sq.m Stock: 4.1 million sq.m Stock: 1.6 million sq.m

8 Property Market Trends – France – March 2021 With a total stock of more than 58.4 million square > The West CBD, which includes La Défense, is the meters, the office market in the Île-de-France region second most developed market. It also consists is among the best organized and most “readable” in of the cities of Neuilly-sur-Seine, Levallois-Perret, Europe, as well as being among the most diversified. Boulogne‑Billancourt, and Issy-les-Moulineaux. Office The office stock is largely centered around Line A of stock has reached more than 7.2 million sq.m – about the RER regional railway network, which forms the 12% of the total in Île-de-France – of which more than transportation backbone for the Île-de-France office half is located within La Défense. market as a whole. Away from the established business districts (ie., all of the Paris business districts and the > There are three Secondary Business Districts within West CBD), suburban areas are currently organized Paris: the and Montparnasse districts primarily around the main transportation networks: in the 14th and 15th , and the Gare de namely, the Boulevard Périphérique ring road that Lyon / Bercy / Paris hubs in the 12th and encircles Paris and the A86 secondary ring road, as 13th arrondissements, with a combined stock of well as the various metro, RER and tram lines. 4.2 million sq.m.

The Île-de-France region’s public transportation network > The Emerging North consists of the cities of Clichy, has generally been designed in a radius, with Paris at Saint-Ouen, Saint-Denis and Aubervilliers. Its office its center. However, this will change a great deal in the stock has grown significantly in recent years to reach coming years with the gradual rollout of the extensive 2.9 million sq.m in 2020 and offers high growth Express project, a new-high speed metro potential due to numerous ongoing or proposed network that will serve most inner suburbs without projects. going through Paris. Four fully-automated metro lines will be created along 200 kilometers of tracks, > The East District is centered around the city of serving 68 stations, some of which are presently under Montreuil and extends southwards to Charenton construction. In addition to this network, which will be and northwards to Pantin. Its stock has reached put into service in progressive stages until 2030, other 1.6 million sq.m in 2020. public transportation projects are being developed. The most important of these are the extension of metro > The South District extends from Vanves to line 14 northwards to Pleyel and southwards to Orly Ivry‑sur‑Seine via Montrouge. The district also includes airport, as well as the extension of the “Eole” train line Châtillon, where most offices are located near the (RER E) to La Défense and Nanterre. Châtillon – Montrouge metro and tram station. It stock now totals 1.9 million sq.m. The Grand Paris Express network is unlikely to fundamentally change the nature of the Paris office > PériDéfense includes the cities whose markets have market, at least in the short term. However, it will benefit benefited in part from their proximity to the La Défense many of the established submarkets, in particular the business district: Nanterre, Rueil‑Malmaison, Colombes, areas of Nanterre (through the “Eole” RER line E Bois-Colombes, La Garenne-Colombes, Suresnes and extension in mid-2023); La Défense, (same, plus metro the areas of Courbevoie and Puteaux not incorporated line 15 in 2030); Saint-Denis and Clichy-Saint-Ouen within La Défense. This submarket contains 4.1 million (metro line 14 open in 2021 until Mairie de Saint-Ouen) sq.m of office stock and will develop accordingly with and Montrouge (metro line 4 extended to Bagneux at the arrival of the Grand Paris Express, and even more end of 2021, and metro line 15 South in 2025). so with the extension of RER line E to Nanterre’s Groues district. > The Paris Central Business District (CBD): with a stock of 8.8 million sq.m or 15% of the Île-de-France > The Boucle Nord area in the Hauts-de-Seine total, the Paris CBD is the prime business district in département (92) northwest of Paris, which includes the region. It has both the highest rental and market the cities of Asnières-sur-Seine and Gennevilliers, is the values and the lowest yields. smallest Île-de-France submarket with a stock of only 780,500 sq.m. However, it will also benefit from the improved accessibility that will be provided by Metro line 15 Ouest in 2030.

Property Market Trends – France – March 2021 9 01 | RENTAL MARKET

TAKE-UP STRONGLY IMPACTED BY THE HEALTH CRISIS AND A CAUTIOUS ATTITUDE AMONG PROSPECTIVE USERS

Take-up declined by 45% Take-up in the Île-de-France region has fallen by 45% The second mandated confinement in France certainly in Île-de-France compared to 2019, totalling 1,321,000 sq.m: the lowest had less impact on economic growth than the first, with volume since the 1990 economic crisis. This precipitous a drop in GDP compared to the end of 2019 of 8% in drop is clearly linked to the Covid-19 health crisis, which November and 4% in December. Nevertheless, certain has led to an unprecedented fall in GDP of 8.3%. economic sectors were severely affected, such as retail, In this extraordinary environment, marked by such great leisure, restaurants, hotels, and transport. Household uncertainty about the economy as well as about how consumption fell in Q4 2020 by 15% year on year. most offices will operate in future (ie., largely remotely The business climate indicator improved slightly at the or a return to most staff working in-office), the vast end of 2020 but remained below its long-term average majority of companies have halted their real estate (100) at 92. Moreover, fears about employment and transaction activity. The drop in take-up also follows the business failures, until now relatively protected in part weak economic growth seen in 2019 (1.2%), in which by government measures, will be major factors over take-up had already fallen by 10% compared to 2018. the coming year. In addition to the lack of office market In the first quarter of 2020, before the onset of the visibility and the very many uncertainties connected with health crisis, transaction volumes were already down by how the ongoing health crisis might evolve, the issue of 15% year on year, falling to 464,000 sq.m. (Moreover, remote working has become critical. Work-from‑home this decline was partially offset statistically by the Total measures were very widely adopted during the first transaction in The Link tower.) The second quarter of confinement, but less so during the second, and longer- 2020 was, naturally, strongly impacted by Covid-related term trends are very difficult to predict. restrictions, with only 201,000 sq.m being transacted. All of these factors have contributed to creating a very Despite a surge in economic activity during the summer, uncertain office market, not least with the issue of surface with an increase in GDP growth of 18.2% between the area requirements. In reconsidering their space needs, second and third quarters, this rebound was barely many companies have so far favoured renegotiating their reflected in take-up, with only 247,000 sq.m being leases, or reducing surface areas through sub-letting, commercialised. (with the latter type of transaction not factoring into The end of 2020 remained clouded by uncertainty, take-up statistics). As a result, Q4 take-up has rebounded characterised by a second wave of infections, with the from its summer slump to reach 409,000 sq.m, but has launching of the first vaccination campaigns underscored fallen by 40% from Q4 2019. by fears about new variants of the Covid virus.

Take-up in Île-de-France – 1998 - 2020

1,000 sq.m Trend 3,000

2,500

2,000

1,500

1,000

500

0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Sources: MBE Conseil/Catella according to Immostat

10 Property Market Trends – France – March 2021 The overall drop in take-up has affected all surface size range (-42%). In the Paris CBD, take-up of spaces less -36 % categories in the region. It has been slightly less severe than 5,000 sq.m has dropped by 42%, and by 30% for for transactions under in the over-20,000-sq.m range, due in particular to those under 1,000 sq.m. In the Paris secondary business 5,000 sq.m two transactions of more than 80,000 sq.m. But the districts, transactions in the under-5,000 sq.m market 5,000-to-20,000-sq.m range has been very hard hit. have dropped by 49%, and by 37% in the rest of Paris. Overall take-up for small and medium surfaces has In the West CBD, take-up for surfaces less than fallen by 36%, while transactions of over 5,000 sq.m 5,000 sq.m has fallen by 50%, and in PériDéfense by have dropped by 55%. 31%. The drop in take-up in small and medium spaces 921,000 sq.m have been transacted in 2020 involving has been less severe in the Emerging North (-24%) spaces of less than 5,000 sq.m, down by 36% compared than in the East district (-35%) and much less than in to 2019. The under-1,000-sq.m market has been slightly the South district (-52%). less impacted (-35%) than the 1,000-to-5,000-sq.m

Take-up in Île-de-France by size category

1,000 sq.m > 5,000 sq.m < 5,000 sq.m Trend 3,000

2,500

2,000

1,500

1,000

500

0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Sources: MBE Conseil according to Immostat

Take-up in the over-5,000-sq.m range has fallen sharply in office space enquiries to the background for most A -54 % 2020, with only 399,000 sq.m transacted in this category. major companies. Of the 11 large-surface transactions drop in the over-5,000-sq.m Only 21 such transactions have occurred in this range completed during the last nine months of 2020, the market in 2020, compared to 72 for nearly 872,000 sq.m in vast majority had been initiated before the health crisis. 2019. This marks the worst large-surface performance Moroever, questions about how health protective since 1991, when 353,000 sq.m had been transacted, measures and remote working will affect office space and is well below both the ten-year annual average needs are still unresolved in the majority of large (881,000 sq.m) and 1990-2020 average (756,100 sq.m). companies. With this in mind, a significant number of The “wait-and-see” attitude adopted by many companies, office tenants have favoured renegotiating their leases which already curtailed pre-letting activity in 2019, with landlords, sometimes obtaining an adjustment has been greatly worsened by the health crisis. During in rents in exchange for an extension of their leases. Q1 2020, only ten large transactions were finalised, Others have opted to sublet part of their premises compared to 16 in the first quarter of 2019. The brutal instead of moving. This “wait-and-see” attitude and shock of the Covid epidemic, the lack of visibility on the these negotiated solutions have had a clear impact on economic outlook and on employment levels generally, take-up activity in 2020 and could also influence future have, since the second quarter of 2020, relegated supply volumes.

Property Market Trends – France – March 2021 11 01 | RENTAL MARKET

A drop of 68% Take-up of between 5,000 and 10,000 sq.m, which has four in the CBD (27,900 sq.m). Three others were in in the 5,000 trended lower since 2018, has dropped by 68% in 2020. the Emerging North (19,300 sq.m), one in La Défense to 10,000 sq.m range Transactions totaled 87,700 sq.m in 13 deals, compared (5,200 sq.m), one in PériDéfense (5,300 sq.m) and one to 41 in 2019 for 272,100 sq.m. Among these, seven in the outer suburbs. were carried out within Paris (51,700 sq.m), including

Transactions over 5,000 sq. m by size range

1,000 sq.m 5,000 – 10,000 sq.m 10,000 – 20,000 sq.m > 20,000 sq.m 1,300

1,040

780

520

260

0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Sources: MBE Conseil/Catella according to Immostat/Knight Frank

10,000 to 20,000 sq.m With only 55,000 sq.m commercialised through four was taken up in eight transactions in 1992: the worst transactions down by 78% transactions, demand in the 10,000-to-20,000-sq.m year prior to 2020 in this range.) In 2020, the largest range has virtually collapsed. Although activity had transaction in the size category is located in Paris CBD already fallen sharply in 2019, that year nevertheless (19,500 sq.m), with the other three being located in the saw 20 transactions amounting to nearly 246,000 sq.m. Emerging North (13,000 sq.m) and in the outer suburbs Over the 1990 - 2020 period, this is the worst result ever (two transactions totalling 22,500 sq.m). recorded in this surfacee range, and the first time that take-up has fallen below 100,000 sq.m. (101,000 sq.m

Over-20,000 sq.m After an excellent 2019, with 11 transactions totalling transaction was naturally an encouraging sign for the market down by 28% 353,000 sq.m, the over-20,000- sq.m market has been very-large-surface market in La Défense. However, the the only one showing some resilience in 2020, (although Engie transaction, which was expected in 2020, was down by 28%), with 256,000 sq.m being commercialised. scaled down, with the company originally expected This performance level is, however, rather misleading: it to pre-let more than 130,000 sq.m. The other two consists of only four transactions, including the turnkey transactions of more than 20,000 sq.m in 2020 were deal involving Total in La Défense for over 126,000 sq.m. that of Sopra Steria in La Défense (21,600 sq.m) and Another very large rental transaction was by Engie in the pre-letting by Nexity of 25,000 sq.m in the Reiwa the Harmony Campus at La Garenne-Colombes in Building in Saint-Ouen. PériDéfense for 83,000 sq.m. Nevertheless, the Total

12 Property Market Trends – France – Mars 2020 Over-5.000-sq.m transactions by building status

1,000 sq.m Second hand New available Pre-letting Turnkey projects 1,500

1,200 20

145 900 519 73 36 107 643 121 306 385 600 250 275 459 128 144 233 134 228 161 129 180 126 300 264 151 141 209 318 331 294 321 255 269 132 184 6 0 57 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: MBE Conseil

The collapse in large-space commercialisation activity deals occurred in 2020 for a total of 209,000 sq.m, A collapse in take-up in 2020 has had a particular impact on immediately with such activity having steadily declined since 2017 for available large new and available supply: only one transaction, (6,500 sq.m) when pre-lettings peaked at 643,000 sq.m. The Engie second‑hand surfaces has involved an existing new building, while only seven transaction represents 40% of pre-letting office activity transactions, totalling 57,300 sq.m, have concerned by volume in 2020. Five such transactions were also second-hand buildings, (five of them finalised in Q1 finalised in Paris for a total of 44,200 sq.m, including 2020). The only turnkey project deal in 2020 was three in the Paris CBD for 31,900 sq.m. There were a that of Total. With the health crisis having generated further three pre-letting transactions in the Emerging near‑total paralysis regarding major real estate North (37,400 sq.m), one in La Défense (21,600 sq.m) decisions, pre-letting activity has also suffered greatly: and two in the outer suburbs (17,400 sq.m). a 46% decrease compared to 2019. Twelve pre-letting

Property Market Trends – France – Mars 2020 13 01 | RENTAL MARKET

Energy sector top large- Of the 21 large-space transactions completed in 2020, nearly 6,300 sq.m in the Symbiose Building in Bagneux. space consumer in 2020 the two largest were those by Total in The Link Tower It is therefore no surprise that the Energy sector has in La Défense and by Engie in the Harmony Campus in accounted for 54% of large surface take-up activity in La Garenne-Colombes. In addition, Air Liquide pre-let 2020.

The Insurance sector has been the second largest located in Saint-Denis (19,000 sq.m) and one in the consumer of large surfaces. Although its activity fell 13th of Paris, outside of its business- by 53% compared to 2019, it still accounted for three district area (9,700 sq.m). large transactions for a total of 29,000 sq.m. Two are

The third-place sector has been Electronics – IT, with in the Paris CBD and in La Défense). However, the 27,000 sq.m taken up in two transactions in La Défense 25,000 sq.m taken up by the Real Estate – Construction and in PériDéfense. There were also two transactions sector only corresponds to a single transaction, that of in the Accounting – Consultancy sector (24,700 sq.m Nexity in the Reiwa Building in Saint-Ouen.

The Banking – Financial Services sector, which had largely being transacted (-83%) through three deals, all located driven large-surface transaction activity in 2019, has in the Paris CBD. been much less present in 2020, with only 21,800 sq.m

Coworking drops out Coworking, in second place in 2019, has been largely had already come under question with the difficulties of the Top Ten in 2020 absent from the list of consumers of surfaces over encountered by WeWork. The health crisis has naturally 5,000 sq.m in 2020. Only one such transaction has led to a drop in customer useage of coworking centers, occurred in 2020: the pre-letting by Morning Coworking and the increase in subletting by office tenants – often of 6,100 sq.m in the Hôtel de la Marine Building in the offering significant flexibility at attractive rents – as well as Paris CBD. The core flaws in the fundamental business the flexible office-use policies being adopted by certain models adopted by many coworking firms, especially lessors, may well have created serious new competition in leasing large spaces at high rents in central locations, for the coworking sector.

The public sector, also very present in the large-surface The same has been true for the transport sector, which market in 2019, has been almost absent in 2020. has been very strongly impacted by the health crisis.

14 Property Market Trends – France – Mars 2021 Ten top consumers of large spaces by business sector: 2019 vs 2020

2019 2020

Education/Training

Other services

Transportation

Public Administrations

Bank/Finance

Consultancy

Construction/ Real Estate

Electronics/IT

Insurance

Energy

sq.m 0 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 180,000 200,000 220,000 Source: MBE Conseil

Property Market Trends – France – Mars 2021 15 01 | RENTAL MARKET

Transactions of over 5,000 sq.m in Île-de-France in 2020

SURFACE BUILDING BUYER AREA ADDRESS CITY SUBMARKET STATUS (SQ.M)

Tours The Link – Total 126,000 La Défense La Défense New cours Michelet

Campus Harmony – Engie 83,138 La Garenne-Colombes PériDéfense New 18 rue des Fauvelles

Reiwa (ex-Colisée 1) – Nexity 25,000 Saint-Ouen Emerging North New 67 rue Arago

Latitude – 19 - 29 rue Sopra Steria 21,613 La Défense La Défense New du Capitaine Guynemer

Live – 75 avenue Boston Consulting Group 19,500 Paris 16 Paris CBD New de la Grande Armée

Le Wilo – Europe Assistance 13,000 Saint-Denis Emerging North 2nd hand 2 Rue Charles Christofle

Atlantis – Caisse d'Allocations Familiales 11,400 Parc du Bois Briard – Évry-Courcouronnes 2e Périphérie Seconde Main 2 avenue du Lac

Belaïa – Cœur d'Orly ADP 11,144 1ère tranche – Orly Outer suburbs New Avenue de l'Europe

VYV (MGEN) 9,750 62 rue Jeanne d'Arc Paris 13 Other Paris New

Neuflize OBC (ABN Amro) 8,900 121 boulevard Haussmann Paris 08 Paris CBD 2nd hand

Webhelp 7,592 Toko – 1 – 5 rue d'Heliopolis Paris 17 Paris Centre West New

Saint-Ouen 1 & 2 – École Danhier 6,886 Saint-Ouen Emerging North 2nd hand 70 rue Saint-Denis

21 rue du Marché JP Morgan 6,600 Paris 01 Paris CBD 2nd hand Saint-Honoré

Immobilière Dassault pour High Square – 6,450 Paris 15 Other Paris New Le Figaro 99 – 101 rue de l'Abbé Groult

E-conic – 12 – 22 boulevard BIC 6,370 Victor Hugo – ZAC Clichy-sur-Seine Emerging North New Entrée de Ville

Goldman Sachs 6,308 83 avenue Marceau Paris 08 Paris CBD New

Symbiose – Air Liquide 6,260 Bagneux Outer suburbs New 46 – 48 avenue Victor Hugo

Hôtel de la Marine – Morning Coworking 6,076 Paris 08 Paris CBD New 2

Verspieren 6,018 Curve – 15 rue du Landy Saint‑Denis Emerging North New

Quai Ouest IV – 3 bis – Talend 5,300 Suresnes PériDéfense 2nd hand 7 rue Salomon de Rothschild

Tour Europlaza – 20 avenue KPMG 5,219 La Défense La Défense 2nd hand André Prothin

Source: MBE Conseil / Knight Frank

La Défense’s strong In terms of take-up across all surface size categories, available within one year has increased sharply, only performance misleading La Défense has been the only submarket to experience two other rental transactions of more than 5,000 sq.m an increase in take-up between 2019 and 2020. However, have occurred in 2020 in La Défense: by Sopra Steria Total's transaction in The Link Tower represents 64% (21,600 sq.m) in the Latitude Building, and by KPMG of the 196,000 sq.m transacted in the La Défense (5,200 sq.m) in the Tour Europlaza. Demand for small business district in 2020; excluding this exceptionally and medium surfaces, which reached almost 95,000 sq.m large turnkey project, take-up has been down by in 2019, has also fallen by 53% in 2020. 53%. In a submarket where the large-surface supply

16 Property Market Trends – France – March 2021 In total, 470,800 sq.m have been taken up in the capital, 2019). The fall in take-up in Paris has been particularly Paris take-up down by 48% down by 48% compared to 2019. Moreover, Paris' evident for large transactions, which have declined in proportion of overall take-up in the Île-de-France region volume by 69% between 2019 and 2020, with only has continued to decline in 2020, to 36%, from 39% eight transactions of more than 5,000 sq.m in 2020 in 2019 and 41% in 2018. If we consider only take-up compared to 27 in 2019. Transactions have slowed by of spaces under 5,000 sq.m, however, this proportion 47% in the 1,000 to 5,000 sq.m range, and by 36% for falls to 43% of total regional transactions (vs. 45% in surfaces under 1,000 sq.m.

Transactions in Île-de-France – 2019 vs. 2020

1,000 sq.m 2019 2020 600

500 Paris: -48 % Suburbs excluding business districts: -42 %

400

300 -43 % +32 % -38 % 200 -47 % -20 % -34 % -59 % -73% 100 -69 % -72 % -29% 0

Paris CBD Other Paris La Défense Boucle Nord PériDéfense Emerging East Emerging South Outer suburbs Other West CBD Emerging North Paris Secondary BD Source: MBE Conseil/Catella according to Immostat

Take-up has fallen sharply in the Paris CBD (-43%), with transactions in Paris CBD in 2020: three by companies Paris CBD only 229,000 sq.m being transacted. The decrease has in the banking/ finance sector, one in coworking and one take-up declines by 43% been least severe for transactions of less than 1,000 sq.m in accounting/ consultancy. This stands in sharp contrast (-30%) but has declined by 53% for transactions of to the 12 large-surface deals in 2019, which included 1,000 to 5,000 sq.m, as well as for those of more than five involving coworking companies. 5,000 sq.m. There have been only five large-space

Only 150,100 sq.m have been commercialised in the of more than 5,000 sq.m occurred in 2020 elsewhere Activity down by 47% Other Paris areas, down 47% compared to 2019. in the rest of the Other Paris submarkets: take-up fell in Other Paris In Paris West excluding the CBD, transaction volume by 59% in the 5th, 6th and 7th arrondissements, by 42% has reached 67,200 sq.m (-45%), with only one large in Paris North East, and by 48% in the 3rd, 4th, 10th and transaction (vs. five in 2019): the rental by Webhelp of 11th arrondissements. 7,600-sq.m in the Toko Building. However, no transaction

The drop in take-up has also been very severe in the Paris two large-surface transactions in these submarkets but -59 % secondary business districts, with a total of 52,200 sq.m located outside their business districts: the rental by in the Paris secondary (-56%) transacted in the 14th and 15th arrondissements MGEN of 9,750 sq.m at 62 rue Jeanne d'Arc in the business districts (ie, Montparnasse and the Front de Seine areas), and 13th arrondissement and the lease by Dassault for Le 39,400 sq.m (-61%) in the 12th and 13th arrondissements Figaro of 6,450 sq.m in the Highsquare Building in the (ie., /Bercy/Paris Rive Gauche). There were 15th arrondissement.

Property Market Trends – France – March 2021 17 01 | RENTAL MARKET

Take-up plummets in the Although, statistically, La Défense’s performance may area, when these had largely driven market activity in rest of the West CBD… appear misleadingly positive, take-up in the rest of the 2019, particularly in Issy-les-Moulineaux and Boulogne. municipalities of the West CBD has plummeted in 2020, Transaction volumes have also fallen sharply for small with a total of only 97,700 sq.m transacted, compared and medium surfaces: -60% in the 1,000-to-5,000 sq.m to 359,300 sq.m in 2019 (-73%). This drop is largely range, with the worst decline in Neuilly and Levallois due to the total absence of large transactions in the (-73%) and -36% in the under-1,000-sq.m market.

In the suburbs outside the business districts, take-up has fallen by 42%, with slightly more positive results in PériDéfense and the Emerging North.

PériDéfense only down by As in La Défense, lower take-up in PériDéfense transaction: the lease by Talend of 5,300 sq.m in the 20%, due to Engie deal has been mitigated by a single very large Quai Ouest Building in Suresnes. As a result, large- transaction: the 83,100‑sq.m pre-letting by Engie space take-up has been only 8% lower than in 2019, in La Garenne‑Colombes. This represents 52% of when there were eight such transactions. Transactions the 159,300 sq.m transacted in the area (-20% from of 1,000 to 5,000 sq.m have been down by 33% and 2019). There has also been another large-surface local those of less than 1,000 sq.m by 28%.

-34% Take-up in the Emerging North has been down by 34% Curve Building (6,000 sq.m) and by Europe Assistance in the Emerging North... compared to 2019, (although it should be noted that in the Wilo Building (13,000 sq.m); two in Saint Ouen, 2019 was an excellent year for the area). Within-a-year by Ecole Dahnier in Saint-Ouen 1 & 2 (6,900 sq.m) supply of surfaces over 5,000 sq.m in the Emerging and by Nexity in the Reiwa (25,000 sq.m) and one North has been very high and the total of nearly in Clichy, by Bic in the E-Conic Building (6,400 sq.m). 115,000 sq.m transacted in 2020, (-42% from 2019) Take-up in the 1,000-to-5,000-sq.m range has declined includes five large transactions totalling 57,300 sq.m. by 36%, although transactions of less than 1,000 sq.m This includes two in Saint-Denis, by Verspieren in the have resisted the downturn well (-6%).

Weak performances in the Activity has been down sharply in the East and South 15,700 sq.m being commercialised in 2020 (-29%), East and South districts, and in districts, where only 31,800 sq.m and 48,100 sq.m the Boucle Nord also continues to have little appeal the Boucle Nord respectively have been transacted in 2020: a respective for prospective tenants. decrease in volumes of 72% and 69%. With only

-38 % in the outer suburbs The rest of the outer suburbs, which had already the pre-letting by ADP of 11,100 sq.m in the Belaïa suffered a decline in take-up in 2019, has posted a Building in Orly, and the acquisition by the Caisse further drop of 38% in 2020, with a total of only d'Allocations Familiales of 11,400 sq.m in the Atlantis 187,000 sq.m transacted. Deals involving spaces over Building in Evry. Transactions for small and medium 5,000 sq.m have decreased by 75%, although there spaces have increased very slightly (+11%), while activity have been two transactions of more than 10,000 sq.m: in the under-1,000-sq.m range has fallen by 41%.

18 Property Market Trends – France – Mars 2021 AN OVERALL RISE IN VACANCY RATES

The very sharp drop both in pre-letting and take-up of risen by 76% between the end of 2019 and the end Overall rise available new and second-hand buildings, coupled with a of 2020. As a result, while the market experienced a in vacancy rates gradual increase in vacancies throughout Île-de-France, short-term supply shortage in 2019 throughout the has led to a major increase in immediate supply in 2020. region, 2020 has seen an overall increase in vacancy This grew from 2.7 million sq.m at the end of 2019 to rates. Although the Île-de-France market as a whole is nearly 3.7 million sq.m at the end of 2020. In particular, presently “balanced” technically, certain areas are now available new and refurbished large-surface supply has clearly oversupplied.

Île-de-France vacancy rates

% Paris Greater Paris Suburbs 10

8 7.6 7 7.2 6.8 5.9 6.3 6 6.6 5.7 5.2 4.2 4 5.8 4.4 4.5 4 3.7 2 2.8

0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Source: MBE Conseil according to Immostat

In 2019, the Paris market as a whole was undersupplied, Some arrondissements should now be considered Sudden sharp vacancy with a vacancy rate of 2.1%. In 2020, however, immediate balanced markets, due to an increase in immediate supply. rate rise in Paris... supply has increased significantly in some of the Parisian Unlike in 2019, this has sometimes also been due to a although shortages persist submarkets, with the overall vacancy rate rising by sudden increase in available small and medium spaces as a in the short term over two points in one year, reaching 4.2% at the end result of releases. However, only one arrondissement was of 2020. While the Parisian market is therefore still clearly oversupplied at the end of 2020: the 18th, mainly technically undersupplied at present, the situation varies due to the delivery during the year of two large surfaces. considerably among the various office markets.

The overall vacancy rate in suburban markets, which rates of over 10%: La Défense, the Emerging North, Four suburban markets had fallen sharply in 2019, has returned to growth, rising PériDéfense and the Boucle Nord. The West CBD now oversupplied from 5.8% at the end of 2019 to 7.2% at the end of (excluding La Défense) and the South district are also 2020. Four suburban submarkets now have vacancy approaching oversupply levels.

Property Market Trends – France – Mars 2021 19 01 | RENTAL MARKET

Vacancy rates by submarket: 2019 vs 2020

% 2019 2020 16 14.4

12.7 12.7 12 11.2

8 7.3 6.6 5.9 4.4 4 4 2.4

0

Paris CBD La Défense East District PeriDéfense South district Boucle Nord Outer Suburbs Emerging North Other West CBD Paris secondary BDs Source: MBE Conseil according to Immostat and Knight Frank

Steep rise in vacancies The rise in vacancies in the Paris CBD area has been +152% year on year. (This increase does not, however, in the Paris CBD… both sudden and severe. The submarket, which was still take into account sub-rentals or under-used coworking seriously undersupplied in 2019, has seen its vacancy spaces, which, according to our information, have also rate rise from 1.4% at the end of 2019 to 4% at the end increased in recent months.) of 2020. Large-surface available supply has increased in Over the course of 2021, the volume of large-surface 2020, but remains very limited, with two such spaces supply to be delivered or released during the year will located within the CBD and two in Paris Centre West remain stable. However, the same category of small and outside the CBD area. However, the supply of small and medium surfaces will increase considerably compared to medium surfaces – which had experienced a continuous the end of 2019. If take-up does not recover in 2021, decline between 2015 and 2018 before returning to the vacancy rate in the Paris CBD could continue to rise. slight growth in 2019 – has grown very strongly in 2020:

…and also higher The overall vacancy rate has also increased in the Parisian mainly due to an increase in large-surface supply in in the Paris secondary secondary business districts, from 3.4% at the end of the 15th, and in small and medium surfaces in the 14th. business districts 2019 to 4.4% at the end of 2020. This still indicates an It should also be noted that the volume of supply to overall shortage of short-term supply. However, the be delivered or released within a year in the 12th and situation differs considerably between arrondissements. 13th arrondissements is up sharply, due to the expected The market has clearly remained undersupplied in the arrival on the market of large surfaces. Clearly, this 12th and 13th arrondissements, while the vacancy rate situation could impact the area’s vacancy rates in the has reached 5% in the 14th and 15th arrondissements, near future.

Severe oversupply in As was feared at the end of 2019, the vacancy rate in has been amplified by the near-absence of large-space La Défense La Défense has increased sharply in 2020. As a result of transactions, both for existing and short-term supply. the deliveries of several large-surface buildings (eg., Tour The vacancy rate in La Défense has therefore jumped Trinity, Tour Alto, etc.), the immediate supply of surfaces from 4.8% at the end of 2019 to 11.2% at the end of over 5,000 sq.m in the business district has risen 2020, clearly indicating a serious oversupply situation. dramatically in 2020 (+190%). Moreover, the supply This could easily worsen in the coming months, with of small and medium surfaces has also almost doubled. more than 180,000 sq.m of large surfaces expected The market impact of this increase in available surfaces during the year.

20 Property Market Trends – France – March 2021 In the rest of the West CBD, the overall vacancy rate in immediate availability in all size ranges, including Uneasy market balance has risen from 4.9% at the end of 2019 to 6.6% at the large surfaces. Levallois-Perret, however, has entered in the rest of the West CBD end of 2020. The situation varies, however, among the a situation of oversupply, with a vacancy rate growing area’s cities. The ongoing shortage is still quite evident from 5.2% at the end of 2019 to 8.2% at the end of in Neuilly-sur-Seine, although the vacancy rate has 2020. Large-surface supply in particular has trended increased from 1.4% at the end of 2019 to 3.6% at the higher. Levallois is, however, the only city in the area end of 2020, relating entirely to surfaces of less than where the volume of supply to be delivered or released 5,000 sq.m. In Boulogne, the vacancy rate has been stable within the year has declined slightly. It is set to increase since 2018, indicating a very slight oversupply at 6.7%. in the other cities, especially in Neuilly, where three This is mainly due to small and medium spaces, which large spaces will be available in 2021. Moreover, the risk represent 79% of immediate supply. The vacancy rate of releases remains high throughout the West CBD, has increased by 2.6 points at Issy-les-Moulineaux to which could fuel a continued increase in vacancies. 6.9%, also reflecting a slight oversupply, with an increase

The East district is the only regional submarket which large-surface deliveries and releases have remained Shortage continues in the continues to be markedly undersupplied, with a vacancy very limited in 2020. Such activity nevertheless has East district, while the South rate remaining stable at 2.4% at the end of 2020. In the generated increases in vacancies in Châtillon (7.8%) district has a balanced market South district, the vacancy rate has increased from 4.8% and Ivry (10.1%), whereas the Montrouge market has at the end of 2019 to 5.9% at the end of 2020, reflecting remained balanced (5.5%). a balanced market. While take-up has been sluggish,

The rise in the vacancy rate has continued in 2020 in Emerging North are located in Saint-Denis, where the Rate continues higher the Emerging North, growing from 11.7% at the end of vacancy rate has reached 17.7%. The volume of supply in the Emerging North… 2019 to 14.9% at the end of 2020. The primary cause that should be delivered or released within the year for this has been the very strong growth in available large is also high in the area, which could lead to a further surfaces in most of the area’s cities. This has reached increase in the vacancy rate. Ten large surfaces are nearly 280,000 sq.m over 23 surfaces, consisting of new, notably expected in 2021, including five in Saint-Ouen, refurbished or renovated buildings, as well as releases. totalling 121,600 sq.m. 58% of the large surfaces available immediately in the

In PériDéfense, the vacancy rate has increased for the outside the La Défense area, where the vacancy rate … and in PériDéfense second consecutive year, growing from 11.3% at the end has reached 27.5%. In Rueil-Malmaison, the market of 2019 to 12.9% at the end of 2020. While the supply appears to be less oversupplied, with a vacancy rate of of available spaces under 5,000 sq.m has stabilized, 8%. However, according to our information, there are large-surface supply has continued to increase and now also several large surfaces in the city that are currently stands at nearly 293,000 sq.m, of which 119,000 sq.m are available for subletting, or in search of new tenants located in Nanterre, where the vacancy rate has risen while leases are still current. from 9.8% to 12.3%, and 89,400 sq.m in Courbevoie

The Boucle Nord remains oversupplied at 12.7% increased in the rest of the outer suburbs, from 6% at +1.3 point (+1.3 point from 2019). The vacancy rate has also the end of 2019 to 7.3% at the end of 2020. in the outer suburbs

Property Market Trends – France – March 2021 21 01 | RENTAL MARKET

AN INCREASE IN LARGE-SURFACE SUPPLY UNDER CONSTRUCTION

The aim of this section is to analyze future supply which is traditionally the highest with regard to vacancy developments and their likely impact on vacancy rates. rate fluctuations, as well as the proportion of this supply Accordingly, it will only be concerned with the future that could be developed speculatively, (ie., that is already supply of new or refurbished buildings, the impact of investor-backed).

The supply under construction of non-preleased new reaching 1.5 million sq.m. Unlike 2019, when peak delivery or refurbished buildings of more than 5,000 sq.m has was expected within the year, peak for deliveries is now increased in 2020 by nearly 20% compared to 2019, expected in 2022.

Sharp rise in large-surface As a direct consequence of the very sharp drop in pre- has increased by 35% between 2019 and 2020, reaching within-a-year supply leasing activity, the volume of supply that will be delivered 1.230 million sq.m: a record figure. In an economic or released within a year has increased by 14% compared environment still coping with the uncertainties linked to 2019, reaching 678,000 sq.m. This rise is less than in to the ongoing health crisis and its various consequences, 2019 (+58%), but coincides with a surge in new, large- any substantial increase in take-up in the coming months surface immediate supply (+76%). As a result, the total is difficult to imagine, clearly raising fears of a further rise within-a-year supply of new buildings over 5,000 sq.m in vacancy rates throughout Île-de-France.

Future supply for new buildings over 5,000 sq.m in Greater Paris area owned by an investor

Project Application Filed Building Permit Granted Under construction Available 1,000 sq.m

1,200 1,100 1,000

900 800 700 600 500 400 300 200 100 0 Immediate Within 1 year 2022 2023 2024 2025 Project Source: MBE Conseil according to Knight Frank/Developers/Investors O re future d’immeubles neufs de plus de 5 000 m2 en Île-de-France portés par un investisseur Two submarkets in particular face the risk of a significant in Saint-Ouen (121,600 sq.m). Second, La Défense, continuation of higher vacancies linked to the deliveries where despite already significant deliveries in 2020, of new buildings. First, the Emerging North, which nearly 118,000 sq.m are now under construction for accounts for 25% of the within-a-year supply of new delivery in 2021, accounting for 17% of the new supply buildings (169,200 sq.m) in Île-de-France. Most of under construction in the region. the Emerging North’s current worksites are located

22 Property Market Trends – France – March 2021 823,000 sq.m of new large-surface offices are also scheduled for delivery in 2022, notably the Point Carré under construction for delivery in more than one year: and Arboretum buildings in Nanterre, and the Alphabet 779,000 sq.m are expected in 2022 and 43,700 sq.m Building in Bois-Colombes. Beyond-one-year supply is in 2023. New beyond-one-year supply, is thus up 25% also still high in the Emerging North (152,000 sq.m) and compared to 2019. 28% of such space under construction in La Défense (123,300 sq.m). is located in PériDéfense, where nearly 231,000 sq.m are

In the medium term, there has been a very slight drop again the Emerging North has the highest supply: 17% in projects where construction has not yet started, but of the regional total, amounting to 263,500 sq.m of for which permits have been granted or are pending, and office space. Projects for which permits have not been that have secured investor backing. The supply volume of granted but which are backed by investors - and which such projects has declined from 1.7 million sq.m in 2019 could, in the medium term, arrive on the market and be to 1.53 million sq.m at the end of 2020. In the current added to the previous figures – reached nearly 1.4 million crisis environment, developers and investors are showing sq.m over 59 buildings at the end of 2020 (compared a high degree of caution; we should see a slowdown in to 1.23 million sq.m in 2019). As in 2019, more than a construction involving projects that have not been, at quarter of these projects are located in the Emerging least, partially pre-let. In this category of projects, once North, mostly in Saint-Denis and Aubervilliers.

Moreover, some of the 1.1 million sq.m of the projects recently, and some of these projects could be abandoned planned by developers only could be sold speculatively. or postponed. However, speculative transactions have been very rare

RENTAL VALUES ARE DIFFICULT TO ANALYSE, DUE TO THE LOW NUMBER OF TRANSACTIONS

Due to the very sharp drop in take-up throughout in Île-de-France in 2020, four were end-user sales and the region, trying to accurately analyze 2020 headline only 13 of the 17 remaining rental transactions related rental values has proven difficult. Statistics are based on a to new buildings. Fluctations in average rental values for relatively limited number of transactions, often involving new buildings in 2020 therefore indicate a continued small and medium surfaces. It should be kept in mind increase in values in the Paris CBD, and a very slight that, out of the 21 large-space transactions completed downward trend in in the other submarkets.

Weighted average rental values for new buildings by submarket

€/sq.m/p/y Paris CBD Paris secondary BDs West CBD Suburbs 800 789 700 600 537 500 494 400

300 276 200 100

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: MBE Conseil

Property Market Trends – France – March 2021 23 01 | RENTAL MARKET

Top rental values continue The average headline value for new buildings in the Paris In addition, top rental values have reached €930/sq.m to rise in Paris CBD Central Business District has increased by 7.5% between for small and medium spaces. Second-hand rental values, 2019 and 2020, reaching €789/sq.m: the highest level however, have shown a slight decline since the second seen since 1992. This value has largely been inflated by quarter and, at the end of 2020, have stabilized at an the three large-surface transactions recorded in the first average of €629/sq.m. This figure, which only relates half of the year, agreed at an average of €820/sq.m and to transactions of less than 5,000 sq.m, remains high. varying in a range of between €800 and €900/sq.m.

Concurrently, incentives have trended lower in the Paris drop in take-up and a significant increase in available small CBD, declining from 11.9% at the end of 2019 to 11.1% at and medium surfaces. However, this statistic should be the end of 2020 across all size ranges. This development, qualified, due to it being an average covering the previous may seem surprising, as it has evolved amidst a sharp twelve months.

During previous economic crises, the Paris CBD, a of offices was very severe. Almost half of the surfaces benchmark area for the Île-de-France region, was of more than 1,000 sq.m commercialised in the Paris generally one of the first submarkets where adjustments Centre West, for example, involved deals finalised in in rental values took place. Paris CBD average headline the first quarter of 2020. While it is possible that top values in 2020 – and even more, incentive values as rental values will remain at high levels and continue to indicated at the end of the year - illustrate a year when drive headline values upwards, there might also be an a large majority of transactions were initiated before the increase in incentives in the coming months. Covid crisis was fully apparent. Moreover, the shortage

Weighted average rental values for second-hand buildings by submarket

€/sq.m/p/y Paris CBD Paris secondary BDs West CBD Suburbs 629 600

500 487 431 400

300

200 194

100

0

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: MBE Conseil

24 Property Market Trends – France – Mars 2021 In the Paris secondary business districts, average values noted that these averages are based entirely on small- Slight fall in values in the have fallen slightly to €537/sq.m for new buildings and and medium-surface transactions.). Paris secondary business €487/sq.m in the second-hand market. (It should be districts

Incentive changes, however, have varied depending on decreasing in Gare de Lyon/Bercy/Paris Rive Gauche area, rising in the Montparnasse district (from 11% at from 12.5% at the end of 2019 to 11.6% at the end the end of 2019 to 15.7% at the end of 2020), but of 2020.

In the West CBD, average rental values for new buildings the West CBD.) Incentives have decreased in Boulogne Average values for have fallen by 2%, falling below €500/sq.m year, while and Issy-les-Moulineaux, to 18.3% at the end of 2020 new surfaces down by 2% remaining high, at €494/sq.m. However, this average is from 20.1% at the end of 2019 but have increased in the West CBD based on only a small number of transactions, located considerably in La Défense (29.8% vs. 25.2%) and in mainly in La Défense. Likewise, several second-hand Neuilly and Levallois (28.6% vs. 19%). It should be noted, transactions in La Défense have been agreed at top however, that in the latter area, transactions of more values, accounting for the rise in second-hand averages than 1,000 sq.m, taken into account when calculating in the area. (These have reached €431/sq.m throughout incentives, have all been located in Levallois in 2020.

In the suburbs, average rental values have fallen for Once again, these averages correspond to a relatively Fall in headline values new buildings, to €276/sq.m/year (-14%), as well as low number of transactions, the vast majority of which in suburban markets for second-hand buildings, to €194/sq.m/year (-17%). have involved small and medium surfaces. and incentives higher

Incentives have increased considerably in all suburban to 23.9% in 2020, and have risen even more in the submarkets, with the exception of the East district: the Emerging North, from 22.8% to 26.8%, as well as in the only market in Île-de-France still experiencing a supply Boucle Nord (41% vs. 31.9% in 2019). In PériDéfense, shortage. Incentives in the East district have declined incentive rate growth has been less pronounced, but to 11.5% at the end of 2020 from 17.7% in 2019. In they remain very high, at 32.1%, compared to 30.2% the South district, they have risen from 19.1% in 2019 at the end of 2019.

Property Market Trends – France – Mars 2021 25 It is essential to put the user at the centre of real estate problematics, as this is the real lever for value creation.

Vanessa Guyot-Sionnest & Delphine Mutterer Heads of Investment – Partners » 02 Scan the QR code to play the podcast. Immoweek. of –Editor-in-Chief Bocquet Catherine by interviewed Mutterer, Delphine and Guyot-Sionnest Vanessa by market investment the of analysis complete the Discover The French Investment market 02 | THE FRENCH INVESTMENT MARKET

A return to averages After ten years of upward trends and a record the 2008 - 2009 financial crisis. With €23.6 billion over the past ten years investment influx in 2019 of €37 billion, the French transacted – a year-on-year decline of 38% - the market investment market has contracted in 2020, clearly hit has returned to a level close to its 2010 - 19 average by the ongoing health crisis. However, performances of €24.2 billion. have been far from any collapse similar to that of

Non-residential property investment volumes in France: 2000 - 2020

FOLLOWING 2019 RECORD PERFORMANCES, THERE HAS BEEN A DECLINE IN ALL VALUE RANGES, ESPECIALLY FOR DEALS OF OVER €300 MILLION

A 58% decline in the No transaction value range has managed to avoid influx €5.2 billion, compared to 23 transactions amounting to over-€300-million range decline in 2020. The over-€300- million market has been €12.5 billion in 2019. the most severely hit, with only nine transactions totalling

Five deals of over Five transactions have exceeded €500 million in from Cardif, as well as the acquisition by several funds €500 million, 2020: part of a portfolio of five shopping centres sold managed by SLAM (Swiss Life AM) of the future Engie compared to eight in 2019 by Unibail-Rodamco-Westfield to Crédit Agricole Campus in La Garenne-Colombes from Nexity. These Assurance and La Française; a warehouse portfolio five very‑high-value transactions totalled just under sold by Green Oak RE to Patrizia; the purchase of €3.8 billion in 2020, compared to just over €6.7 billion the building at 14 rue Bergère in Paris by Lasalle IM over eight transactions in 2019 – which, it is worth noting (for Adia) from BNP Paribas; the purchase of Tours again, was a record-setting year for investment volume. CityLights 1 and 3 in Boulogne-Billancourt by Allianz Vie

28 Property Market Trends – France – March 2021 The contraction has been even harsher in the the acquisitions of the Aquarel Building by CNP; of Four deals valued €300‑to‑€500 million range, again following a record 3 avenue Hoche by Primonial; of 173-175 boulevard at €300 to €500 million: year in 2019, in which 15 such transactions occurred, Haussmann by La Française REM for CNP Assurances, far below 2019’s totalling €5.75 billion. In 2020, there have been only and of the Hub & Flow portfolio by Ivanhoé Cambridge. record performance four transactions in this range, totalling €1.4 billion:

Investment volume by asset value range: 2019 vs 2020

The €100-to-€300-million range has proven the most It has been particularly dynamic during the last quarter A durable market in the resilient in 2020, with a volume decline of "only" 10%. of the year, with 20 deals concluded. Investment funds €100-to-€300-million range Sixty transactions have totalled just under €10 billion. have been by far the leading players in this category, This value range has formed the heart of the investment representing nearly half of the amounts invested (49%). market in France, representing 42% of overall volume.

Property Market Trends – France – March 2021 29 02 | THE FRENCH INVESTMENT MARKET

Selected major investments in France in 2020

SALE SURFACE PRICE ADDRESS SUBMARKET SELLER BUYER YIELD ASSET TYPE AREA (NET) €mn Campus Engie – SLAM PériDéfense NEXITY 94,000 sq.m 982 OFFICE La Garenne-Colombes (EX SWISS LIFE REIM) French part of pan- PATRIZIA LOGISTIK France GREEN OAK RE 700,000 sq.m 607 4.50 % WAREHOUSE European portfolio INVEST EUROPA 1 14 rue Bergère – Paris 09 Other Paris BNP PARIBAS LASALLE IM pour ADIA 30,000 sq.m 560 <3 % OFFICE Aquarel – West CBD AXA REIM CNP 33,250 sq.m 398 3.70 % OFFICE Issy-les-Moulineaux 173 - 175 boulevard Paris CBD INVESCO CNP ASSURANCES 11,000 sq.m 320 2.90 % OFFICE Haussmann – Paris 08 71 - 73 avenue des OFFICE/ Paris CBD PRIVE BMO RE PARTNERS 5,700 sq.m 272 3.20 % Champs Elysées – Paris 08 RETAIL Emerging Reiwa – Saint Ouen NEXITY AVIVA INVESTORS 25,000 sq.m 270 <4 % OFFICE North Paris 47 Austerlitz – Paris 13 DEKA ACCIMMO PIERRE 22,700 sq.m 268 OFFICE Secondary BD TISHMAN SPEYER Espace Lumière – West CBD INVESCO PROPERTIES / 28,000 sq.m 227 OFFICE Boulogne INVESTISSEMENTS PSP

REDTREE CAPITAL Opéra – 4 septembre – INVESTISSEMENT / M&G / Paris CBD BNP PARIBAS 13,081 sq.m 225 OFFICE Paris 02 BANQUE PICTET / PHENIX EUROEQUIPEMENT / IVANOHE CAMBRIDGE Joya – Fontenay-sous-Bois Outer suburbs 49,000 sq.m 222 6.67 % OFFICE QUARTUS (SITQ) 50 rue d'Anjou – Paris 08 Paris CBD CREDIT DU NORD AVIVA INVESTORS 10,600 sq.m 210 2.60 % OFFICE 46 - 48 avenue de la ARDIAN REAL Paris CBD CARDIF 9,200 sq.m 202 OFFICE Grande Armée - Paris 17 ESTATE 55 boulevard EPARGNE FONCIERE, BATIPART – Charles de Gaulle – South district LF GRAND PARIS 22,188 sq.m 193 3.72 % OFFICE COVEA – ACM Malakoff PATRIMOINE, ERAFP ACCIMMO GENERALI EUROPE Bord de Seine 2 – PIERRE / ACCES West CBD INCOME HOLDING 19,630 sq.m 192 4.25 % OFFICE Issy-les-Moulineaux VALEUR PIERRE / (GEIH) / GF PIERRE DIVERSIPIERRE 102 rue de Charonne – HERRMANN FRERES Other Paris COVEA 13,500 sq.m 165 OFFICE Paris 11 & FILS IMMEUBLES Antares – Boulogne West CBD CBRE GI CNP 10,300 sq.m 155 3.29 % OFFICE

Le Lugdunum – Lyon 06 Regions UNOFI AVIVA INVESTORS 22,000 sq.m 120 3.60 % OFFICE ATOUT PIERRE SCHRODER European Clarity – Boulogne West CBD DIVERSIFICATION / 6,861 sq.m 104 3.25 % OFFICE REIT LAFFITTE PIERRE LASALLE SHOPPING Le Printemps de Lille Regions INVESTMENT NOTAPIERRE 24 ,700 sq.m 90 4.60 % CENTRE MANAGERS 12 rue d'Astorg – Paris 08 Paris CBD CLEAVELAND DEKA 3,500 sq.m 84 2.38 % OFFICE

Theodore – Paris 09 Other Paris AG REAL ESTATE DEKA 3,372 sq.m 80 2.33 % OFFICE

Ace – Boulogne West CBD RED TREE CAPITAL SWISS LIFE DYNAPIERRE 4,900 sq.m 78 3.25 % OFFICE

Source: MBE Conseil/Catella Property/Knight Frank

30 Property Market Trends – France – March 2021 After already trending lower in 2019, volume in the has come from investment funds and 28% from SCPIs. Fall of 46% €50-to-€100-million range has declined further in 2020, The share of portfolio investments has also fallen in in €50-to-€100-million market from €6 billion to €3.2 billion. 47% of influx volume this range, from 21% in 2019 to 16%.

The market for assets valued at less than €50 million funds and SCPIs have been nearly neck and neck, with Relative resilience has held up better than for most other ranges, with respective volumes of 34% and 33%. in transactions under €50 million volumes down by 33% compared to 2019. Investment

For assets exceeding €50 million in value, investors to financially sound tenants in areas with dynamic Investors focus have very clearly focused on core properties. In view rental markets. Already trending higher in 2019, the on core assets of the highly uncertain economic environment, they proportion of core transactions has risen from 52% have favoured the most secure property assets, leased to 63%. part duInvestment core dans strategies les opérations in 2020 de plus deThe 50 proportion mi d'€ of core-plus-related investment Very slight decline (Operations valued at over €50 million) strategies, which we estimated at 22% in 2019, has in core-plus strategies fallen to 19% in 2020. These have mainly concerned office investments (57%), warehouses (22%) and retail assets (20%). Investment funds (mostly foreign) have accounted for 48% of total investment volume.

Finally, 18% of transactions valued at over €50 million Majority of "value add" investment funds can be qualified as "value add". These have mainly been enacted by investment funds (83% of invested volume) from North America which are overwhelmingly foreign-based (69%), the largest category being North American funds (46%). 67% of value-add operations in 2020 have related to offices and 24% to warehouse assets.

Property Market Trends – France – March 2021 31 02 | THE FRENCH INVESTMENT MARKET

NEW PROPERTIES: INCREASED INVESTMENT VOLUMES IN VACANT BUILDINGS AND SPECULATIVE ACQUISITIONS

Generally, investment in new buildings has remained to 2018 levels. However, this trend has not been high this year (€8.2 billion). Although down by 24% identical for already commercialised buildings, or in from the records set in 2019, volume has returned the speculative acquisitions market.

Volumes down With regard to new buildings, investment in partially take-up in new buildings in 2020, especially with regard for rented new buildings or fully rented properties has decreased significantly in to pre-let properties, helps to explain the low number 2020 (-37% compared to 2019), totalling €5.1 billion of acquisitions of new partially or fully commercialised over 74 transactions. Statistically, the proportion of buildings. Investment transactions involving new, already investments involving pre-let buildings, (whether fully or delivered buildings have included the acquisitions by partially), has remained similar to that of last year (60%), CNP of the Aquarel Building in Issy for €398 million, due to the market impact of the Campus Engie deal. and of the refurbished building at 173-175 Boulevard Disregarding this transaction, however, the weakness in Haussmann in the Paris CBD for €320 million.

Growth in speculative Conversely – and perhaps counter-intuitively given the €109 million, and Joya in Fontenay-sous-Bois by Ivanhoé transactions extent of the crisis – transaction volumes for vacant Cambridge for €221 million. Regional markets have also buildings, whether sold off-plan or to be refurbished, been a focus for these types of speculative transactions, have increased by 19%, totalling €3.1 billion in 2020 over totalling €644 million: up by 86% compared to 2019. 50 such operations. These have been acquired mainly by These include Lyon, with Unofi’s purchase of the investment funds (60%) and have mainly involved offices New Age Building for €135 million, Nantes, with the (92%). Deals within Paris have accounted for 46% of purchase by BNP Paribas of the Amazing Amazones such investments, including transactions such as the Building for €62 million, and in Bordeaux and Lille. It Opera / 4 Septembre and Great building acquisitions. should be noted that, in the vast majority of cases, But speculative off-sales acquisitions have also occurred these deals were being negotiated before the onset in less central locations, like the Aqueduc Building of the Covid crisis – in some cases, even to the point in Gentilly by King Street Capital for €200 million; of sales commitments having been made. The effects Network 2 Building in Bagneux by LBO and CDC; Nova of the crisis on speculative sales should be observed Aragon in Villejuif by Tishman Speyer Properties for starting in 2021.

Speculative investments by property rental status

32 Property Market Trends – France – March 2021 SHARPER SALES SLUMP FOR PORTFOLIOS THAN FOR SINGLE ASSETS

After a record performance in 2019, single-asset numbers in 2020 to €19.5 billion, close to their 2015 Single-asset sales fall to sales fell by 30% in volume and 32% in transaction and 2016 levels. 2015-16 levels

The decline in portfolio sales has been more severe than Unibail‑Rodamco-Westfield shopping centres by Crédit Portfollio sales down sharply for single assets in 2020, with only €4.1 billion being Agricole Assurance and La Française for €1.1 billion, transacted: -58% in volume and -55% in transaction the purchase of five Monoprix and Casino outlets by numbers, representing the lowest volumes since Amundi from Mercialys for €212 million, and the French 2011. This stands in sharp contrast to the exceptional share of the Leroy Merlin portfolio, acquired by Batipart levels seen in 2019, which included the sales of the and Covea for €210 million. Twelve operations valued Terreis office portfolio for €1.7 billion, and the Cargo at over €25 million have involved warehouses, including warehouse portfolio for €898 million. In 2020, the Green Oak portfolio acquired by Patrizia Logistik portfolio activity has mainly focused on retail assets for €607 million, and the Hub & Flow portfolio bought (47%) and warehouses (44%). Nine retail transactions by Ivanhoé Cambridge for €350 million. Portfolio sales Repartitionvalued at over ventes €25 million de portefeuilles/Actifshave been concluded, unitairesfor offices have also been down sharply in 2020. including the acquisition of 54% of a portfolio of five

Portfolio vs. single-asset sales

Property Market Trends – France – March 2021 33 02 | THE FRENCH INVESTMENT MARKET

DECREASE IN INVESTMENTS IN ALL ASSET CATEGORIES

Offices still top Despite investment volume being down by 35% from 14 rue Bergère in Paris by Lasalle IM for Adia for asset type 2019, offices have maintained their prominence in €560 million, and the purchase of Tours Citylights the commercial real estate market. With €16 billion 1 and 3 in Boulogne by Allianz Vie for €502 million. in transactions in 2020, the proportion of total Three other transactions were valued at between investment transactions represented by offices €300 and €500 million, but the heart of the market has risen from 65% to 68%. Fifty-one office-only has remained in the €100-to-€300-million range, which transactions have exceeded values of €100 million has accounted for 48% of investment in office-only this year, including three at over €500 million: the assets, amounting to €7.4 billion over 45 transactions: Engie Campus (€982 million); the acquisition of an 8% increase from 2019.

Non-residential investment volume by asset type: 2019 vs. 2020

€ million 2019 2020 25,000

20,000

15,000

10,000

5,000

0 BureauxO ces LightActivités industrial EntrepôtsWarehouses Retail/ShoppingCommerces centres Ets deHealthcare Santé Hotels/LeisureHôtel / Loisirs et Centres commerciaux Source: MBE Conseil/Catella

34 Property Market Trends – France – March 2021 Warehouse investments have endured the least severe the acquisition by Ivanhoé Cambridge of the Hub & Warehouse investments downturn of all investment asset types, although fall- Flow portfolio for €350 million, and the purchase of down despite a good start off has still been substantial. €3.1 billion have been the French part of the Hercule portfolio by Investec to the year invested, a 30% drop compared to 2019 (which saw Property Fund for €215 million. Investment activity the sale of the very large Cargo portfolio). As with fell sharply in Q2, before gradually resuming in Q3 the office market, the warehouse sector has seen and Q4. Although down over the year as a whole, its proportion of overall investment transactions the amounts invested in warehouses in 2020 have still increase slightly, from 12% to 13%. The first quarter been above the long‑term average, being the third-best of 2020 was very dynamic, with the French share of year after 2019 and 2017, thus confirming the appeal a pan-European portfolio being sold by Green Oak of warehouses to a growing number of investors. RE to Patrizia Logistik for €607 million, as well as

Investments in retail assets, including shopping centres, transaction, retail has suffered a 53% influx drop. This URW portfolio sale offsets have fallen by 32% to reach €3.7 billion, or 15% of is a clear sign of the difficulties experienced in 2020 by drop in retail asset sales the overall investment volume across all asset classes. the sector, faced with consumer confinements and the However, this decline, mirroring that seen in the office ongoing surge in e-commerce shopping. In total, nine and warehouse sectors, is far larger if we exclude retail-asset transactions have exceeded €100 million. the portfolio sale of five Unibail-Rodamco‑Westfield shopping centres for €1.1 billion. Without this

In addition to the URW portfolio, shopping centre BMO RE Partners for €177 million (retail part); of the activity has been driven by the CIFA transaction in 6-12 rue du Faubourg Saint-Honoré building by BKV Aubervilliers, acquired by Mata Capital for €221 million. and NAEV for €202 million (retail part), and of Carré Investment purchases of street-level shops and Saint-Germain by Tishman Speyer and PSP Investments high‑street retail businesses in general, however, have for €114 million (retail part). Three other transactions been in sharp decline, falling to €1.7 billion: down by in this value range have related to portfolios of large 40% compared to 2019. Nevertheless, there have supermarket chains: the Monoprix and Casino portfolio been six retail transactions valued at more than bought by Amundi for €212 million; the Monoprix €100 million. Three transactions have concerned portfolio bought by AEW-Ciloger for €110 million, and street‑level, mixed‑usage buildings in Paris: the purchase another Monoprix portfolio bought by Mata Capital of the 71-73 avenue des Champs Elysées building by and Covea for €109 million.

Investments in retail assets located in the outer Batipart and Covea for €210 million. With regard suburbs have also been in sharp decline, falling to to retail parks, three transactions valued at a total of only €475 million (-56%). These have included the €31 million have occurred this year. sale and leaseback of the Leroy Merlin portfolio by

Property Market Trends – France – March 2021 35 02 | THE FRENCH INVESTMENT MARKET

Light industrial Already in decline last year, the amounts invested in premises still in decline light industrial premises fell sharply in 2020, to only €337 million (-59%).

Hotels hit hard In an environment of such greatly reduced tourism and last year. No transactions in the hotel sector have by Covid crisis travel, investment in hotels has naturally fallen sharply exceeded €50 million. SCPIs have been the leading in 2020, reaching €263 million compared to €1.7 billion investor type, accounting for 63% of total influx.

Healthcare facilites also The health crisis linked to Covid-19 has not resulted the purchase by Primonial of a portfolio of three clinics suffer investment downturn in any increase in interest in healthcare facilities, with from Vivalto for €118 million (sale and leaseback), with €240 million invested, down from €666 million in all other such transactions valued at under €50 million. 2019. The largest transaction in the sector has been

Major increase 2020 has been distinguished by a sharp increase in sale within overall non-residential real estate investments in sale and leaseback activity and leaseback transactions which have amounted to has reached 11% in 2020. The economic difficulties just under €2.7 billion, compared to only €871 million created by the health crisis, owners’ needs to reduce last year. This is the third-highest volume of such their debts and to increased cash reserves allowing for activity in the last 20 years, following 2001 and 2018. strategic investments have all been factors incentivising The proportion of sale and leaseback transactions owners to sell their premises.

More than €1.4 billion have been invested in offices €560 million, by Crédit du Nord to Aviva Investors of through this type of operation, or 9% of total volume the building at 50 rue d'Anjou in Paris for €210 million, in 2020. The vast majority of such transactions (87%) and the sale by ODDO BHF of the Iko Building in have involved buildings owned by companies in the Clichy to BNP Paribas Reim for €95 million. The sale Banking – Financial Services sector. These include the by Neuflize Vie of 3 avenue Hoche in Paris to Primonial sale by BNP Paribas Asset Management to Lasalle IM was also a sale and leaseback operation, although the (for Adia) of the building at 14 rue Bergère in Paris for company plans to vacate the building in the short term.

Sale and leaseback operations involving warehouses have have totalled €329 million, including €220 million for also been extensive, amounting to €755 million, with the Leroy Merlin portfolio acquired by Batipart and seven transactions valued at over €50 million. These Covea. In the healthcare facility sector, such deals have include three portfolios valued at over €100 million: amounted to €149 million, with the largest transaction Jacky Perrenot, FM Logistic and Kuehne+Nagel. Sale being the portfolio of three Vivalto clinics sold to and leaseback transactions involving retail assets Primonial.

36 Property Market Trends – France – March 2021 INVESTMENT FUNDS REMAIN THE MAIN PLAYERS IN THE MARKET

Investment fund influx has fallen by 47% in 2020. preferring to wait for more favourable conditions to put Investment funds less active, However, funds have remained the leading players in their buildings up for sale. With regard to transactions but still biggest players the market, accounting for 45% of total investment of more than €50 million, North American funds in non-residential real estate, or €10.7 billion. Part were the most active (27%), ahead of the Germans of this decline has been due to the absence of Asian (22%), the French (15%), other continental Europeans funds, which were exceptionally active in 2019 in (14%), Middle Eastern (1%) and British funds (8%). France, being responsible for more than €4 billion Investment funds favoured offices (61%), ahead of in investments. More generally, the tightening of warehouses (25%) and retail assets (13%). 50% of conditions enabling ready access to credit may also their investments have targetted core assets, 19% have affected this decrease, as well as a reduction in core plus asset and 31% value add assets. the number of assets on the market, with some owners

Insurance companies have been the only players to Allianz Vie for €502 million, and the two acquisitions Increased presence of have increased their investments in 2020, rising to by CNP: the Aquarel Building and 173-175 boulevard insurance companies, €5.3 billion, or +13% compared to 2019. (It should be Haussmann, for €398 and €320 million, respectively. due to a few large transactions remembered, however, that they were the only sector Regarding transactions worth over €50 million, to have reduced their investments in 2019, meaning insurance companies have concentrated 80% of their there has been a certain degree of catching up on their investments into core assets, of which 75% were office part.) Their activity in 2020 has been characterised buildings and 24% retail assets. This dynamism in 2020 by several high-value transactions: the purchase of comes as the year has been marked by a record outflow the Unibail-Rodamco-Westfield portfolio by Crédit of collect for life insurance companies (-€6.5 billion), Agricole Assurance and La Française (€1.1 billion), the in stark contrast to the industry’s €25.9 billion collect acquisition of Tours Citylights 1 and 3 in Boulogne by in 2019.

SCPIs have been relatively resilient in 2020, with an a recovery in Q4. According to Aspim and the IEIF, SCPIs prove resilient investment volume decline of “only” 19%, to €4.9 billion. SCPIs have largely turned their attention abroad (40% SCPIs have been able to benefit from relatively high of investments compared to 28% in 2019), with a collects — the third highest levels seen in the sector, constant focus of attention being on Germany (14%). at €6 billion - although down by 29.5% compared Transactions worth over €50 million within France to 2019. However, this performance has been very have amounted to 80% (by volume) for core, and mixed during the year, with an excellent first quarter, 18% for core-plus assets. 87% have involved offices then a collapse in collect in Q2 and Q3, followed by and 13% retail assets.

Property Market Trends – France – March 2021 37 02 | THE FRENCH INVESTMENT MARKET

Investment volume by investor type: 2019 vs. 2020

Net decline The trend in net collect from “grand public” OPCIs of investment, this translated into a 47% decrease in for grand public OPCIs (i.e, those open to non-professional investors) has also volumes in France, down to €875 million. Transactions been downward, falling to €1.95 billion, down 29.7% of over €50 million amounted to 69% (by volume) for from 2019. Although the sector experienced a good core assets, and 31% for core plus assets, 79% of which first quarter, unlike SCPIs, it enjoyed no rebound in involved offices and 21% retail assets. the fourth quarter from its mid-year slump. In terms

Collapse in investment In 2019, the technical increase in volumes invested by for debt reduction has prevailed over any interest in volume from SIICs SIIC property companies (€2.6 billion) was somewhat making acquisitions. This has been particularly the case misleading, inflated by the €900-million Cargo portfolio. for real estate companies with extensive interests in Disregarding this operation, SIIC activity was relatively retail assets, with notable examples being the sale of low. This activity then virtually collapsed in 2020, with part of a portfolio of five shopping centres by Unibail- only €338 million invested (-87%). Publicly-listed real Rodamco-Westfield, as well as several sales made by estate companies have fared quite poorly in the financial Mercialys and Klépierre. Gecina has also sold several markets recently and, for many of them, the need office buildings this year in Île-de-France.

38 Property Market Trends – France – March 2021 NO LOCATION WAS SPARED BY THE DOWNTURN, BUT PARIS CENTRE WEST AND THE INNER SUBURBS HAVE SHOWN BETTER RESILIENCE

The drop in investment volume has affected all French better, particularly the Centre property markets, several of which had experienced West, including CBD and nonCBD areas, and the record performances in 2019. However, some inner suburbs. submarkets have endured the nationwide downturn

Slightly less than €3.9 billion have been invested in have maintained their appetite for core assets. Eleven Relatively moderate decline the Paris CBD, down by 29% compared to 2019. transactions valued at over €100 million have occurred in the Paris CBD This relatively good result is a sign of the continuing in the Paris CBD but, unlike in previous years, there attractiveness of the Paris Central Business District. have been no transactions valued at over €500 million. A lack of available supply has probably also played a 85% of investment volume has concerned offices and role in the decline of the amounts invested, as investors 15% has involved retail assets.

Transaction activity has been very limited in the two transactions have provided major market stimulus: Activity very limited in Paris four Parisian secondary business districts, with only the acquisition by BNP Paribas of 47 Austerlitz in the secondary business districts €483 million invested in 2020, down 68% compared 13th arrondissement for €268 million, and by Tishman to 2019 (when a strong performance had been mainly Speyer Properties and PSP Investments of the Tour driven by the sale of the Lumière Building). In 2020, only Cristal in the 15th arrondissement for €215 million.

After a record year in 2019, the drop in investment Lasalle IM for Adia. It is quite noteworthy that within “Other Paris” performed volume in 2020 in the “Other Paris” areas has also “Other Paris” areas, volume invested in the non-CBD well, with investment volume been less severe in 2020 (-21%), with a total influx of areas of Paris Centre West has increased by 40% higher in some areas more than €3.2 billion. Investment has amounted to compared to 2019, reaching more than €1.3 billion. 87% in volume for offices and 11% for retail assets. Likewise, the amounts invested in the 3rd, 4th, 10th and Thirteen transactions have exceeded €100 million, 11th arrondissements have almost doubled between including the acquisition of 14 rue Bergère in the 2019 and 2020, exceeding €716 million. 9th arrondissement non-CBD for €560 million by

After a very exceptional 2019, the market downturn and Issy‑les‑Moulineaux have been dynamic, with The West CBD: no transactions has been brutal in the West CBD with less than six transactions of more than €100 million (as well as in La Défense, but Boulogne €2.5 billion invested, a decline of 66%. For the first the acquisition of part of the M Campus by Primonial and Issy were dynamic time ever, no investment transactions have been in Meudon, bordering Issy). The most notable deals in finalized in La Défense and none was recorded in the area have included the purchase of Tours Citylights Neuilly, while only one transaction has been finalized 1 and 3 in Boulogne by Allianz Vie for €502 million, and in Levallois-Perret: the acquisition of the On Seine the Aquarel Building in Issy by CNP for €398 million. Building by ACM for €216 million. However, Boulogne

Property Market Trends – France – March 2021 39 02 | THE FRENCH INVESTMENT MARKET

Decline not as severe The inner suburbs have experienced the least influx wholesaler centre in Aubervilliers. The South district in inner suburbs decline of any submarket (-12%). has also performed relatively well, with four transactions With just under €2.7 billion invested, the market is in of more than €100 million: Tangram and 55 boulevard line with the momentum already seen last year. This Charles de Gaulle deals in Malakoff, the Okabé Building relatively good result has been particularly evident in in Kremlin-Bicêtre, and the Aqueduc Building in Gentilly, the Emerging North where six transactions valued at the latter acquired speculatively by King Street Capital. more than €100 million have occurred: Reiwa, Connect The most noteworthy transaction in the less active and Influence 2 buildings in Saint-Ouen; Curve and East district market has been the acquisition of the L'Olympe buildings in Saint-Denis, and the CIFA Valmy Building in Montreuil by Primonial.

Investment volume by submarket: 2019 vs. 2020

Outer suburb investment Investment influx in the outer suburbs has halved in Building in Puteaux by CRPN. Two transactions have influx falls by half 2020, to €3.1 billion, a clear indication of investor involved leased office buildings: Perspective Défense preference for assets located more centrally. Moreover, in Colombes, bought by the Partners Group and these amounts were greatly inflated at the end of the Arax Properties, and the purchase of 90% of the year by the €982 million Engie campus transaction in Convergence Building in Rueil-Malmaison by Sedco. La Garenne-Colombes. Seven other transactions have Other major outer- suburb transactions have included exceeded €100 million, including three speculative the portfolio purchase of four Monoprix outlets by office building sales: Joya in Fontenay-sous-Bois, Mata Capital and Covea, and the French part of the bought by Ivanhoé Cambridge; Nova Aragon in Proximity warehouse portfolio bought by Blackstone. Villejuif by Tishman Speyer, and the refurbished Galion

40 Property Market Trends – France – March 2021 Interest in regional assets has also been down sharply €135 million, and the Lugdunum Building acquired by Regional investments (-51%) compared to 2019, with only €4.1 billion being Aviva Investors for €120 million. also decline by half invested. This figure should be qualified, however, has experienced a very sharp investment since, as described below, portfolio sales for assets in fall-off to €379 million, compared to €865 million in Île-de-France and the regions have increased sharply 2019. 76% of investments have involved office assets. this year. As was also the case in 2019, the regions have However, Lille has benefited from a dynamic market, been the only area where office investments have not with €318 million invested, up by 3% compared to dominated the market, although their share in overall 2019. Influx has been less focused on offices than in activity has increased sharply this year to 47% from Lyon or Marseille (57%), with 30% for retail assets 28% in 2019. 27% of regional investments have been (including the acquisition for €90 million of Printemps for warehouses and 14% for retail assets. de Lille by Unofi), and 12% for light industrial premises. Lyon has maintained its market leadership in regional Other French cities have been less active, with investment activity, with an influx of €956 million (-41% €163 million invested in Bordeaux, €133 million in from 2019), with 89% of this volume involving office Toulouse, €129 million in Nantes and €105 million assets. Two transactions of over €100 million were in Strasbourg. finalized: the New Age Building bought by Unofi for

However, 2020 has seen a sharp increase in portfolio part of the portfolio of five shopping centers sold Sharp rise in French portfolio sales, (for which we cannot make a precise distinction by Unibail-Rodamco-Westfield for €1.1 billion in sales between Île-de-France and regional transactions). Île‑de‑France, Rennes, Dijon and Lyon. There have also Portfolio transactions have reached €3.6 billion: three been several major warehouse portfolio sales, such as times more than in 2019, partially offsetting the sharp the €607-million Patrizia Logistik deal, the €350-million drop in investments for other regional assets. This platform acquisition by Ivanhoé Cambridge, and the remarkable growth has been due in particular to €291.5-million Hercule portfolio acquired by Investec.

Property Market Trends – France – March 2021 41 02 | THE FRENCH INVESTMENT MARKET

PRIME YIELDS LOWER IN SEVERAL MARKETS

Prime office yields have fallen below the 3% threshold involved either mixed-use buildings (ie., offices with this year in the Paris CBD to 2.80%. While some retail and/or residential space), or buildings in which operations have resulted in lower yields, these have actual rental values are below the current market levels.

Office prime yields There has been no demonstrable "Covid effect" on these prime yields, since yields of less than 3% 2019 2020 were observed throughout the Paris CBD in the Paris CBD 3.00 % 2.80 % first quarter, as well as during the last three quarters Paris Secondary BDs 3.40 % 3.40 %* of 2020. Investors' strong appetite for Parisian core La Défense 4.00 % 4.00 %* assets, combined with continued low interest rates Other West CBD 3.60 % 3.25 % and accommodating monetary policies, have enabled Other Suburbs 3.90 % 3.70 % this further yield compression. Regions 3.70 % 3.40 %

* 2019 yield - No office deal in 2020 Source: MBE Conseil / Catella Property

There has been no demonstrable "Covid effect" of 2020. Investors' strong appetite for Parisian core on these prime yields, since yields of less than 3% assets, combined with continued low interest rates were observed throughout the Paris CBD in the and accommodating monetary policies, have enabled first quarter, as well as during the last three quarters this further yield compression.

Several other submarkets have also experienced a with yields of 3.25% for the Clarity and Ace buildings decrease in prime yields for offices in 2020. This has transactions in Boulogne. (The prime yield in the West occurred in the West CBD (excluding La Défense), CBD was 3.60% in 2019).

42 Property Market Trends – France – March 2021 Prime yields in other suburban markets have fallen with a decline from 3.70% to 3.40% due to the Solaris from 3.90% to 3.70%, due to the Tangram transaction transaction. in Malakoff. The same trend has been seen in Lyon,

With regard to other asset types, yields for warehouses have proven increasingly sought after by investors, have declined from 4% to 3.90%. Warehouses particularly in areas with limited land availability.

This decline in prime yields has been influenced by the rise in ten-year bond yields during the first the performance of ten-year bond yields, which have two months of 2021, together with the rise in interest remained negative for most of the year, declining to rates recently observed in the United States due to -0.33% at the end of December. The risk premium fears of inflation, do not suggest, at this stage, a further allocated to real estate has thus increased. However, prime yield compression in 2021.

Paris CBD prime yields vs. ten-year bond yields

Property Market Trends – France – March 2021 43 CONCLUSION

CONCLUSION

The Covid-19 health crisis has led to an unprecedented The INSEE business sentiment indicator, which stood drop in French GDP in 2020 (-8.3%). Several mainstays at 105.2 at the end of 2019, plummeted to 53.8 in of the national economy (tourism, aeronautics, etc.) April 2020: by far the lowest level since the indicator have been particularly hard hit, resulting in a GDP was introduced in 1977. However, it recovered in the decline below the Eurozone average (-6.8%) or for second half of the year to reach 91.2 at the end of 2020, Germany (-5%). Overall, Europe has been impacted and 90.2 in February 2021. The corporate margin rate more severely than the United States (-3.1%) or China, fell to 29.3% at the end of 2020 (compared to 33.2% the latter managing to maintain GDP growth of 3%. In in 2019). However, a decrease was anticipated even France, with the exception of the change in inventories before the health crisis, since companies had benefited (+0.2%), all the components of growth have been at in 2019 from a temporary cumulation of the payment half-mast, in particular household consumption (-7.1%); of the CICE tax credit scheme, and a reduction in social business investment (-9.8%); imports (-11.6%) and contributions and corporate tax. The fact remains that, exports (-16.7%). at present, the short-term investment capabilities of businesses are substantially reduced. Moreover, they The magnitude of the economic shock has not yet been are heavily dependent on a recovery in household reflected in the unemployment figures. In fact, after consumption. However, at the start of 2021, certain having jumped to 9.1% at the end of the third quarter, sectors of the economy have a more favourable outlook unemployment fell to 8% at the end of 2020, a level and are planning to increase their investments, especially close to late-2019 levels (7.9%). However, this apparent manufacturing. stability over one year should be put into perspective, as many people have given up looking for employment The progress of vaccination campaigns, as well as their given the extraordinary situation, and therefore are no effectiveness in the face of new variants, will be crucial longer factored into official statistics. Moreover, jobs elements for any return to economic growth. To date, and businesses have been largely protected in 2020, in however, forecasts are fairly positive, with the Banque particular with the introduction of partial unemployment de France predicting GDP growth for 2021 of at least benefits. Unfortunately, more serious consequences 5%. Paradoxically in a climate of such general uncertainty, for employment are expected in 2021, with a high risk economic and political policy-makers now have better of business failures and resulting redundancy schemes. visibility with regard to certain major developments, with the American election now over and Brexit now a reality. In France, despite departmental and regional elections in June, 2021 should not provide any major political shifts in direction. Companies and investors should, at least regarding these matters, be able to count on a stable environment in which to make

44 Property Market Trends – France – March 2021 important decisions. In addition, economic policy-makers resume. More generally, once improvements in health- should continue to benefit in 2021 from an extremely related conditions have taken place, many companies accommodating monetary policy and very favourable should then focus their attention on cost savings, which stimulus programmes. A recovery plan of 1.9 trillion could lead to a resumption of office relocations. dollars has been announced in the United States by the new Biden administration, which could benefit In Paris, particularly in the Paris CBD, the volume of large- French exports. Regarding the French domestic market, surface supply remains fairly limited, but the within-a-year however, the extent of any rebound in consumption supply of small and medium surfaces is increasing sharply. remains hard to predict, as the level of household savings As a result, a "two-speed" market could develop, in which has reached record levels. top rental values remain high, with a few “flagship office” transactions, but economic rents, in particular for small and Due to the health crisis, 2020 has been marked by a very medium surfaces, experience greater adjustment. In the sharp drop in take-up for office space. The primary cause rest of Île-de-France, vacancy rates are either precariously for this has been a virtual halt in business relocations, balanced, or markets are already significantly oversupplied. (which is not, however, necessarily synonymous with an Due to the lack of pre-letting activity, the volume of new end to real estate-related considerations). Notably, while large-space supply either available or under construction there were few major relocations in 2020, landlords is very high. The amount of available high-quality supply and agents have seen an increase in lease renegotiations could encourage the conclusion of several transactions, and sub-lettings. While these agreements could limit especially if rental adjustments also occur, particularly relocating activity, they also contribute to reducing in La Défense (where asking values for some buildings the risk of short-term releases. Furthermore, as of have already been revised downwards), as well as in the March 2020, the main concern of many companies Emerging North and PériDéfense. However, it is possible was to enact remote working policies for their staff that, unlike in other crisis periods, companies’ real estate as movement restrictions were introduced. A year strategies will not necessarily involve relocating to very later, major concerns linger as to balancing in-office/ large-surface offices in suburban areas in the pursuit of remote working needs, both in terms of employee health cost savings. With changing work methods in mind, some and company cohesion. A general consensus seems companies may opt for greater centrality, paying more per to have emerged to permit working from home for square metre for smaller surfaces. Whatever their eventual several days per month for most businesses. INSEE has strategies, however, in a market much less under-supplied noted increased business investment in 2020 in IT and than in previous years, (with the exception of a few very software services, and numerous discussions between central locations), considerations of rent, accessibility, and management and unions have taken place. As a result, the environmental quality and flexibility of buildings will once the conditions of remote working have been more be their priorities. firmly established, real estate relocation inquiries could

Property Market Trends – France – March 2021 45 CONCLUSION

These selection criteria in the rental market are, The office rental market is still sluggish, and there are unsurprisingly, also crucial in the investment market. many unresolved issues about how buildings will need to Indeed, whatever overall strategic considerations be reconfigured, how to comply with increasingly strict investors may have, the location, accessibility and environmental standards, and to what extent remote- surrounding environment of offices remain their primary working policies will result in lower surface take-up. concerns. For the office market, the scarcity of core Consequently, some investors may continue in 2021 assets and their subsequent attractiveness to investors to seek asset diversification, focusing in particular on should keep prime yields low in the most sought-after warehouses and residential properties. However, such areas, especially the Paris CBD. products are both increasingly rare and are providing increasingly lower yields, particularly for warehouses. One of the economic challenges in 2021 will involve interest rate fluctuations. In negative territory at the The office market, which accounted for 68% of investment end of 2020, favourable ten-year bond yield rates influx in 2020, could therefore retain its pre-eminent permit the government to aid the economy, with the position in 2021, with ever-increasing product selectivity. debt burden remaining bearable, while also maintaining However, this will not exclude the pursuit of acquisitions a very favourable spread for commercial real estate. of value-added operations in central locations that are However, there has been a rise in ten-year bond yields well served by public transportation. 2021 should be a during the first two months of 2021 (even if they have pivotal year, with hopes of a recovery in rental activity remained negative) as well as in yields on ten-year US in the second half of the year and relatively favourable government bonds, driven by concerns about inflation. growth forecasts for France within the Eurozone. This It will be necessary to monitor the evolution of these could maintain the attractiveness of its real estate market interest rates closely, although they remain historically for foreign players, especially British, North American very low. Any continued rise could make the financing and German investors. However, the first months of of some real estate transactions even more difficult 2021 have still been overshadowed by the pandemic, and accentuate the duality of the market observed in and the prevailing wait-and-see attitude, both for the 2020 between the strong interest shown for core assets rental and investment markets, should have a major and very strong selectivity among potential buyers for impact on the year's results. less secure assets. Likewise, increased costs in terms of financing could impact very high-value operations, which already fell sharply in 2020.

46 Property Market Trends – France – March 2021 Property Market Trends – France – March 2021 47 Catella is a European finance group active in Corporate Finance and Asset Management. 600 employees work in 28 cities and 14 European countries including France, Germany, Sweden, Norway, Denmark, Finland, and Spain.

Catella Property combines the structured approach of an investment bank with local market knowledge and “Dealability”: in 2020, we acted as advisor in property transactions throughout Europe for a total value of approximately EUR 4.5 billion.

Emmanuel Schreder, Managing Director Stéphane Guyot-Sionnest, Managing Director Isabelle Ramond et Jérôme Kaplan, MBE Conseil

Catella Property 4 rue de Lasteyrie 75 116 Paris France Tél. : +33 (0)1 56 79 79 79 Fax : +33 (0)1 56 79 79 80 [email protected] www.catella.com

The Property Market Trend is available for downloading on the website www.marketsummarybycatella.com, as well as our quaterly market analyses.