Commercial Real Estate in the Paris Region Results & Outlook presenting... and now, VISION 2016 PARIS

1 THE BIG CATCH-UP

Dear friends, We saw a slow start to 2015, with transaction volumes falling sharply at the beginning of the first half of the year. The second half swept away uncertainties by making up much of the lost ground. The office rental market demonstrated its resilience and even a certain dynamism in small- and medium- sized area segments, proof that SMEs are more positive and looking to the future with confidence. The investment market meanwhile recorded its third best year of the decade after 2007. Real estate is currently a particularly popular asset class with investors and a considerable mass of liquidity is flowing into the Greater Paris region market and impacting yields – which are at a record low. Will the market be able to absorb this demand? Is the rental market at the start of a new cycle driven by more PHILIPPE PERELLO robust growth as Daniel Cohen predicts? CEO Paris Office Partner Knight Frank LLP These are some of the questions we have attempted to answer with the insights of our main contributors – Jean-Philippe Olgiati (Blackrock), François Darsonval (Publicis), Laurent Fléchet (Primonial) and Pierre Dubail (Dubail Rolex) – each of them key market players who offer us their analysis. For that, I would like to offer them my heartfelt thanks. PARIS VISION 2016 CONTENTS

opinion Daniel Cohen 6 vision the jean-philippe olgiati 8 Magicians

THE OFFICE LETTING MARKET

TRENDS 11 OUTLOOK 24 QUESTIONS TO: François Darsonval 30

flashback 50 PARIS VISION 2016

the animal trapeze tamers artists

THE INVESTMENT MARKET THE RETAIL MARKET

TRENDS 33 TRENDS 55 OUTLOOK 44 OUTLOOK 70 QUESTIONS TO: Laurent Fléchet 48 QUESTIONS TO: Pierre Dubail 74

2015 key figure 52 knight frank 76 6 countries. driver thanthat of developed has beenmoreof a globalgrowth momentum ofemerging countries During thelastdecade, opinion Applications). Director ofCEPREMAP(Centre pourlarecherche É Founding memberofthe School (ÉcoleNormaleSupérieure deParis) Professor andDirector oftheEconomicsDepartment ofHigherNormal Daniel cohen The richest1% hasappropriated 55%ofgrowth. population not experiencing anyincrease inpurchasing power. demonstrated in theworksofThomasPiketty, with90%ofthe France. Itisveryconcentrated ontherichest10%,however, as each passingdecade.USgrowth iscertainlyhigherthanin fallen from 3%to1.5%inthe1980sandthen0.5%with appears unavoidableinthelong term.InFrance,growth has the UnitedStatesandJapan, downward trend ingrowth If youlookatindustrialisednationssuchasEuropean countries, trend. is clearlywhetherthisatechnicalrecovery oralong-term zero-interest ratepoliciesandaweakeuro. Themainquestion recovery istheresult ofaspectacularfallinthepriceoil, stagnation whichhasafflicted itsince2008.Thislong-awaited the French economyhasfinallyemergedfrom theeconomic should exceed1.5%nextyear. Thisrecovery couldmeanthat Last year, French growth broke through the1%threshold and recovery oranewdeal? Growth in2016:atechnical É cole d'É conomie deParis conomique et des conomique etdes construction. It optimises theirusebyincreasing occupancy. operating costs. Forexample,Airbnbdoesnot boosthousing houses remain houses, andcarsremain cars.Itsimply reduces optimising theprevious industrialrevolution. Citiesremain cities, in factories.Manynowseethe digitalrevolution assimply chased from thefields,technologyincreased itsproductivity swept upintheindustrialrevolution. Ashumanlabourwas gains. Howeverthesefarmlabourers were notidle–theywere from 50%toalmost0%,requiring immeasurableproductivity revolution reduced farmlabourers asashare ofthepopulation the 20 What istobemadeofsuchopposingviewpoints?Infact, create "enhanced"humans. transhumanism, acomingtogetherofdigitalandbiologicalto about newtechnologies.FuturistslikeRayKurzweilpointto endogenous-growth theorists,are muchmore enthusiastic of AmericaneconomistRobertGordon. Others,including agricultural andtransportrevolutions. Thatistheperspective of thelastcentury, which wasmarkedbytheelectrical, limited ingrowth potentialthanthe technologicalrevolution of today. They claimthatasfascinatingitis,ismuchmore have entered aperiodofsluggish growth duetothedigitisation of developedcountries.There are thosewhoarguethatwe economists are heavilydividedover thefuture growth prospects Beyond thisadjustmentresulting from China'stransition, bad newsin2017. another majorexporterofindustrialproducts, whichcouldspell tied tothatofChina.Germanyisalsolikelybeimpactedas stock exchange,sincethatcountry'sgrowth isnowclosely The Chineseslowdownalsoindirectly impacted theJapanese exporters, mostofwhomwillneedtomakeurgentadjustments. growth), butimmediatelycreates fierce pressure oncommodity such asFrance(andbadnewsforthequestlow-carbon commodities, whichisgoodnewsforimportingcountries The direct effect oftheChinesecrashwasasuddenfallin is tosetparametersattherightlevel. Yuan thattriggered thestockmarketcrashshowhowdifficult it recompense, andtheChinese hesitationsoverthevalueof to manage.Itisnoteasytakebigrisksforseeminglylittle sourcesneeds tofindinternal ofgrowth. Thistransitionistricky its economymakesitimpossible.Thecountrytherefore urgently becomes more difficult. InthecaseofChina,sheersize of and salaryincrease, astrategybasedentirely onexports the necessaryinfrastructure todoso,ofcourse.Whenrevenue growth byexportinglow-costproducts, providing thatithas that, foraverypoorcountry, itisfairlyeasytofuelitseconomic $15,000 ayear, growth becomesmore difficult. Thismeans enters apercapitaincomerangeofbetween$10,000and what economistscallthe"middleincometrap".Whenacountry last summercamefrom China,whichhascomeupagainst Trente Glorieusesfrom 1945to1975.However, thebadnews France's boominggrowth duringtheperiodknownas catching upwiththewealthiestinaphaseequivalentto countries. Thepoorest countriesontheplanetare currently has beenmore ofaglobalgrowth driverthanthatofdeveloped During thelastdecade,momentumofemergingcountries th centurysawtworevolutions inone.Theagricultural struggling tofinditsfoundationinsociety. attentive tothesocialchallengesofatransitionwhichis avoiding killingthegoldengoose–healthcare –andremaining which willachievethefullpotentialofdigitalrevolution, while countries, anewwinningformulatherefore needstobefound latter wouldbelessrewarding intraffic jams...Fordeveloped the sameenthusiasmasbuyingacar, thoughperhapsthe costs. Payingforhealthcare whenweare illdoesnotgenerate of future progress, itisalsotheonewewanttoreduce atall healthcare isthedynamicsectoralwayscitedasanexample that itisseenasacost.Here wehaveaparadox:although (prosthetics, stemcellregeneration, etc.).Theproblem is therapies couldbringustowards thethreshold ofimmortality are coming,andthatishealthcare. Completelynewmedical There iscertainlyonefieldinwhichprofound transformations transformed asitwasacenturyago. send messages.However, consumersocietyisnotbeing Facebook andGoogle–insteadofwatchingtelevision,we built andproduced. Thisdigitalsocietyisalsoaproduct of societies asinthedayswhere there wasalwaysmore tobe Digitisation creates purchasing power, butdoesnotmobilise VISION 2016 PARIS

7 8 buildings toreflectthis. services. Itisvital for our We arelivingina world of vision projects –from acquisitions tosales viadevelopment financing team inParisto managetheentire cycleofourreal estate And wealsoknow Francewell.Backin2006 we created a rent, willbelet. per year. Awell-designed,well-locatedbuilding, attheright with averagetake-upoverthe last 10yearsof2.3millionsq m The Greater Parisregion isan activemarketintermsofrentals volatility offinancialmarkets. pressure onyields,whichhave beendisconnectedfrom the recent yearsandtheneedtoinvesthaveplacedadditional market. Particularlyin“retail money”,where fund-raisingin Values here are also protected from fallingbyastrong domestic asavitalmarket. And Franceisviewedinternationally Asset liquidityisakeyfactorinthesuccessofourinvestments. attractive cities. is oneofthemostdynamicmarketsandParis represent almost40%ofglobaltransactionsbyvolume.France Jean-Philippe Olgiati:In2015,real estateinvestmentsinEurope one ofyourpriorities? in continentalEurope, canyoutelluswhy Franceis leading real estateinvestors.Asitsrepresentative Knight Frank:Blackrock isoneoftheworld's BLACKROCK Managing Director Jean-Philippe Olgiati investors. understand. Thisisalsoastrength whichhelpsattractnew Finally, thetransparency ofthemarketmakesiteasierto and efficient buildingsclosetopublictransportlinks. commitment aswellourconfidenceintheappealofeffective launching therenovation speculatively. Thisdemonstratesour partners PitchPromotion andCleaveland,wetookarental risk, asset suchas real estate? concept ofobsolescence bebuiltinto along-term according tothebusinessclimate.Howcan appear increasingly diverseandliabletochange expectations? Thoseneeds andexpectations be developedtorespond tousers'needsand KF: Whattypeofassetsdo youthinkshould proportion ofthestockwillbecomeobsolete. remain prudentregarding changestotake-upgenerally, sincea in 2016,whichwillenableuserstocommitthemselves,we So whileweare confident regarding theeconomic recovery needs. to tailorreal estatesolutionstotheseusersandtheirchanging connected world.Thingsare changing.We havearesponsibility greater flexibility, andallow remote workinginanincreasingly how tooptimiseuseofworkingspaces,offer theiremployees age issurely dawning.Well-advised usersare considering are againseeingthereturn ofthe expandedCBD.Butanew some ontheoutskirts”,followedby“campus”years.We worked intheCBD”andtimeswith“someCBD Greater Parisregion. We haveseentimeswhen“allemployees slowing downdecision-making.Let'staketheexampleof Finally, some usersare reconsidering theirstrategy, whichis have sloweddownconsiderablysince2008. Don't forgetthatdeliveriesofnewandredeveloped spaces So dotheyhavemuchchoice? space andtheyremain verysensitive totheeconomicbalance. access topublictransportortheperformanceofoffice Nevertheless, usersare notwilling tocompromise onlocation, 2015. services thansecond-handbuildings.Thesamelogicappliedin to neworredeveloped buildings offering afarhigherlevelof at acertainrental level,usersunderstand thebenefitsofmoving The rebound intake-upat the endof2014demonstratedthat mindset orthelackofqualitysupply. as anewdeclineineconomicconfidence,changesusers' J-P. Olgiati:There maybeanumberofreasons forthat,such feelings aboutitsdevelopment? mixed fortunesattheendof2015.Whatare your KF: Therental marketappearstobeexperiencing 14 certification, adjacenttothemetro andthetramwayin entirely redeveloped offices, aimingfortripleenvironmental redevelopment oftheIlotdesMariniers,25,000sqm buildinginMalakoffdevelopment oftheViva andtheongoing the conversionofLesTrois QuartiersintoLeMadeleine, and assetmanagement.Ourmostrecent projects include th arrondissement ofParis.Inthislatestproject, withour prefabricated constructions mayoffer solutions. higher rents, suchastheGreater Parisregion. Wooden or equivalent conditionstothoseoffered inregions with high‑quality office buildingstoallow users toworkunder Finally, regionally wewillneedtoexaminethecreation of properties ingeneraltoevolve. working onandwhichwillallowourbuildingsthelookof of travel,remote workingandco-workingare subjectsweare products tailored tothem.Flexibilityofworkspace,optimisation Now weneedtostudyusers'newwaysofthinkingandcreate and whatusersare nowlookingfor. opportunities inthisrespect. Itisaproject rooted inmodernity in wellconnectedlocations.Greater Pariswillbringmany We buildings alsobelieveinthebenefitsofdevelopingmodern vital forourbuildingstoreflect this. wide rangeofservices.We are livinginaworldofservices. Itis new orredeveloped buildingswhichare welllocatedandoffer a As already mentioned,weremain convincedbythesuccess of premises andchangingneeds. probably largerthancurrent andfuture needs,obsolescenceof in theGreater Parisregion. Total spaceof53millionsqm, There are anumberofchallengesinrelation tooffice buildings important nottobetoofaraheadorbehind. J-P. Olgiati:Thatisafascinatingandcomplicated question.Itis years couldholdsomepleasantsurprisesintermsofrent. values reasonable... We couldevenhopethatthenexttwo low, butourprojects' leverageremains moderateandmarket As forabubble,there isnobubbleinFrance.Yields may be of years. confident thatprimeyieldswill remain stableforthenextcouple In theabsenceofanymajorunforeseen events,weare the current time. This reinforces ourbeliefinthebenefitsofvalue-addfundsat “second-hand” assetsand“prime"ishistoricallyhigh. We shouldalsostress thattheratedifferential between therefore coherent. for instance.Remunerationofriskinthereal estate sectoris relatively. Compare ittotheyieldsoffered onthebondmarkets More seriously, thefallinreal estateyieldsshouldbeviewed have soldalmostallofthem… J-P. Olgiati:We havecopedwiththefallverywell,infactwe risk ofabubble? seen inrecent years?Are youworriedaboutthe KF: Howhaveyoumanagedthesharpfallinyields VISION 2016 PARIS

9 1

10 The architecture ofrents barely changedoverthe course Central BusinessDistrictandtherest ofinner-city Paris. gravity amonghigh-endvaluesasaresult oftherise Paris, where there issometimesthethreat ofasupply could eventuallyhaveanegativeimpactoninner-city of 2015.However, there wasashiftinthecentre of Available supplyisveryunevenlydistributed,which significantly however, tothegreat advantageofthe The locationoftransactionalactivitychanged sectors suchastheFinancialDistrict. Magicians the THE OFFICELETTINGMARKET shortage. force. large transactionscouldreturn asadriving looks settobehold,whilelarge andvery of 2016,astheground gainedin2015 The outlookappearspositiveatthestart demand andtake-up. insufficient giventhestructure ofoffice 18% ofavailablesupply, which isclearly Grade Aoffice space represents just in Europe. remains stableandstillamongthelowest At 7.3%theyearonvacancyrate previous year(-1%). remained atalmostthesamelevelas office take-upintheGreater ParisRegion atotalof2,088,000sqmin2015, With THE OFFICE LETTING MARKET 11 "Ladies and Gentlemen, girls and boys, welcome to the circus and watch carefully! One minute they're here, the next they're gone. They allow themselves to be shackled and enclosed, to make their escape even more impressive. A round of applause for the magicians!"

Yes, the rental market certainly has some amazing magicians. Otherwise known as its occupiers! Experts in sleight of hand, they're capable of making a deal the size of an elephant appear or vanish in a flash. They are masters in appearances and duplication, as well as disappearances. The rental market progressed at an unsteady pace in 2015, before concluding with a fairly positive outcome… #01 - office demand

In the hands "Nothing extraordinary or of the illusionists discreditable: with take-up of 2.1 million sq m at the end of 2015, the In 2015, the most startling magic mirror trick was pulled off by large occupiers. Greater Paris Region achieved more or Transactions for larger areas became less the same level as the previous trends scarcer and many seemed to have year." disappeared into the silvered surface of the mirror. Perhaps they will emerge in 2016. For the moment however, they remain in short So it is neither extraordinary nor discreditable. supply. So why does contemplating these results create a slight feeling of disappointment? No doubt Fortunately, a balance was achieved as because instability appears to have become the result of other magicians – occupiers an iron law of the market. Activity takes off one of small and medium-sized areas. They minute, before suddenly contracting the next. performed the magic portfolio trick, where This volatility causes uncertainty, which is never turtle-doves, a cage of canaries and a child pleasant. But the feeling of disappointment emerge one by one from a portfolio. also undoubtedly comes from the impression The rental market recorded a respectable of a missed opportunity, since there were high conclusion to 2015. With transactional activity hopes for 2015. In the last issue of Paris Vision, of a little under 2.1 million sq m, the Greater for example, we anticipated transactional Paris Region achieved more or less the same activity of between 2.2 and 2.4 million sq m, level as the previous year (-1%). Considering driven by the improvement in companies' the poor start to the year, this is almost a economic environment and by the immense result to be proud of, despite a slight shortfall real estate needs generated by the increasing compared with the 10-year average (2.3 million obsolescence of existing office space. So what sq m). happened? 12 anticipated. Andthiswasalsothereason It wasthissuddenfallwhichwehadnot 2015 (withinseventransactions). transactions), theirshare fellto12%in 20% ofoffice take-upin2014 (with13 very largeoccupiersaccountedfor 39% decrease intake-up. While these the fallinthissegmentistelling,witha almost disappeared. Vanished! Indeed, market playerstheprevious year, they least 20,000 sqm.Havingbeenkey very largeoccupiers,lookingforat The role ofillusionistwasplayed by Source: KnightFrank Transactions formore than20,000sqmin2015 20,500 sqm 21,400 sqm 35,000 sqm 42,200 sqm 42,600 sqm 43,000 sqm 46,000 sqm Area Elior Publicis OECD Novartis La Poste AccorHotels Government Tenant Égée, Courbevoie PariSquare, Paris11 In Out,Boulogne-Billancourt Silverwood, Rueil-Malmaison Lemnys, Issy-les-Moulineaux Séquana, Issy-les-Moulineaux Avenue deSégur, Paris7 Address and charges.Thereason nodoubthas streamlining andmanagement ofcosts remains immense,particularly intermsof not duetoanycontractioninneed,which withdrawal bylargeoccupiers?Certainly in theeconomicoutlook.Sowhythis by adefinite,albeitslight,improvement occurred in2015,evenaccompanied this segment.Yet this stabilisation creates) isgenerallysufficient toboost (due tothemedium-termvisibilitythis stabilisation inthebusinessenvironment It wasparticularlysurprisingsincea for themixedresults recorded in2015. La Défense Paris 3/4/10/11 Western Crescent Bend -Southern Western Crescent –Péri-Défense Western Crescent Bend -Southern Western Crescent Bend -Southern Paris 5/6/7 Location That wasthecasein2014,whentake-up the extreme volatilityoftake-upvolumes. advancement ofdecisionscontributesto the pastdecade,postponementor average ofjust10transactionsayearfor segment whichhasrevolved around an out anddiscussionsdraggingon.Ina hurry. Negotiations are beingstretched their decisions,whileno-oneisinany relocation plansandothers postponed available options,someabandonedtheir the lackofsuitableandimmediately available tothistypeofuser. Dueto more todowiththescarcity ofsolutions December 2015 July 2015 June 2015 July 2015 November 2015 June 2015 April 2015 Date THE OFFICE LETTING MARKET 13

for very large transactions surged by 54%. smaller than 5,000 sq m. The prize goes largely a reflection of problems with supply This was confirmed with a movement in to the segment of medium-sized areas, rather than demand. If occupiers are able the other direction in 2015. between 1,000 sq m and 5,000 sq m, to meet their real estate streamlining, in which transactional activity increased organisational adaptation and relocation by 12%. This represented an impressive needs, then they will consume office "The major cold snap seen in the awakening among occupiers who had space. Conversely, if their objectives very large premises segment kept a very low profile in 2014. Occupiers appear unachievable based on the real of small areas of less than 1,000 sq m, estate solutions available, then they will conceals an essential and very who had already made a notable return postpone or spread out their decision- positive phenomenon – the to the market in 2014, maintained their making. dynamic performance of the momentum, with a 9% increase in their office take-up in 2015. multitude of small and medium- "attention! The phenomenon Even "traditional" large occupiers, looking sized businesses." for between 5,000 sq m and 20,000 sq m, of transactions involving ended up proving very resilient. Having geographical centralisation took The decline in activity in this very specific fallen in the first half of the year, this off in 2015, to the significant segment should not overshadow other segment eventually inverted the trend to changes, which are more subtle but bring record a slight increase (+1%) over the full advantage of the city centre. such hope to the rental market. This is year, after a good second half-year. Paris's market share exploded." particularly the case with the dynamism These results reinforce the conviction observed among occupiers of areas that the erratic performance of take-up is One of these objectives particularly stood out in 2015: relocation, or more specifically, consolidation within the centre of the Paris Region. The phenomenon was clear before, but it moved up to a completely new level last year and made the fortune of the most central, best connected and easiest to access addresses. Not necessarily in traditional "business" areas, but simply urban and open addresses. These are popular among employees and are now perceived by companies as efficiency tools in favour of business and management of human resources. That is the key to the success of inner-city Paris, where take-up increased by 14% over the course of 2015, with breathtaking increases in some areas, including Paris 3/4/10/11 (+59%) and Paris 5/6/7 (+71%). In all, more than 900,000 sq m of office space were let in the city centre, or 43% of regional volumes. In the last 10 years, inner-city Paris has accounted for just 35% of take-up in the Greater Paris Region. As well as the prestige of its address, the city centre has benefited fully from occupiers of small and medium‑sized areas, which represent its usual core target. Another major success of 2015 came in the form of the Western Crescent (+7%), 14 move in2015tookadvantageofthe Very largeoccupierswhomadetheir BendandPéri-Défense. the Southern recorded in2015,fourwere carriedoutin seven transactionsofover20,000sqm Paris Regionwasnotfelthere. Outofthe the coldsnapwhichaffected theGreater the rental marketlastyear. Thisisbecause occupiers, whowere theleastactiveon destination forlargeandvery consider thattheseareas are afavourite success mayappearparadoxicalwhenwe lesser extent,inPéri-Défense(+22%).This Bend(+73%)and,toa in theSouthern driven bythesurgeintransactionalactivity Source: KnightFrank Southern InnerRim Southern Southern Bend Southern +73% -30% effects onthosetwoareas, as2014was one forgotthenegativeimpactofbase therefore appearsurprising,butonlyif as Neuilly-LevalloisandLaDéfensemay The poorperformanceofmarketssuch address. no longerenoughtojustifytheinferior compared withtheWestern Crescent was detriment oftheInnerRim.Itspriceappeal This performancewasachievedtothe occupiers tothesepopularaddresses. and Rueil-Malmaison,toattract Issy-les-Moulineaux, Boulogne‑Billancourt reductions offered bymanylandlords in beneficial financialconditionsfollowingthe La Défense Paris 5/6/7 -38% +71% 3 Paris 3/4/10/11 Paris 18/19/20 +59% -39% 4 Neuilly-Levallois Paris 12/13 achieved. expect thesamelevelsofactivitytobe so positivethatitwouldbeunrealistic to +32% -46% 2015 take-up THE OFFICE LETTING MARKET 15 Location of transactional activity and comparison of changes in different markets Source: Knight Frank

Central Business District

THE OFFICE LETTING MARKET 17

A feat of levitation

No contest – with "market share" of 20%, the Central Indeed, many companies in the Greater Paris Region have Business District (CBD) is clearly the dominant area recorded very satisfactory financial results, giving them at regional level. Floating high above the crowd, significant scope in their choice of location. And for them it achieves an impressive feat of levitation, with and others, rent and charges are now simply elements of impressive performances year after year – 2015 being their overall real estate budget. For many occupiers, the no exception. The CBD's charm remains intact in the productivity gains permitted by the location make up at eyes of companies and the reasons are evident… least partially for the additional rent. Real estate can also act as a growth lever. It is not the most spectacular progress. With transactional activity up by 12%, however, the CBD stands out as one That is one reason why the CBD is increasingly popular of the most dynamic markets in the Greater Paris Region. with start-ups and companies in the new economy. The performance is particularly impressive given that This phenomenon is nothing new and indeed, we this increase comes on the back of very strong addressed it two years ago in Paris Vision results and impressive volumes in 2014. In 2014. However it became more widespread fact, in 2015 the CBD broke through the in 2015, particularly with the letting of symbolic threshold of 400,000 sq m of 9,700 sq m by Blablacar in the #Cloud take-up for the first time in five years. "The CBD is a fakir, building (2nd arrondissement). This charming snakes with its makes the leader in car-sharing a The CBD accounted for 20% of neighbour of Facebook, which let transactional activity in the Greater pungi or levitating in the air. 3,600 sq m in the same building. Paris Region in 2015 – significantly It entrances companies and And, as if these famous names were more than its usual share. In fact, in not enough in 2015, others also made the last 10 years its average market achieves record results." their presence felt in the district, for share has been 17%. example Wistiki, Vocalcom, Wallix, Smart The CBD has built its success on the AdServer and Save my Smartphone. dynamism of its traditional core target – The CBD certainly has a bright future ahead of it companies looking for less than 5,000 sq m of office and is set to continue hovering above the crowd! space. The rental market in 2015 was driven by occupiers of small and medium-sized areas. However the CBD has also been able to draw on a reasonable level of continued activity in the large transactions segment: six new leases for more than 5,000 sq m were recorded over the course of last year, for a total of almost 60,000 sq m. That is certainly less than in 2014, but that year was an unusually excellent vintage for the CBD. There was a return to normal in 2015, if that is defined as the average recorded over the previous five years (seven transactions a year for a total volume of 60,000 sq m). Even in an environment marked by the search for savings and efficiency, the CBD still managed to attract occupiers. This represented a fine performance for a region which steadfastly continues to ask the highest prices in the region!

18 Grade a feel thattheymayaswelltake theirtime,postpone solutions availableapartfrom pre-lettings, occupiers Since there are almostnosatisfactory 5,000 sq m. in thesegmentoftransactions formore than reasons forthefallintransactionalactivityobserved meeting demand.Anditisnodoubtoneofthe is more a reflection of the lack of Grade A supply redeveloped areas iswearingthin?Definitelynot!It Does this mean that the charm of newand large occupiers'office take-upisdownconsiderably. majority. Nevertheless,theproportion ofGradeAin Occupiers' appetiteisclearandreveals asignificant remained clearin2015,accountingfor76%. large transactionscorresponded toGradeA,andit 2013 and2014,when80%then81%oftake-upvia these areas first.The phenomenon was clearin to seems clear why occupierswould turn years, i.e.thetermofalonglease,it remained almostunchanged for12 rents forthesebuildings have Considering thattheheadline has fallenbyaround 30%. the averagelevelofcharges by around 30%.Meanwhile, has increased considerably, ratio forarea perworkstation, occupancy rate and the average measured intermsofworkstation the efficiency of a new building, and charges.Inlessthan15years, of flexibilityandconsolidation ofcosts are areas offering thebestguaranteeinterms which occupiershaveavoraciousappetite.These buildings offering newand redeveloped areas, for The tokensoftherental marketare GradeA being toomanylosers. the game,thoughnotenoughtoprevent there fast-operating tricksterhere andextratokensin limits to those similarities. Luckily! There is no similarities with Find the Lady, although there are be sweptupinthegame.Therental markethas token ishiddenunder. Theyallowthemselvesto Obviously, players rarely identify the right cup the This gameinvolvesonetokenandthree cups. of losers Find theLadyhasalot represented 76%ofdemand charm losingitslustre?" for largeareas. Istheir and redevelopedspaces badly weakened–new "Still dominantbut medium-sized companies do not have the same would berash,however, sinceitwouldimplythat observed amonglargeoccupiers.Suchaconclusion appear to becontrary the wait-and-see tendency dynamic segment.Thisvibrancywouldtherefore was categorisedasGradeA.Yet thiswasthemost take‑up ofareas from 1,000sqmto5,000 and medium-sizedareas. In2015,just21%of The situationisnobetterforoccupiersofsmall property forafewyears. renegotiating thefinancialconditionsoftheircurrent solution,suchas their decisionorfindanalternative expectations as larger ones. Does that mean they don'tcare aboutbeing streamlined and efficient? Ofcourse not!They same disappointment? were simplymuchmore inactiveon Isn't thatjustanotheraspectofthe the rental marketpriorto 2015 headline rents inreturn. and certain real estate decisions had becomeurgent,andeven significant compromises in options, whileaskingfor they fellbackonlower imperative. Having no choice, ‑quality THE OFFICE LETTING MARKET 19 #02 - Office supply Not all hats contain rabbits

Some hats produce rabbits, but that is have accepted the consolation prize. not necessarily the case, as illustrated Not much changed in this respect in 2015, "The most popular geographical by available supply in the Greater with supply far from sufficient to meet areas are often on the brink of Paris Region – where many hats are demand. in fact empty. And when something under-supply. The CBD only has a does emerge, it is not always the In quantitative terms, firstly, areas available 4.8% vacancy, for instance." rabbit expected and hoped for by the to rent in the Paris Region have returned spectator. to their levels at the end of the previous year, following a slight increase during the The breakdown of supply within the first half of the year. At the end of 2015, Greater Paris Region has barely changed "Supply is far from sufficient to they represented 7.3% of total office in a year. The markets of inner-city Paris meet demand. With an average space in the Greater Paris Region. This are all below the Greater Paris Region virtual stagnation means the Paris Region average, whereas areas across the vacancy rate of 7.3% in the continues to display one of the lowest ring‑road are above average, sometimes Paris Region, choice is far from vacancy rates in Europe. Only London, its by a significant margin. The CBD, for abundant." great rival, can solidly claim much lower instance, has 4.8% vacancy, just above levels (4.4%), teetering on the brink of the 4.6% recorded for inner-city Paris under-supply. Almost everywhere else, the as a whole. On the other hand, despite Occupiers in search of offices are vacancy rate stands just under 10%, as a downward trend in 2015, La Défense sometimes sorely disappointed. in Frankfurt, Madrid and Dublin. It is even and the Western Crescent have far higher Competition between them is fierce to higher, at 13%, in Warsaw and more than vacancy rates of 11.1% and 11.8% obtain their dream offices, which will allow 15% in Moscow. respectively. While these numbers are them to optimise workplace organisation, The level of security offered to landlords on high, they're not necessarily unusual facilitate change, motivate their teams, the Paris market is therefore exceptional for markets broadly focused on large reduce costs and burnish their company's in Europe. This is one of the trademarks occupiers. reputation. As we have mentioned, many which explain its success and appeal to The regional record is held by the Northern have these requirements in mind, but few investors. Obviously, the Greater Paris Bend (Clichy, Gennevilliers, Colombes achieve satisfaction. Some occupiers Region is not all cut from the same cloth. and a few other communes), with a rate are so let down that they give up their Behind its overall situation in terms of of 15.6% at the end of 2015. This is in plans to position themselves on the real supply and vacancy lies considerable striking contrast to Paris 5/6/7, where estate market. And some find themselves internal diversity. The various markets in the vacancy has fallen to 2.8%. forced to negotiate advantageous financial Paris Region have a wide range of profiles. conditions to make up for the fact they 20 100,000 sqmofoffices space Each windowcorresponds to Source: KnightFrank The mysteriousevaporationofsolids Total supply andGradeAsupply transactions? Anabyss! the 76%itrepresented intake-upvialarge last year. Let alone thegapcompared with Grade Arepresented intotaloffice take-up low compared withthe34% share which Region attheendof2015.Thisisvery of areas availableintheGreater Paris The share ofGradeAstoodat18% rarer… are pleasantandwelllocatedare much available. Butrational,efficient offices that of mothballsandemptyforyears,are exist! Museumpieces,withanodour supply. Second‑handareas certainlydo to quality. GradeAisintheshortest The mainstickingpoint,however, relates seen –andveryunevenlydistributed. not quitesoimpressive, aswehave That mayappearconsiderable,butis Paris Regionisjustover3.9millionsq m. Total supplyforthewholeofGreater Vacancy rate supply Grade Aavailable Total office space Of whichGradeA Available supply Occupied offices 6.7 millionsqm 4,8 37,000 sqm PARIS CBD 4.8% % office demandandtake-up." little, giventhestructureof available supply, whichisvery "Grade Arepresentsjust18%of being unabletofullymeettheirneeds.Not dependent onlargeoccupiersandrisks the Western Crescent, although it ishighly inner-city Paris.Thefigure isnohigherin CBD andislimitedto23%intherest of as unevenly. Itstandsatjust12%inthe Grade Asupplyisstilldistributedjust in thecomingmonths,particularlysince market in2015threaten toariseagain the hurdles encountered ontherental worse, butnobettereither. Inotherwords, Grade Ahasremained unchanged.No year ago,sinceasaproportion ofsupply, Scarcity iscertainlynoworsethanitwasa 10.1 millionsqm 103,000 sqm Rest of 4.4% paris 3.5 millionsqm 132,000 sqm la défense 11.1% All hatscertainlydonotholdrabbits! (34%). supply remains inanywaysignificant only placewhere newandredeveloped supply. No,LaDéfenseispracticallythe where GradeArepresents just16%of to mentionthesituationinInnerRim, 8.2 millionsqm 225,000 sqm crescent western 11.8% 6.4 millionsqm 92,000 sqm inner rim 8.9% THE OFFICE LETTING MARKET 21 #03 - Office rents Fire-breathers: some impress, others get burned

Half-men, half-dragons, they have patiently learned and mastered the techniques of an art as ancient as it is mysterious and inaccessible to most people. Fire-breathers are truly fascinating! They don't absorb light, they create it. So much so, that we forget how many people have been burned trying to imitate them, all those who have not managed to tame the flames, and all those who chose not even to try. The rental market has its fire-breathers. They catch the eye and attract attention, but the reality behind the scenes is more complex.

The fire represents rents. The fire-breathers are prime buildings, in other words, buildings offering high-end technology and specifications, architectural value, contemporary design and a sought after location. Grade Triple A, if you like. These are let for the highest values – flagship values which are often used to illustrate the market, despite often being very unrepresentative.

"Although some higher values were recorded in 2015, the high-end rent considered representative of the CBD remains at €750 for the third consecutive year…"

High-end rent in the CBD stood at €750 at the end of 2015. Some higher values were recorded in a few transactions during the year, but they are still too rare to be considered as representative of the market. They have taken longer than expected to spread. As a result, high-end rent remained at the same level as at the end of 2014. The CBD remains the most expensive market in the Paris Region and maintains a stable differential compared with other geographical areas. The difference is €210 compared with La Défense, a market where high-end rent stands at €540. 22 CBD (the1 partofthe District, i.e.theeastern initiated bywhatiscalledtheFinancial undoubtedly theseachangeinprices The moststrikingofthesechangesis as closetotheGoldenTriangle." terms ofrents:ithasneverbeen was themainmovement in2015 "The riseoftheFinancialdistrict role ofparticularmarkets. the balanceofpowerandincreasing spectacular, are stillindicativeofshiftsin changes, however, whichalthoughnot in 2015.Behindthisstabilityliesome So high-endrent remained stableoverall breathing downitsneck:with high-end Triangle cannow feeltheFinancialDistrict low of€70byQ42015.TheGolden continued tonarrow, fallingtoarecord to €100bytheendof2014.Thegap premium fortheGoldenTriangle hadfallen average foraperiodof10years.This in high‑endrent isalittleover€160on modest values,ontheother. Thevariation and theFinancialDistrict,usedtomore expensive GoldenTriangle ononeside divided intwo,withtheprestigious and further in2015.TheCBDistraditionally began in2014,continuedandgrew arrondissements). Thissea change,which st , 2 nd andparticularly9 th and upto€220intheCBD,where difference isjustover€140inLaDéfense the complexityofrental situation. The high-end rents givesanotherillustration of The gapbetweenaveragerents and Défense. some disillusionment,andnotonlyinLa for GradeAareas. There hasbeen headline rents ofunder€500,including most newleasesthere are basedon of LaDéfenseistellinginthisrespect: – sometimesmuchlower. Theexample Most transactionsinvolvelowervalues onlyasmallnumberofbuildings. concern not beviewedasmarketnorms.They comparisons,should and international they maycontributetoregional spread However thesehigh-endrents, although which hadpreviously rejected thislocation. as companiesinmore traditionalsectors of itpreviously, suchasstart-ups,well targets whichmayhavebeenunaware fashionable businessdistrict,attracting image, establishingitselfasalivelyand also benefitedfrom aclearchangeof projects delivered in2014and2015.It for alargeproportion ofredevelopment of GradeAproperties, sinceitaccounted CBD benefitedfrom asignificantnumber partofthe for thetimebeing.TheEastern while theGoldenTriangle remains stable the FinancialDistrictisgainingground values of€680,upby5%year-on-year, become afire-breather! geographical area. Notjustanyonecan gulf whichexistsinvaluationsasingle down theaverage.Thatdemonstrates transactions forsecond-handareas pull THE OFFICE LETTING MARKET 23

At a regional level, average rent stands And even in those two areas, the values at €321 for the whole of 2015, slightly are only headline rents. Incentives offered up compared with 2014 (+4%), reflecting remain significant, often amounting to a refocusing of transactional activity on between 10% and 15% of the headline inner-city Paris and the Western Crescent. rents in the CBD, when the building is not This increase remains fragile, however, it subject to competition between potential is one of the most consistent phenomena occupiers. They are a little higher in the in the Greater Paris Region market, which rest of inner-city Paris, generally close to we emphasise every year: for more than 15%. Outside the ring-road, they move up 10 years, average rent has fluctuated a band to more than 20%. Geography is in a very narrow range, limited to 10% not the only factor, since incentives tend to around a median value of €302. Although increase with the size of the area let and it fell into the upper end of this range, the occupier's commitment term. Some 2015 was no exception. Companies incentives have even exceeded 25%, for are adjusting their choices in terms of instance. address and quality of the buildings they Although fire-breathers may fascinate lease according to market conditions and with their feats and never-before-seen changing rents in the various areas. performances, they certainly do not reflect The Paris Region is incredibly diverse and the general reality. This was demonstrated this diversity is increasing. In the CBD for once again in 2015. But after all, isn't this example, average rent stood at €531 in diversity one of the explanations for the Q4 2015, more than double that of Paris depth and resilience of the rental market in 18/19/20, where it is capped at €254. the Greater Paris Region? The gap between these two areas has increased by almost 9% in a year. Both are nonetheless in inner-city Paris, just a few kilometres apart. For properties lying outside the Paris ring-road, average rents drop. Only La Défense and Neuilly/ Levallois manage to break through the €300 mark, with an average of €352 for Neuilly-Levallois and €399 for La Défense in Q4 2015. The market records much lower values everywhere else. 24 outlook scattering… Whatashow! watched in2015,alongwithsomereappearances anddisappearancesadizzying and noveltiesawaitinguswere already present tosomeextentintheperformancewe No doubtweshouldn'texpectanythingtoorevolutionary. No,manyofthechanges big top? What tricksdothemagicianshaveinstore forusinthe2016seasonunderParisian

office demand THE OFFICE LETTING MARKET 25

Expected reappearance

Will those absent in 2015 return to the market? The This should particularly be encouraged by the signs of economic revival of the segment of large and, particularly, very large recovery. 2015 already saw a significant improvement, with transactions will depend on the quality of the 2016 vintage projected growth in the French economy of 1.1% (compared with in terms of office take-up. 0.2% the previous year). This improvement is set to continue in 2016 with an average projection among economists of +1.4%. Given the erratic nature of real estate decision-making in this That is moderate and in no way astonishing, but this upward segment, it would be rash to try to reach any definitive verdict. movement in itself is vital for the rental market, since it indicates Concordant factors nevertheless exist, giving reason for a brighter and more predictable future. And we know how much optimism. Yes, large and very large occupiers appear ready companies need a predictable and coherent environment in to be more active over the coming months and quarters. order to reach real estate decisions. This was true in 2015 in the Based on the trend, firstly, very large occupiers returned to the small and medium-sized area segments, which in some cases market during H2 2015. They did so gradually, admittedly, but increased spectacularly. It will no doubt continue to be the case returned nonetheless. This reflects the numerous real estate in 2016. considerations under way, to which the small number of transactions concluded last year are far from providing a Sustained dynamism among small and medium-sized response. The Greater Paris Region Regional Council, EDF, occupiers and the anticipated return of large occupiers – not Deloitte, French Ministry of Culture, Alstom, etc. – these are just to mention other driving forces in the rental market, such as a few of the occupiers actively examining their real estate the increase in mergers and acquisitions and the vitality strategy, some of whom are set to reach a decision of specific business sectors such as start-ups in in 2016. A whole range of factors are pushing the field of advanced technologies. These are them to act, from pressing needs to a sense all good reasons to anticipate an increase in of opportunism. Needs? Existing office transactional activity compared with 2015. space, 75% of which is more than 15 "Sustained dynamism This increase may not be spectacular, years old, offers potentially considerable among small and medium-sized but should at least make it possible to gains in terms of efficiency and occupiers and the anticipated return to levels in line with the 10‑year competitiveness. Opportunism? Many average, at around 2.3 million sq m letting values are now low, having been return of large occupiers – take-up of take-up for the entire Greater Paris reduced over the past two years and, is likely to be at least 2.3 million Region. even for high-quality areas, signature Even moreso, since there is no rents have remained almost unchanged sq m in 2016, in line with its 10- reason not to hope for an even better for almost a decade. A new building can year average." performance. Everything will depend on currently be let for the same price it would the rate at which demand is transformed have been 12 years ago, in other words, the into take-up. So let's hope that this long- duration of a long-term lease. Yes, there is every anticipated reappearance comes soon! Hopefully reason for these occupiers to be more active in the it allows a proper appreciation of the Paris market, with coming months. Everything except for the low level of high- its multiple growth areas and range of strengths. quality supply, which is what they are looking for. This shortage will no doubt frequently force them to resort to pre‑lettings and could act as an obstacle to some transactions. That is the main uncertainty and definitely the main restriction on the rebound potential of the segment of large and very large occupiers. This rebound appears very likely, although its scale is impossible to predict. The rental market's main catalyst, which was absent in 2015, is nevertheless set to return. 26

office supply redeveloped areas willbecombinedwithincreasing this dearth,howevertemporary, indeliveriesofnewor Firstly, intermsof quantity, there iseverychancethat obstacles intermsofbothquantityandquality. increasing obstaclesinterms ofsuitablesupply– Meanwhile, companies will find themselves facing will justhavetowait… a renewal ofdeliveriesbefore theendofyear. They to mention legal uncertainties, are too long to hope for impact in2016.Technical andadministrativedelays,not properties. Butthischange comestoolatetohavean increasing scarcity ofinvestmentopportunitiesinsecure building. Thistaboohassincebeenrelaxed duetothe not totakeapotentiallyriskygamblebydeveloping from properties offering themaximumguarantees, real estatemarketwasin search oflong-termincome unfashionable… Theonlyreason forapproaching the that point,speculativeproject launcheswere deeply investment marketuntilatleastsummer2015.Up of thefranticquestforsecuritywhichgripped Greater ParisRegionwillhave tofaceuptheimpact but acrash,representing acollapseof-51%!The during 2016.Thisisnotafallcompared with2015, space isexpectedtobedelivered intheParisRegion Just under650,000sqmofneworredeveloped even increase… that the same obstacles will remain in place, or expected in2016,itissupply. Allindicationsare If there isonearea where nomagicalfeatscanbe No sleightofhandhere restricting occupiers'options in termsofbothquantity and to plummetby 51%in2016, redeveloped areasareset "Deliveries ofnewor quality." THE OFFICE LETTING MARKET 27

scarcity of office space vacated and growing demand for office new construction is expected, 30,000 sq m of which is available. space due to an improvement in the economic climate. The For many occupiers, this may make up for the disadvantage of vacancy rate, standing at a regional average of 7.3% at the end a "less Parisian" and more suburban image, particularly since of 2015, is therefore set to fall. Enough to drop below the 7% outside Paris, the situation will remain more or less the same. La mark and therefore return to its mid-2013 level? Most likely. Défense will be stagnant in 2016, with no new available areas due to be delivered. The vacancy rate is therefore likely to continue Secondly, in terms of quality, secondly, Grade A office space, to contract. The situation in the area surrounding La Défense representing just 18% of available supply at the end of 2015, is will be no better. A few sporadic projects are in the Western already clearly insufficient given the structure of office demand Crescent, but nothing capable of boosting supply, particularly and take-up. This shortfall will only get worse in 2016, with the in the Grade A segment. No, only in the Southern Inner Rim – sharp fall in construction activity. Particularly since out of the mainly in Montrouge and, to a lesser extent, Bagneux – will user 650,000 sq m of new and redeveloped space expected in 2016, choice be expanded in any way. Almost 60,000 sq m of offices 58% have already found tenants. Only 270,000 sq m currently currently under construction remain available. remains to be delivered before the end of December, in addition to the 210,000 sq m completed in 2015 and not yet let (i.e. After two bleak years in terms of transactional activity, it is only 16% of volumes delivered last year). In other words, not a possible that this advantage will allow the Southern Inner Rim lot. The share of Grade A supply is therefore likely to continue to fight back. This is because, to some extent, the positioning of to contract over the coming months and companies risk being demand is dependent on supply. forced to resort increasingly to pre-letting. That will be the only sleight of hand we are likely to see in terms The final obstacle linked to the anticipated decrease in supply of supply in 2016… is the reduction in the range of possible locations. In inner-city Paris, the CBD will be among the very few to escape a supply shortage. This is because it has been one of the few markets in which investors have accepted a certain level of risk. A volume slightly below 60,000 sq m is expected in 2016, mainly as a result of redevelopment projects (including 49,000 sq m still available). That is less than in 2015 but still impressive, given the Greater Paris Regional context. The only other area of Paris in a strong position in 2016 is Paris 18/19/20, where 45,000 sq m of office rents THE OFFICE LETTING MARKET 29 Magical divergence

The re-emergence of very large occupiers Several other areas of inner-city Paris could also on the scene in 2016, boosting transactional experience upward pressure, particularly Paris activity and reducing available supply, could 3/4/10/11, Paris 12/13 and Paris 14/15, which are threaten the overall structure of rents which has each, in their own way, likely to tread the path forged been in place for some time. by the Financial District in 2015... High‑quality supply, sometimes new to its immediate environment and A general inflation of prices is certainly not to be rare in Paris generally, could upset established norms expected. No, any increase will only affect a few in terms of prices. It is all a matter of comparison in of them, according to the quality and location of occupiers' eyes. the buildings. However, the disparity in values could widen significantly. Will 2016 be the year Outside these areas, things look quite different. of a large divergence of prices? There is no chance of rent inflation in 2016, even for the best properties. Firstly, because most of these Although 2015 was primarily characterised by stability markets are in recovery. Secondly, because much in the overall structure of rents in the Paris Region, of their strength lies in their appeal compared with it could prove auspicious in terms of divergence, central locations. That has been weakened in recent particularly in relation to the sharp rise in high-end years and they will need to rebuild it before they can rents seen in the Financial District. Upward pressure hope to share in the benefits of rising rents. has been real, although limited to the CBD offering advantageous prices compared with the Golden The coming months are therefore likely to see Triangle. This was excluded, however, as it a widening in the divergence between was not considered in "good taste" to geographical areas. publicise signature values providing However the main potential market fodder to critics. "High-end rent in the divergence could well be between An improvement in the economic the various asset classes within climate and increasing scarcity CBD could finally break each geographical area, as the of Grade A properties will no through the €750 barrier in upward pressures we have doubt help to overcome these place for almost three years discussed only apply to the final taboos in terms of rent. best properties. Second-hand This would then encourage an and reach towards the €800 properties are likely to continue extension of the inflationary trend mark." to be the subject of tough in the Golden Triangle. High-end negotiations between occupiers rent in the CBD could then break and landlords. Low rental values through the €750 barrier which has been (headline or economic after deduction of in place for almost three years and reach incentives) will remain their main argument. towards the €800 mark – a value which has already Otherwise what chance will there be of attracting been achieved for some transactions. However, it is occupiers who already occupy similar or at least not certain whether this symbolic threshold will be comparable properties? crossed. The market may not be mature enough Yes, 2016 could well end with record disparity in for that, although we have seen more spectacular rents. recoveries in the past… Room for improvement in the Golden Triangle, and need for moderation in the Financial District, for it is unlikely that the Financial District will be able to continue at the same pace it established in 2015. Its success appears sustainable, although any overheating could encourage the emergence of new competition at its edges. The Golden Triangle could therefore widen its lead slightly over the Financial District in 2016, with a price gap of around €100 (compared with just €70 at the end of 2015). This configuration would still not represent a return to the old order which long prevailed between the two markets. 30

François Darsonval

Property and general services director PUBLICIS

Knight Frank: With the letting of the PariSquare building in the 11th arrondissement, Publicis signed the largest private transaction in Paris in 2015. You’ll be moving your digital brands from the questions for outskirts of Paris into this space measuring just over 20,000 sq m. What led to this choice? François Darsonval: We didn’t set out with the intention of undertaking such a physical reorganisation. Back in early 2013, we initially had a much more modest task: to search for a 5,000 sq m space for one of the brands of the Publicis group. Then, because the leases for several of our locations were ending soon, we realised that a much more ambitious project was possible, allowing us to take multiple teams at various sites around Levallois and group them together with teams based When the choice of reason agrees in our headquarters at 133 avenue des Champs‑Elysées. This consolidation made sense because it supported a corporate with what the heart chooses, you development plan, allowing us to create a unifying space for our employees and their skills, a real tool for synergy and emulation shouldn’t hesitate. The train only that will facilitate the development of the quality of our brand. The choice of Paris, and more specifically central Paris, wasn’t comes along once! intentional either. It’s undoubtedly an advantage in terms of centrality, accessibility, efficiency, and motivation, but we THE OFFICE LETTING MARKET 31 couldn’t agree to pay for such an advantage at whatever price, quantify at this time that we expect in terms of motivation and we also had financial obligations. We happened to identify a efficiency of our teams and proximity and exchanges with our Paris solution that also suited us in terms of cost and lease clients. PariSquare must become a place for developing and length. When the choice of reason agrees with what the heart preserving our talents. chooses, you shouldn’t hesitate. The train only comes along But we are pretty sure of one thing: it’s an extremely beneficial once! operation for Publicis, our clients and our people.

KF: What are the conditions for this choice to KF: You’ve chosen an area of Paris that is very become feasible? mixed in terms of usage and is not an established F. Darsonval: First of all, it takes time. As I said, the Publicis business address. Is this a potential handicap or, Group started thinking about this in early 2013, and the lease on the contrary, a deliberate choice? And what was was signed during the summer of 2015. Throughout 2013 and the initial feedback within the group? the beginning of 2014, we refined our needs and defined our F. Darsonval: That’s exactly what we liked about the area. search to try to best serve the corporate development plan. We didn’t want a sterile building and environment since we This led to our search for space between 18,000 and 25,000 wanted to create a dynamic space. PariSquare is an atypical sq m. And we began our rounds of the market. I remember solution, designed for commercial use, but it doesn’t look like making my first visit to the PariSquare marketing suite in June commercial space. It offers five buildings, each with an identity 2014 while the building was under construction. From January that can easily shaped to accommodate five different brands to March 2015, we repeated visits with the chairman of the while uniting them around a common space, which we’ve Publicis Group and the leaders of the various brands likely to named the Genie Square. It’s a nod to the genie of the Bastille, be involved in the consolidation project. Between April and May which is very close. That point is also important, because we 2015, the terms and conditions of the lease were negotiated want to work on the relationship between our building and the while, at the same time, we initiated a site concept and design city around it. As a working space, it can’t be self-sufficient. configuration study as well as a call for tenders for project Moreover, PariSquare allowed us to take on a bigger space, management. It wasn’t until after this phase that we could really spanning a city block, which will materialise soon with the confirm the technical, managerial, and financial ins and outs of opening of a restaurant, a gym, and a cafe. This will further the project. Legal negotiations on the lease happened in June enhance the neighbourhood’s attractiveness in the eyes of and July, ultimately leading to its signing. But that wasn’t the our employees even though it was already very strong: in our end of everything. We’re now in the interior fit-out work phase, fields, like advertising and media, the 11th arrondissement is an and our teams won’t move in until between June and July appealing neighbourhood. 2016. In short, it’s a very complex project requiring multiple skills as well as time – lots of time! § So, needless to say, our decision wasn’t difficult to sell internally. Quite the contrary! But it’s also necessary for THE right real estate solution to exist, meeting the specifications in terms of volume, capacity, and lease length, and it must be identified. We had to look into around thirty sites, including three or four in central Paris. KF: Speaking of choice, one of the most common And what ended up swaying the decision is also the story of preconceptions of the Paris market is that the an encounter between a tenant looking for space and a lessor supply of offices is very large or even too large. looking for a tenant. What was your impression as an occupier searching for space?

F. Darsonval: There’s supply across the Paris region and we KF: Can you give us an idea of the direct and looked into some thirty projects. In central Paris, this is far less indirect benefits that you expected from such a true: we visited only three or four. And among these, solutions decision? likely to meet our specifications were few and far between.

F. Darsonval: In very concrete terms, our choice of location contrasts with the assumption of continuing the prior leases that will expire. The savings in this regard are substantial, amounting to several hundred thousand euros. Then there are all the economies of scale that we will achieve by pooling our services. For example, we’ll be left with just one staff restaurant and one general services team, including reception and IT, instead of five. Lastly, there are all the indirect benefits that aren’t easy to 2

32 differential compared withotherassetclasses,particularly a spectacularcontractionin2015ofbetween50and100 As aresult ofinvestors’hugeappetite,yieldsexperienced Crescent standsoutasthestarlocationof2015,withan basis pointsingeneral,dependingonthegeographical more transactions,whichincreased by12%innumber demonstrating alowerunitaryamountthanin2014. Real estatecontinuestodisplay averypositiveyield number ofmega-deals,butinsteadwasbasedon Unchallenged andunchallengeable–theWestern The marketwasnotartificiallyinflatedbyasmall increase of116%ininvestmentvolumes. tamers the animal bonds. sector. to €16bn. reasonable toanticipateaninvestmentvolumeofclose The outlookfor2016isfavourable anditwouldseem recorded. between 3.50%and3.75%,thelowestlevelever At theendof2015,PrimeyieldsinCBDranged amounts intheParisregion. investors, whoaccountfor64%ofinvestment The marketremains ultra-dominatedbyFrench developments. renewed interest inspeculativeandvalue-added due toitsexpansionbeyondCore properties, with The market'sstrong performancein2015was largely representing an8%increase. €18.1 billionwere investedintheParisregion in2015, THE INVESTMENTMARKET trends you ashowwhichwilltakeyourbreathaway!" loud. Buttheywillbeobedientforyou.Yes, theywillobeytheirmasters,togive cats! Thewhinnying,trumpetingandyowlingmaybefrighteningimpressively "Ladies andGentleman,nowit'stimeforthehorses,elephantsbig €18.1bn. Paris region fluctuatedbetween€16.9bnand the volumeoftake-upin2015Greater Depending onwhetheritisincludedornot, capital transactionasareal estatetransaction. in thepurchaser, isinfactatleastasmucha of itsportfoliotoGecinainreturn forastake in whichIvanhoéCambridgesold120,000sq m the investmentmarketresults or not?Thesale, Grande Armée(Paris16)havebeenincludedin head office soontobevacated on Avenue dela Building BinLaDéfense,aswellthePSA Should the€1.24bnsaleofT1Tower and 2015 agreat year, evenanexcellentyear! aroid dryingupcompletely. Indeeditmade risk inacquisitionallowedthemarketto Plus properties. Thisacceptance ofalittle dependent onthemostsecure Core orCore in theGreater ParisRegion, amarkethighly avoiding demandandoutstrippingsupply risk, ofcourse.No,justadoseadrenaline, acceptance ofrisk.Notfoolhardy orreckless outtobe investment marketturned In 2015,thekeytosuccesson of risk Daring withadash #01 -Investmentvolumes result everrecorded." increase on2014.Thisisthe thirdbest Paris region,2015finishedwithan 8% "With €18.1bninvestedin theGreater long-forgotten emotions.Theresult wasanimpressive show! trainers tookcontrol oftheringandexcelledthemselves.Theyplayedwithrisktoarouse followed ensured thatthehesitationsandslip-upswere soonforgotten.Themostexperienced The performanceultimatelyliveduptoitspromise. Thestartmayhavebeenchaotic,butwhat [1]

phenomenon? What happenedduringtheyeartoallowsucha to thenext). to achievethisresult (+33%from onehalf-year market wasneededinthesecondhalfof2015 because animpressive acceleration inthe would nothavebeentoobadinitself.Secondly, – simplyachievingasimilarleveloftransactions from it.Firstlybecause2014 wasitselfexcellent But thisperformancewasnotguaranteed–far the corporatereal estateinvestment market. the Parisregion. Itwasanexceptional yearfor is thethird bestyeareverforresults achievedin irrespective oftheconfiguration chosen,2015 point ofanannualactivityanalysis.Infact, However, this difference isnotthemostsalient (+1%), oritrecords asignificantincrease (+8%). market ispracticallystablecompared with 2014 The difference isconsiderable.Eitherthe start of summer 2015, into the Paris Vision analysis. start ofsummer2015, intotheParisVision chosen toincorporate this€1.24bnsale,completedatthe operating intheParis region market,KnightFrankhas [1] Inorder tobeconsistentwithmanyoftheconsultants THE INVESTMENTMARKET

33 34 of availableproperties. market threatened towitherdue toalack concealed thephenomenon,but sale ofCœurDéfensefor€1.3bnslightly was interested inmore riskybuildings.The Core Plusproperties, whilealmostnobody that competitionwasfierce for Core and offering maximumsecurity. Thismeant institutional investors,favoured properties purchasers withinthissector, startingwith region inthereal estatesector. Andall the levelofsecurityoffered bytheParis since theendof2013wasexplainedby The hugeriseininvestmentvolumes demand fortoofewavailableproperties. – theriskofsupplydryingup.Too much the investmentmarketinParisregion Last year, we notedthemainthreat to December 2015, wasthesaleof21,100 the lastexamples todate,attheendof between €100m and€200m.Oneof particularly significantincrease ofsales in 2014toalmost19%2015, witha increased significantly. It rose from 14% in programmes developedspeculatively invested inValue Addedproperties or 2015, andyettheshare ofamounts There wasnonewCœurDéfensein of morespeculative properties." thanks totherediscovered charm of supply drying upwas averted acceptance ofrisk.The danger was madepossibleby better "The performancein2015 Finally! location, isconsidered tobeattractive. appropriate headlinerent and inagood a giventhathigh-qualitybuilding, with or redevelop. Butitnowappearstobe in ariskanalysisofbuildingto develop location. There isnoroom for flexibility themselves onjustanyproperty inany there wasnoquestionofthempositioning from theexperienceofprevious yearsand Of course,2015'sinvestorshadlearnt investments… and thelowlevelofreturn onbond the volatilityofglobalstockmarkets properties? Insignificantcompared with 7.3% withasevere shortageofGrade A in amarketwithvacancyrateofjust risk onaneworredeveloped building with otherassetclasses.Whatistherental is increasingly amatterof comparisons real estateinvestmenthowever, everything tenant willneedtobefound.Intermsof a property letforseveralyears, sincea redevelopment mayinvolve more riskthan a buildingfordevelopmentor speculators? Certainlynot!Buying transformed intoaplayground for Does thismeanthemarkethasbeen acceptance ofrisk. momentum in2015,liesthisbetter The investmentmarket'srenewed properties remained almoststable. In parallel,theshare ofCore Plus managed byAmundi. 2018 inPortedesLilas(Paris20)tofunds sq minView, abuilding tobedelivered in increase indiversity, ifitisconfirmedover concentration spellsvolatility. Thecurrent important change,sinceahighlevelof in 2015than2014(+12%).Thisisan on amuchlargernumberoftransactions the Greater ParisRegiontherefore relied 15% to18%.Theinvestmentmarketin €50m and€100m,whichincreased from to alesserextent,bysalesofbetween investment volumes.Thiswasfollowed, increased inayearfrom 24%to32%of this increasing marketdiversity. Itsshare and €200mbenefitedthemostfrom The property categorybetween €100m on afewvery large deals." of solidity, reducingdependence cheaper properties. Thisisasign increased by 12%toinclude as thenumberoftransactions "The marketbecamemorediverse 2015. the Parisregion, theirshare fellto39%in representing 48%ofamountsinvestedin unitary amountsofmore than€200m, 2014 entirely comprisedtransactionsfor proportion in2015.Whilethemarket 35 transactionstoachievethesame just 15transactionsin2014.Ittookalmost Almost halfofthemarketwasreliant on market in2015wasitsincreasing diversity. Another notablechangeintheinvestment 2015 wascertainlyafantasticshow. sometimes holdpleasantsurprisesand dared tohope.Themarketanditsplayers be avoided.More idealthanmanyhad of corporatereal estateinvestmentto in 2015,allowingageneraldryingup The idealoutcomewastherefore achieved seen asensuringmarketsolidity. the comingmonths,couldtherefore be THE INVESTMENTMARKET

35 36 market overview spotlight… Lions needthe decided theymightaswelllookelsewhere. Asa Since there were noopportunitiesintheCBD,they in the geographical scope targeted by purchasers. terms ofrisk.Butanotherexpansionalsooccurred, the profile ofacceptable properties, particularlyin as wehaveseen,itbecamenecessarytowiden Too fewproperties forsale?Giventhissituation, and therusesidentifiedbyinvestorstoavoidit. supply shortagewhichthreatened theParisregion This redistribution of roles is a result of the risk of a markedly different from 2014. although thegeographyofinvestmentactivitywas And themarket was certainlylively in 2015, to benefitfrom theexceptional investmentactivity. which, foronereason or another, were notable on thewaneorremained in theshadows?Areas the maininvestmentvolumes.Andwhosestaris areas oftheGreater Parisregion which attracted Who were thestarsinlimelight?Thevarious was noexceptiontotherule. have beenpushedintotheshadows.And2015 those whoheldcentre-stage inthepastbut big catsandtamerswaitinginthewings instant and forgets all the rest. It forgets the But the crowd is fickle – itsapplauds that bythepublic. applauded inturn impressive intheirroutine withthetrainerand up thelimelightandputtingonashow. All Some animalsare thestarsofring,lapping the existenceofdormantsaleprojects, mothballed What is the secret of this success? In addition to level. strong performances,although onamore modest Charenton-le-Pont and Arcueil alsoachieved Towns suchasIssy-les-Moulineaux,Clichy, (58,800 sq m), purchased from Adia for €477m. was Levallois-Perret, with sales including Ecowest for €353m, for example. Another big hit in 2015 45,000 sqmofArcs deSeine from CommerzReal high amounts. Northwood Investors purchased during theyearinthatcity. Sometimesforvery just afewofthebuildingswhichchangedhands CityLights 2,L’Angle, L’Atrium, Jazz…Thoseare Let's lookattheevidence:Arcs deSeine,Ardeko, was particularlythecaseinBoulogne-Billancourt. Crescent andtherest oftheParisperiphery. That favouring themostsolidhubsinWestern occupiers. No,in2015,investorswere selective, Buildings whichhavethenstruggledtofind buildings, due to their short-sighted appetite. construction ofbadlypositionedorlocated errors whichhaveseeninvestorsencouragingthe just anywhere! Itdoesnotmeanreproducing past Of course,investing"elsewhere" doesnotmean (+17%). (+116%) and,toalesserextent,theInnerRim The bigwinnerof2015wastheWestern Crescent result, activitylargelymovedoutsidecentralParis. 37 Source: KnightFrank Location ofinvestmentactivityandcomparisonchangesindifferent markets undisputed starof2014recorded asharpdeclinein The picture fortheCBD isquitedifferent. The to record astrong startto2016… the DexiaTower forexample.SoLaDéfenseisset the calendaryear. ThisistrueoftheFirstTower and pipeline andcouldnotbefinalisedbefore theendof the difference. Numerous salesare currently inthe days –orafewweekslongercouldhavemadeall previous year. Howeveritmaybethatjustafew were slightlydownin2015compared withthe the big cats in the spotlight. Investment volumes was notagreat year. LaDéfensewasnotoneof vacancy downandrents atarecord low. Yet it including largeproperties, variedriskprofiles, than in2014.Alltheindicationsappeared positive, great yearforthismarketin2015–evenbetter considered inthiscontext.Itcouldhavebeena The relative declineofLaDéfenseshouldbe properties, facilitatinginvestors'positioning. a widerangeofriskprofiles aswelllarge-scale in 2014,thesehubshavethevirtueofoffering both Crescent Western +116% 25% Défense -19% 8% La -15% 19% Paris CBD those intheshadowswaitfortheirtimetocome. light, theshadowsare soon forgotten.Meanwhile, performances achievedelsewhere. Onceinthe And thiswasovershadowedbytheimpressive The marketdidinfactdryup,butonlylocally… lack ofopportunities. there. They just frequently drew a blank, due to a the CBDlieselsewhere. Potentialpurchasers were yields. No,thereason forthedrop-off inactivity the increase insalepricesand,asaresult, thefallin area, althoughthatwasadistinctpossibilitydueto awayfromIt isnotthatinvestorshaveturned the up alotoflostground inthesecondhalfofyear. results (-15%)for2015asawhole,despitecatching Rest of 24% +4% Paris in theGreater ParisRegionen2015(%) Market share inthevolumesinvested compared with2014 (%) Trends byvolumesinvestedin2015 +17% 13% Inner Rim THE INVESTMENTMARKET

37 38

investment activity by asset class THE INVESTMENT MARKET 39

Offices rule supreme

What mighty beasts! The undisputed kings of the investment their hold in the market. Their share of investment volumes jungle in the Paris region remained office properties. Their therefore rose to 87%. Close to a record! domination even increased over the course of 2015. There are objective reasons for this domination, starting with the However this strength also constituted a weakness, since resilience of the office letting market and its low level of risk. But such a degree of specialisation also limits the market's this domination is also due to the lack of an alternative, since depth in the Greater Paris Region and inversely increases the office properties segment is the only one to offer the depth the threat of a supply shortage and potential volatility of and diversity required for strong transactional activity. activity. This concentration in itself limits the development The increase in the proportion of retail properties potential of the Greater Paris Region investment in investment activity seen in 2014 was "A single-minded market. Volumes recorded in a market therefore merely a distraction. The share of market, with 87% of such as London, which is much more retail properties in the Greater Paris Region diverse, remain out of reach in the current fell back again from 13% of investment investment volumes in the configuration. This configuration is mainly volumes to just 10% in 2015. Greater Paris region in 2015 explained by structural reasons and there Not that investors are not keen on such relating to office properties – is therefore every possibility of it remaining properties. We only need look at the sharp in place: high-street shops are often drop in yields from sales of retail premises a hyper-specialisation which small and their ownership fragmented and to understand that competition is fierce is also a limitation..." dominated by private individuals. This does when such opportunities present themselves. not make it easy for large investors to position That is the root of the problem. There were no themselves. In terms of galleries and shopping opportunities. Or not enough. No new Beaugrenelle centres, it is rare to see arbitrages, at least for the for sale and generating a colossal transaction. There were most profitable among them. certainly some impressive sales of retail properties, including The reign of offices is not over yet! Qwartz and La Vache Noire[2], shopping centres located respectively in Villeneuve-la-Garenne and Arcueil, as well as the sale of the Céline store on Avenue Montaigne (Paris 8), the Cavalli building on Rue Saint-Honoré (Paris 1) or 82-92 Rue Réaumur (Paris 2), but not enough to allow retail properties to hold their ground.

The position liberated by retail properties did not remain free for [2] The La Vache Noire shopping centre was incorporated into the pan-European long. It was soon taken by office properties, further increasing Celsius portfolio. 40 large European andglobalinvestors. of themostopenmarkets,dominatedby crisis broke out2007/2008,itwas one the case.Untileconomicandfinancial nationalised, althoughthishasnotalways Paris markethastherefore largelybeen but toamuchlesserextent(57%).The had previously beendominant in2014, 64% ofannualvolumesrecorded. They 2015, French investorswere stillbehind funds overthelastthree monthsof Despite acorrection infavourof foreign Paris region uptoandincluding 2013. the totalannualamountsinvestedin 2015. Thissumalonematchesorexceeds in corporatereal estateoverthe course of €11.6bn ofnationalfundswere invested this domination… get alookin.We lookatthereasons for simply thatitwashard forforeigners to Paris region. Quitetheopposite. Itis world hasfallenoutoflovewiththe That isnottosaythattherest ofthe Yet again! the Greater ParisRegionduring2015. significant majorityoffundsinvestedin investment. Theyare behinda top billinginthebigofParisian nowadays, French tamersare given As hascometobeexpected dominate thering The French #02 -Purchasers sums are there forareason. Realestate need tobeinvested atanycost.These available forreal estate transactionswhich Behind thisre-nationalisation lievastsums that easy!" invest intheregionbutit isnot investors wouldhave likedto France. Manyinternational volumes comingfromwithin confirmed, with64%investment Greater Paris regionmarketis "The re-nationalisation ofthe new competition emergeononeoftheir particularly limited sincetheyhaveseen and theUS.Their potentialinvolvementis investors, particularlythosefrom theUK – acommonstrategyamonginternational for anincrease invalueandaquickprofit excludes opportunisticinvestors looking Paris Regionmarket,sinceiteffectively role inthenationalisationofGreater The compression ofyieldsalsoplayeda pre‑eminent ontheirownmarket. ago andexplainswhytheyhavebecome investors compared withafewyears represents anewpositioningbyFrench terms ofacquisitionpriceandyields.This encouraged anaggressive positioningin between investmentsegments,hasalso assets, drivenbyafinancialcomparison This growing interest inreal estate have thenecessarymanagementteams. to accessandforwhichtheyalready their domesticmarket,whichiseasier these investorsnaturallylookfirstto Enjoying unrivalledfinancial resources, segment intheirportfolios. increase theshare ofthereal estate variety ofchannels,havingdecidedto on thereal estatemarket. They usea managers; manyofthemoperatedirectly money toinvestmentfundsorasset players, donotstopatentrustingtheir And institutionalinvestors,ledbyFrench invest through anOPCIvehicle. investors, Primonialcollected€1.03bnto of 53%inayear. In terms ofinstitutional companies andREITs). Thatisanincrease in real estateinvestmentfunds (French in 2015from individualsfor investment example isPrimonial,whichraised€960m individuals andinstitutionalinvestors.An have achievedrecord inflows,bothfor funds dedicatedtothereal estatemarket has takenoff. Collectiveinvestment investors' appetiteforreal estateassets bonds andmuchlessvolatilethanshares, level ofrisk.Muchmore profitable than yields inrecent years,foramoderate assets havegenerallyprovided satisfactory is indisputablyamongthem! expensive. AndtheGreater Paris Region continues tobesought-afterand Space inthemostpopularmarkets behind someofthelargesttransactions. Investors andOxford Properties, are also as UKandUSfundssuchNorthwood Adia andQIA,Asianfunds,aswell funds,forexample €200m. Middleeastern transactions ofaunitarysizemore than more than44%ofinvestment volumesvia of thelargestacquisitions,representing They alsoaccountforasignificantshare accounted foratotalof€6.4bnin2015. market yet,however, sincetheystill not completelyabandonedtheParis has therefore beenreduced. Theyhave The numberofforeign fundsrepresented assets. exclusive territories,namelyvalue-add source offundsinvestedinthegreater paris region Volume invested:€11.6billion Market share inacquisitions: Market share inacquisitions: Volume invested:€0.5billion 2015 2015 64% 3% eurozone France Where canwehearthetrainer'swhipcracking? 2014 2014 57% 4% europe outsideeurozone asia/middle east Market share inacquisitions: Market share inacquisitions: Volume invested:€1.4billion Volume invested:€1.4billion 2015 2015 8% 8% s 2014 2014 13% 7% Market share inacquisitions: Market share inacquisitions: Volume invested:€0.7billion Volume invested:€2.4billion north america 2015 2015 13% 4% others THE INVESTMENTMARKET Source: KnightFrank 2014 2014 18% 1%

41 42 and 2008hasnowbeenwipedout. followed thedire summersof2007 The sharpincrease inyieldswhich of retail space. for properties includingahigh proportion observed inafewtrophy properties and properties. Loweryieldshave been representative of"standard" Core office These are stilllevelsweconsider tobe stood atbetween3.50%and3.75%. the endof2015,primeyieldsinCBD A fallof50basispointsoneayear:at They shed50basispointsin2015." level, at almost3.50%intheCBD. "Yields arenowat theirlowest solid. rates are nowbasedappear muchmore nine yearsandthefoundationsonwhich situation haschangedconsiderablyin bubble. Butwecan'tforgetthatthe resurgence offearsaspeculative This isenoughinitselftoseea exploded. – in2007,justbefore thesubprimecrisis before were suchlevelsbrieflyobserved Parisian market,oralmost.Onlyonce 2015 sawanall-timerecord lowforthe again atanimpressive rate!Theendof The contractioninyieldsisunderway Spectacular! #03 -pricesandyields or laterexplode. new bubble?Abubblewhichmustsooner And whatifthemarketispreparing fora draws parallelsbetween2007and2015. quieten thatlittlevoicewhichinsidiously Forgotten… Really?Itisnotthateasyto Greater Paris Region investmentmarket. has certainlybeenforgottenonthe And thattooksevenyears!Thecrisis directly comparableintermsofinvestment bond yields,whichare oftenthe most But theystillremain much higher than generate yieldsashighinthepast. Prime real estateassetsmayno longer financialisation ofthe real estate market. widespread atthesametimeas the classes, anapproach which became the incomegeneratedbydifferent asset as theresult ofacomparison between that current yieldsare madepossible be agravemistake.Itwouldtoignore Giving intothisnagginguncertaintywould assets." yield offeredby realestate justified by theadvantageous being, sincecurrentrates are can bedismissedforthetime "The riskofaspeculative bubble further accelerated. buildings. Thistrend, whichbeganin2014, geographical sectorsnarrowed forprime As aknock-oneffect, spreads between sharper fallsthanintheCBD. 3/4/10/11districts. Theserepresent even BendandParis points intheSouthern market suchasLaDéfenseand100basis fell bybetween75basispointsina course oftheyear, primeyieldstherefore becoming more widespread. Overthe best buildings,ledtothephenomenon competition betweenthemtoacquire the to theCBD.Investors'appetite,andfierce The contractioninyieldswasnotconfined at thetopofcycle. compared with2007,asrents were then of ownership.Thisisanotherdifference their real estateassetsduringtheir period income, andtherefore theyieldsoffered by for amedium-termrevaluation of rental rents, manylandlords are nowhoping and evendownward adjustmentsin yields. Afterseveralyearsofmoderation In addition,thiscomparisonrefers toinitial bonds. Andthatchangeseverything! yield from real estatewaslessthanfrom highest levelseverrecorded. In2007,the earlier, butstillremains atoneofthe TEC10 index.Thisislowerthanayear basis pointscompared withtheFrench offered byprimereal estatestoodat271 horizon. Attheendof2015,advantage not artificial. investment market.Spectacular, but in 2015theGreater Paris Region description ofthechangeinyields certainly themostappropriate Spectacular. Yes indeed!Thatis stage. although moderateandstillatanyearly fall isalsoapparent inthis segment – However, itispossibletostatethata too manydealsandmuchsecrecy. incomplete tosaytheleast.There are which transactionsare concludedis and communicationofvaluesfor is farfrom transparent inthisrespect buildings andparticipants.Themarket are asmanysituationsthere are value add properties, sincethere in relation toyieldsobservedfor It ismore difficult tospecifyatrend THE INVESTMENTMARKET

43 44 outlook be seen. nagging foreboding ofdisappointment.Whetheralittle,lot,hugelyornotatall,itremains to alittleincredulouslyNow alleyeshaveturned to2016,fullofexpectationbutalsowitha probably didn'tevenexpectsuchasuccessthemselves. was excitement,passionandemotion.Thetamerstrainersachievedtriumph The audienceemergedstupefiedbythe2015showputoninvestmentmarket.There the convulsions whichrocked globalstock This advantage isclearer thaneverafter the comparatively lowlevelofrisktheyoffer. pre‑requisites fortheseassets'successis As wehaveseen,oneoftheessential real estate assetswillremain high. every reason tothinkthattheappetitefor Firstly, intermsofinvestordemand,there is investment volumes? What istheoutlookfor2016intermsof undermine thebigcats'confidence. the gustswhichcanspringupsuddenlyand market. Butitwouldbewisenottoforget Justified confidence reigns on the investment are expectingthem. which are impossibletopredict unlessyou way from where theyblowstrongest, and sailors. Windswhichhavetheiroriginsalong a characteristicofviolentwindsfeared by reason tocontinuedoing so.Butthatisalso The bigcatsare roaring andhaveevery Hear theirroar! #01 -Investmentvolumes andpurchasers probably fallingtobelow7%). compared with2015,andalowervacancyrate, the Greater ParisRegionin2016,upby5% (with take-upofatleast2.3millionsq min confirmed regarding office take-upandvacancy secure in2016,ifouroptimisticpredictions are by comparison!Itissettobecomeevenmore the Greater ParisRegionisahavenofpeace emerging countries.Corporatereal estate in economic developmentsinChinaandother resulting from thehighlevelofuncertaintyover markets from theendof2015– convulsions set torisefrom 1.1%in2015to1.4%2016 Eurozone are fairlypositive.French growth is outlook forFranceandthewholeof Unlike emergingcountries,theeconomic employment. with earlysignsofanimprovement inthelevelof [3] [4]

America. expected from France, Europe andNorth could offset someofthesurplusdemand which shouldlimittheimpact, although it in theGreater ParisRegionin2015, responsible for8%ofinvestmentvolumes and theMiddleEast.Thesefunds were the effected countries,particularlyinAsia investment capacityoffundsbasedon in theParisregion. How?Byreducing the repercussions ontheinvestmentmarket spectacular fallintheoilprice,willhave reality. Theseevents,combinedwiththe to panic,norshutourselvesoff from collapse. There istherefore noreason see asevere slowdownthanacomplete emerging economieslookmore likelyto the mostprobable scenarioatpresent and Butthatisnot household inCalifornia… of paymentdifficulties experienced bya 2007, wecanultimatelysuffer as aresult and shatterthisscenario.Aswesawin would underminetheglobaleconomy countries wouldhaverepercussions which Of course,areal crashintheBRICS lookout foropportunitiesaround theworld. investment needsandwillbeonthe where investorswillhaveincreasing robust economichealthof NorthAmerica, – includingreal estate.Nottomention the liquidity availableforinvestmentproducts the virtueofmaintaininghighlevels These are modestimprovements butwith welcomed… with aroar!" Any morewouldcertainly be would appearrealistic. volume ofcloseto€16bnin2016 "Counting onaninvestment justified. There is littledoubtthat2016will some confidence wouldappeartobe strengththe internal of theParismarket, these factorsasawhole,starting with as weenter2016.Butconsidering all There istherefore significantuncertainty low aspossible. utmost tokeepitskeyinterest ratesas European CentralBankislikelytodoits less robust thanintheUnitedStates, economic climateinEurope ismuch 2016. Intheshorterterm,since consider, thoughprobably notuntilafter financing. Thisisonepossibilityto developers) whodependheavilyon to investors(particularlyopportunistic crunch. Thiswouldbeasevere blow on globalmarketsandultimatelyacredit leads toanincrease inborrowing costs US FederalReserve'smonetarypolicy Unless… Unlessthetighteningof contracts. with amuchgreater appetitefor off-plan opportunities willappearonthemarket, is confirmed,thennewinvestment buildings' constructions.Ifthistrend more pre-lettings atanearlierstagein very largetransactions,shouldleadto particularly inthesegmentoflargeand the expectedrecovery ofrental activity, previously befinalised.Furthermore, real estateproducts whichcouldnot encourage thesaleofspeculative particularly from NorthAmerica, could certain opportunistsanddevelopers, should continue.Renewedactivityby avoided thedryingupofmarket, of riskaversionseenin2015,which but withareas Therelaxation ofconcern. described forinvestordemand–optimistic scenario issimilartotheonewehave In termsofinvestmentopportunities,the with aroar! Any more wouldcertainlybe welcomed… investment volumeofcloseto€16bn. seem reasonable toanticipate afull-year wait andsee...Attheveryleast,itwould even verygood.Excellent?We willhaveto be agoodyearforinvestment.Perhaps [4] [3] "Higher, faster, stronger!", page70. Seeourrental marketoutlook,pages24to29. See oureconomicclimate andconsumptionoutlook: THE INVESTMENTMARKET

45 46 moment ofweightlessness." stabilisation in yields–a 2016 islikely toseea "The theory ofnon-evolution: 2015. the successofinvestmentmarketin points overthelast10years.Therein lies compared withanaverageof175basis buildings intheCBDatendof2015, at 271basispointsfor"standard" prime with bonds.Aswehaveseen,itstood remains high,particularlycompared differential offered byreal estateassets offered byotherassetclasses.The only makesenseinrelation toyields prime real estateyieldsobserved today This isprimarilyamatterofcomparison: course. and acceleratedfrom 2013,has runits movement whichbeganinmid-2009, is everyindicationthatthespectacular sporadic andmoderatefalls.Butthere possible there maybemore room for short term,atthestartof2016,itis had itsday. Certainly inthevery The contractioninyieldshasprobably to recover? will continueorisitnowtimeforrates possible thatthislong-standingtrend They havefallen,fallen…Isit Can weexpectanymore from yields? ground. animals liedownlowerthanthe the besttrainerscannotmaketheir sit andthenliedown,yeteven immense. Theyhavemadethem the impossible.Theirtalentmaybe No-one canbeexpectedtoachieve Weightlessness #02 -Yield likely. TheUSFed with arecovery inbondyieldsnow The contextissettochangein2016, time ofweightlessness. months will beastabilisationphase, a therefore veryprobable thatthecoming place untilatleasttheendof2016. Itis once only!Butitislikelytoremain in but onewhichwilldeployonce and being done.Itcouldactasan air-bag, its contractionwithoutanydamage historically high,itispossibletoforesee differential offered byreal estateisalso low anddelayaratehike.Sincethe utmost tokeepthecostofborrowing the European CentralBankwilldoits is muchlessrosy thanthatoftheUS, term. SincetheEurozone economy will rise?Notnecessarilyintheshort So isitpossiblethatreal estateyields attractive, withoutyieldschanging. makerealturn estateinvestmentsless their sovereign bondrates.This will in need. Theytherefore riskhavingtoraise to continueattractthecashthey countries, mustremain attractive inorder need offinancing,includingEuropean a questionofcomparison.Countriesin become more profitable. Again,itwillbe to USinvestmentvehicles,whichhave deal ofcapitalwilltherefore nowshift that themovementwillcontinue.Agreat Janet Yellen has already announced very controlled andgradual, FedChair she hasstatedherdesire toensure itis years ofinterest-free money. Although a speculativebubble,itendedseven to prevent thepotentialformation of health oftheUSeconomyandinorder since 2006.Encouragedbytherobust by 25basispointsforthefirsttime its monetarypolicy, raisingitskeyrate [5] recently hardened immediately inanycase. not becomehorsesorsealions.Not the Parisianbigtop,tigerswill The theoryofnon-evolution.Beneath [5] FederalReserveSystem THE INVESTMENTMARKET

47 48

Laurent fléchet

Chairman of the Management Board PRIMONIAL REIM questions for

Corporate real estate is ideally situated in the hierarchy of investments. THE INVESTMENT MARKET 49 Knight Frank: Primonial is a leading purchaser of prices are high, perhaps too high. This can be seen in the corporate real estate in France. You have buoyed the yields and in the capital values. So we need to be more careful investment market in recent months. The Greater in 2016. In any case, even though office space remains the Paris region plays a pivotal role in this market. What benchmark asset thanks to its liquidity, real estate risk is now are its strengths and weaknesses? better remunerated in retail property and healthcare real estate. But market fundamentals are not under threat. Capitalisation Laurent Fléchet: The depth of the Paris market is irreplaceable. yields are the same as in 2007 but the prime risk premium Take-up figures show that letting activity is concentrated compared to the OAT (French government bond) was still around a few hubs, including La Défense. The expansion of the negative at this time – which was untenable – whereas it "campus" format has led major users to relocate to these areas currently stands at approximately 200 basis points. Without a best served by public transport. The buildings in these areas sudden increase in yields, there will be no market downturn. are much more liquid and much easier to market, provided their rent is at the right level. The main challenge in the Greater Paris region is that many of the properties here are obsolete. A whole segment of offices are KF: The investment market has clearly in a poor condition because opportunistic investors who could "renationalised" in recent years around domestic redevelop them have not yet returned to the market. What's players. It's a sort of "stay-at-home" mentality. more, regulatory restrictions regarding these conversions or What does that tell us? Does it mean that creating reconstructions are still too onerous. international portfolios is difficult and that it has lost its appeal?"

L. Fléchet: Here we can see the situation of French insurers, KF: The inflow of funds to invest in real estate who represent a high proportion of direct investment as well assets has reached record levels. Why and how can as indirect investment through funds. For the reasons stated such a capital flow be dealt with? previously, it's natural for these players to reasonably increase their exposure to corporate real estate. The tools for them exist L. Fléchet: Corporate real estate is ideally situated in the (SCPI [real estate investment companies] and OPCI [real estate hierarchy of investments. It's an asset that is removed from the investment schemes]) and the demand from savers is there too. financial markets, oriented towards the distribution of stable Plus, the Solvency II regulations are less restrictive with the real revenue and not too volatile; plus it procures an additional yield estate holdings than shares holdings. compared to conventional investments with guaranteed capital, As for the internationalisation of portfolios, I think it is still which are nowhere near as profitable as they used to be. It is appealing. The year 2016 should mark a qualitative leap in the the additional yield, interpreted as a risk premium, which has Europeanisation of Primonial REIM's activities. Of course, this led institutional investors to invest a growing share of their internationalisation will be driven by the formation or resumption assets in real estate. of local teams. But despite the current inflow, the allocation of institutional investors in real estate is overall quite reasonable, between 5 and 10% for insurance companies for example. Their higher allocation in real estate is in no way illogical. Faced with this capital inflow, we must meet the challenge and expand our investment universe. That means we must internationalise our activities by seeking a market depth beyond our borders, and examine the real estate asset classes that up to now seemed "alternative" – for instance healthcare real estate, which are one of our key development areas at the European level.

KF: High investor demand has caused yields to compress significantly. Could this call into question the importance of real estate investments and the foundations of the market?

L. Fléchet: In 2015 we saw a sharp compression in rates for office space, of approximately 70 basis points. In the most secure markets – the CBD and the inner suburbs of Paris – 50 FLASHBACK

Trends in take-up in the Greater Paris Region since 1974 (in '000 sq m) Source: Knight Frank

Trends in prime rents since 1974 (in €/sq m/year excl. taxes and charges) Source: Knight Frank PARIS VISION 2016 51

Trends in prime yields since 1974 (in %) Source: Knight Frank

Investment volumes in the Paris Region and comparative spread between yields and bonds Sources: Knight Frank, CDC - Comité de normalisation obligataire

Nota : Yields correspond to the prime yield (intermediary value) in the CBD. Obligatory placement corresponds to OAT TME from 1983 to 1995 and TEC 10 begining 1996. 52 2015 KEYFIGURES Rueil-Malmaison Paris 14/15 Paris 12/13 Paris 5/6/7 Paris Centre West (excl.CBD) Paris CBD Saint-Cloud Nanterre Sèvres Suresnes Billancourt Boulogne- Puteaux Meudon La Défense Colombes Issy-les-Moulineaux Colombes Garenne Courbevoie La Neuilly-sur-Seine 16 th Colombes Bois- Levallois-Perret sur-Seine Asnières- Châtillon Vanves Malakoff 15 16 th th Gennevilliers 17 th Clichy Bagneux 7 Montrouge th 8 17 th th La Garenne Villeneuve- 14 Cachan Neuilly/Levallois Bend Northern La Défense Paris 18/19/20 Paris 3/4/10/11 Arcueil Saint-Ouen 1 th 9 st 6 th th 2 9 th Gentilly th 1 st 18 2 5 th Saint-Denis th th Kremlin Bicêtre 4 Villejuif 10 3 th Le rd 13 th th 11 Ivry-sur-Seine Aubervilliers th 19 th 12 th 20 th Charenton Pantin Les Lilas Bagnolet Mandé St- Saint-Maurice Bobigny Vincennes Montreuil Le Pré Saint-Gervais Southern InnerRim Southern InnerRim Eastern InnerRim Northern Bend Southern Péri-Défense sous-Bois Fontenay- Joinville- le-Pont sur-Marne Nogent- Area Sources: KnightFrank,ORIE TOTAL PARIS REGION Outer Rim InnerRim Inner Rim/Northern Inner Rim La Défense Total Parisintra-muros Paris/3/4/10/11 North Eastern Paris North Eastern Total InnerRim InnerRim Inner Rim/Southern InnerRim Inner Rim/Eastern Total Western Crescent Western Crescent Bend /Southern Western Crescent /Péri-Défense Western Crescent /Neuilly/Levallois Western Crescent Bend /Northern Western Crescent Total Paris NorthEastern Paris/18/19/20 North Eastern Total Paris Southern Paris/14/15 Southern Paris/12/13 Southern Paris Centre West (excl.CBD) Southern Paris/5/6/7 Southern Paris Southern Paris CBD (€/sq m/year) Prime Rents Q4 2015 335 540 480 360 300 470 350 520 350 370 520 550 580 750 750 ------2,087,700 153,000 282,100 908,000 236,800 164,500 101,900 114,800 178,700 565,900 115,100 254,100 424,000 Take-up in 2015 90,800 71,800 41,700 46,200 99,800 64,800 43,300 59,600 92,600 (sq m) end of2015 Estimated stock at (sq m) Vacancy rate 53,756,500 18,934,300 16,734,900 1,287,100 1,473,400 5,458,300 2,246,400 1,987,500 1,224,400 1,863,700 6,652,400 6,375,200 2,221,500 1,605,300 2,548,400 8,175,300 2,585,200 2,292,500 1,446,000 1,851,600 3,536,800 2,760,500 Q4 2015 Prime yields Q4 2015 11.8% 11.1% 13.2% 11.0% 15.6% 3.7% 5.7% 4.8% 7.3% 8.9% 4.9% 5.7% 4.1% 4.5% 3.3% 2.8% 6.6% 9.9% 7.7% 8.7% 8.4% 4.6% Evolution VISION 2016 PARIS Prime yields 5.00 -5.50 3.50 -3.75 4.75 -5.25 5.00 -5.50 4.75 -5.25 4.00 -4.75 5.00 -5.50 3.75 -4.00 4.75 -5.25 5.00 -5.25 4.00 -4.25 4.00 -4.25 4.00 -4.25 3.75 -4.00 Q4 2015 (range) --

53 3

54 The pastyearsawthearrivalofnumerous spreading tothemostpopularareas, with The concentrationoftransactionalactivity average rent across thewholeofParisby retailers previously absentinParis. on thebeststreets haspushedup sometimes spectacularincreases. The generalriseinrental valuesis artists trapeze close to10%inayear. the sameway. promising in2016.However, notalllocationswillbenefit in Economic prospects andhouseholdconsumptionlookfairly resulting inastagnationvalues. of interest from retailers andafallintransactional activity, Secondary locations,meanwhile,are suffering from alack the primelocations. move whichshouldfurtherincrease retailers' appetitefor allow opening onSundaysandeveningsuntilmidnight,a Tourismincluded inthenewInternational Zones,which All –oralmostallofthelargeshoppingareas were strong. offering thefullbenefitoftouristboonisstilljustas Competition amongretailers forParis'prime locations, THE RETAIL MARKET Trends glide throughtheairanddartabout!Theyaretrapezeartists!" beautiful andprecise.Theylooksolight...Likebirds,theycomeoutofthesky, "And now, LadiesandGentlemen,lookup.Allthewayup!Theyarestrong, costing almost €40 million,financedby planned for2018, afteraprogramme ofworks the famous French "artofliving".Theopeningis a newhauntaccommodatingvisitors lookingfor style buildingofshopsandoffices willbecome new home.Whatwasatraditional Haussmann- across thesquare andover the church toits house theCaféFauchon,whichishopping around 60rooms, whiletheground floorwill (8 de laMadeleineandBoulevard Malesherbes ofPlace open afive-starhotelatthecorner a milestoneinitsdevelopment.Itplansto the worldwithFrench gastronomy, hasreached company whosenameissynonymousaround gourmetfood Fauchon, theinternational pie, achocolateéclairorpotoffruitjam. The truthsometimesliesinalemonmeringue show! stars andnewtalentfrom abroad. Whata including somebignames,thereturn ofpast do anythingforthat.Theirtroupe is vast, and comebacksoon.Trapeze artistswill be sure theywillapplaud, askformore expecting? Ifyoucanguessthat, big top.Butwhoare they?What are they A hugecrowd isjostling for placeinthe earth! greatest showon Welcome tothe #01 -Clients&retailers Retail isnottheatre. Itisevenpossibletocomebacklifeafterappearingdie… Itisonlypossibletodieinthetheatre,safety netsandharnesses. saiddirector LucBondy. that there are otherswaitingbehindthem,ready toswoop.Forgettingthatthere are also We watchthemwithbaitedbreath. Isitmadnessorgenius? We feartheycouldfall,forgetting upinunexpectedplaces. surprise us,turning They alsoappearweightless,ignoringsometimesastronomically soaringrents. Theycanalso Trapeze artists?Theimagesuitsretailers ratherwell.Theyalsoflitfrom oneplacetoanother. th arrondissement). Theupperfloorswilloffer As wellastheir buying power, touristsrepresent Saint‑Emilion, alsoowned byLVMH. named afterafamous"premier grandcru"from bedrooms andsuitesattheHôtelChevalBlanc, sq mofretail spacewillopen,alongwith72 a luxuryhotel.Attheendof2018, 26,000 owns thebuilding. Fauchon andtheQatarNationalBank,which Samaritaine (1 work onthelegendarydepartmentstore La group, whichrecently beganreconstruction now extendstoaParisianavenue,astheLVMH already pavedthewayinEurope. Pavingwhich alone. Mövenpick,BulgariandArmanihave Fauchon hasfullyunderstoodthis,anditisnot them aroom forthenight. them. Thesimplisticwayisprobably tooffer out andlookforthem,attractthemseduce sales forsomeretailers. Itistherefore vitaltogo well off. Theyaccountformore thanhalfofall particularly when theyare verywealthy or simply inParisianstores,considerable turnover passing through, oftenforeign, generate and retail are nowunitedasone.Customers This moveshowstheextenttowhichtourism with highspendingpower." lengths toattract thosecustomers one. Retailers aregoingtoingenious "Tourism andretail arenowunitedas st arrondissement), isincluding THE RETAIL MARKET

55 56 The 10 main international clients The 10maininternational the ParisRegion Netherlands Middle East Belgium Spain Country Tourist activityinthe1 Paris). visitors(56.5%ininner-cityinternational in 2014.46%ofthesecheck-inswere by up 1.6%compared withthesame period hotel check-insinthefirsthalfof2015, Greater ParisRegionrecorded 15.9million in Parisandsurrounding areas. The a boonduetothesheernumberofthem of theattacks on13November 2015. be considerably underminedbytheeffects The impressive performancewillobviously domestic visitors. tourism andthetopdestination counting leading destinationsforinternational Paris isandremains oneoftheworld's Activity Report,August2015 Source: ParisRegionalTourism Committee,Tourist United Kingdom Japan Italy Germany China United States 13.8% 13.7% Share 3.6% 3.9% 4.9% 5.8% 3.7% 5.7% 6.5% 6.9% st halfof2015in compared with 2014 Change -7.2% -21.2% -3.1% -12.7% -4.2% +5.2% +48.9% +3.4% +2.2% +2.6% Parisian shopsfellbyhalf. In theclothingsector, visitornumbersto 50% compared withtheprevious days. fall invisitornumbersofbetween30%and Lafayette andPrintempssuffered asharp attacks, thedepartmentstores Galeries this situation.Intheweekfollowing Retail activitywasdirectly affected by Parisians alsolosttheirdesire tospend. were alsofewerFrench tourists. their tripsinthehighestnumbers.There Chinese andJapanesevisitorsabandoned of flightstoParisinaweek.Americans, meanwhile, recorded 13,000cancellations cancellations. Airlinecompanies, as aresult ofearlydepartures and in thedaysfollowing13 November recorded a30%to40%fallinoccupancy sector favoured bytheforeign clientèle, industry, andparticularly theluxuryhotel in termsofvisitornumbers.Thehotel France hadimmediaterepercussions many peoplebeyondtheborders of The horror andfearwhich gripped so normal in NewYork afterthetrauma of years fortourist numberstoreturn to and fastrulesin thisrespect. Ittookfour that questionsincethere are nohard be rashtogiveadefinite response to Are theselong-termeffects? Itwould reasons forhope." although there arealready real November 2015remainuncertain, "The impact oftheevents13 following theattacks thanforecasthigher turnover intheweek an e-commerce specialist, recorded 20% initially favouringe-commerce. Brandalley, particularly intheleaduptoChristmas, the French soonbeganspending again, was just15%thefollowingweekend.And the weekendof21November, thefall visitor numbersfellbyalmosthalfduring December. Although departmentstore only recorded 1,000forthemonthof following 13November, airlinecompanies 13,000 flightcancellationsintheweek There iscauseforhope,however. Despite that fearsofarepeat attackwilltake hold. coverage wasmassiveanditispossible What willhappeninParis?Media 11 March 2004. recorded inMadridfollowingtheattacksof in July2005,whilenomajoreffects were returned tonormalayearaftertheattacks 11 September 2001.Yet Londonhad and fastin2015. News ofnewshopopeningscame strong appeal isstrong. Very strong! retailers willremain undamaged.Andthat confirmed, thenParis'sappealamong If thesereassuring indicatorsare loss ofGDP. activity followingtheattacks,witha0.1% predicts amoderatefallineconomic The MinistryoftheEconomyandFinances [1] . Rue François 1 store onRue Saint-Honoré. Diorchose Alexander McQueenopeneditsflagship are engagedinfierce competition. the mainshoppingaddresses and and high-end,whichhavetakenover These includedthebignamesinluxury fray" previously absentarejoiningthe the region.Eventhosewhowere gates ofParis andlockingdown "Retailers arejostlingat the Montblanc leftRue delaPaixinfavour up Rue du Faubourg Saint‑Honoré. in thesamebuilding, movedalittlefurther owner OperaGallery, whichwashoused Rue Saint-Honoré. Themajorgallery- to Avenue Matignon,RuedelaPaixand way toLVMH, andmovedrespectively moved outofPlaceVendôme, giving Richard Mille, BuccellatiandGuerlain shop onRueFrançois1ertoVionnet; shop onAvenue George V, givingupits forexample,hassetup Corneliani, resembled agameofMonopoly. all toolittleexistshassometimes The attemptstocreate spacewhere rate recorded intheprevious year. in Paris2015,almostdoublingthe In all,almost60luxurystores opened Rue Saint‑Honoré. between RueCambon,Duphotand hard tograduallytakeover theblock by Chanel,whichismanoeuvring throw from thefiefdombeingcreated a store onRueCambon,a sequin's is regaining afootholdinParis with the Champs-Élysées.Paco Rabanne watchmaking overnearly500sqmon opening anewtempletohigh‑quality Place de la Concorde. Dubailwill be of itsstore onRue de Rivoli,off the Philipp Plein hasdoubledthesize Givenchy haverecently movedin. where Gucci,Valentino, Monclerand and RuedesArchives, intheMarais, opposite Colette,foritsmake-upline, plans forstores onRue Saint-Honoré, The designlabelhasalsoannounced er foritsnewmen'sstore. at thesametime theRitzreopens. raise itsflagover thePlace Vendôme, pursuing thesamestrategyand willsoon The BritishjewellerGraff Diamondsis in termsofartlivingandelegance. gives Rimowasuchavaluable entrypoint manufacturer ofpremium luggage and geographical scopeoftheleadingGerman stroke, whichbringsParisintothe 1,100 sqm...Forafirsttry, it'samaster Less astore, more aflagship!Almost on Rue du FaubourgSaint-Honoré. planned openingofastore byRimowa in thisrespect isunquestionablythe Parisian location.Oneofthehighlights established elsewhere –havechosena already wellknown,butalmostallalready Several dozenbrands–somenew, others created orannouncedin2015 istelling. retailers? Thenumberoffirst stores Another indicatorofParis'sappealamong Korea's E-Landin2012. renaissance followingitstakeover by the LeftBank.Thisconfirmsbrand's manufacturer returnswithanaddress on Coccinelle, astheItalianleathergoods Paris. SimonePérèle isback!And sois the establishmentofitsownstores in is settoexpanditsdistributionwith is over. Lingerie brandSimonePérèle fortunes, whichbeganinthe1990s, statement thatthehiatusinbrand's store onAvenue del’Opéra.Thisisa however. Daniel Hechterhasopeneda This phenomenongoesbeyondhigh-end, luxury prêt-à-porter. their placeatthetableofhighfashionand new stores reflects theirdesire to regain and PacoRabanne.Thecreation oftheir rare. We havealready mentionedVionnet new ambitions.Thesecomebacksare not eclipsed, tosignifytheirrenaissance and brands, whichhaddisappeared orbeen French capitalisevenawayforcertain Opening astore intheirnamethe turnover, bothdirect andindirect. brands, bothintermsofimageand list goeson...Parisisessentialtoluxury on Boulevard desCapucines.Andthe group, andmovedintoitsnewpremises of Piaget,whichbelongstothesame

setting upshopinthe8 While theultra-trendy Cook&Bookwillbe meanwhile, hasoptedforRuedeRennes. will soonopenintheMarais.Subdued, to create itsfirstParisianstore, which for instance,Scalpersconfirmedplans mass retail segments.Attheendof2015, Newcomers are alsoevidentinthemore Faubourg Saint-Honoré. Rue de Miromesnil, of onthecorner has meanwhilesetitssightsonthe Zolotas, themostfamousGreek jeweller, Paris hasclearlystillgotwhatittakes… concept from Brussels. importing itscookingandbookshop on RueduCommandantRivière, [1] LeFigaro, 20novembre 2015 th arrondissement, THE RETAIL MARKET

57 58 Some new arrivals in Paris in 2015 (Openings and announcements)

LUXURY

ZOLOTAS PERRIN ·› JEWELLERY ‹· GRAFF DIAMONDS ·› LEATHER GOODS ‹· ·› JEWELLERY ‹· VIONNET ALEXANDER MCQUEEN ·› FASHION ‹· ·› FASHION ‹· RIMOWA ·› LUGGAGE ‹· VANESSA SEWARD TORY BURCH ·› FASHION ‹· ·› FASHION ‹· VERSUS VERSACE PACO RABANNE ·› FASHION ‹· ·› FASHION ‹· COACH ·› LEATHER GOODS ‹· LONGINES CHRISTOFLE ·› WATCHMAKING ‹· ·› JEWELLERY ‹· CHRISTOPHE MICHALAK FABIANA FILIPPI ·› PÂTISSERIE ‹· ·› FASHION ‹· HAN KJØBENHAVN ·› FASHION ‹· MAISON PLISSON CALVIN KLEIN ·› GROCERIES ‹· IL GUFO ·› FASHION ‹· ·› FASHION ‹·

FRENCH MAISON WA COMMUNE DE PARIS FOREIGN ·› INTERIOR DESIGN ‹· MANILA GRACE RETAILERS ·› FASHION ‹· ·› FASHION ‹· COOK&BOOK RETAILERS SIMONE PÉRÈLE ·› COOKERY/BOOKSHOP ‹· ·› FASHION ‹· FUSALP ELODIE BRUNO SCALPERS ·› FASHION ‹· ·› FASHION ‹· BONNE GUEULE ·› SHOES ‹· COCCINELLE ·› FASHION ‹· ·› LEATHER GOODS ‹· HARMONT & BLAINE L’EXCEPTION ·› FASHION ‹· LULULEMON ATHLETICA ·› FASHION ‹· ·› FASHION ‹· MILLET ERBORIAN ·› FASHION ‹· ·› COSMETICS ‹· RITUALS ·› COSMETICS ‹· HERBORIST ·› COSMETICS ‹· YSÉ DANIEL HECHTER ·› FASHION ‹· ·› FASHION ‹· NYX AROMA ZONE ·› COSMETICS ‹· ASICS ·› COSMETICS ‹· ·› SHOES ‹· J.CREW ·› FASHION ‹· SIXTH JUNE SUBDUED FAGUO ·› FASHION ‹· ·› FASHION ‹· ·› SHOES ‹· SNEAKERSNSTUFF ·› FASHION ‹· RAFA ·› FASHION ‹·

MASS MARKET Source: Knight Frank Source :KnightFrank The 12parisianITZs opportunities, knownastheMacron Law. law ongrowth, businessand equaleconomic the retail provisions containedintherecent order tofillthebigtop.That isthepurposeof good care needstobetaken oftheringin The publicauthoritieshaveunderstoodthat 24/7." busiest areaswillbeabletoopen city that neversleeps?Shopsinthe "Will Paris soonbelikeNewYork –a travelled far. acts, surrounded byalarge crowd thathas circus ring,conduciveto awidevarietyof a magnificentperformancearea. Afantastic big top issosoughtafterthatitprovides they canbeseen.Thereason theParisian the spotlightandneedalocationwhere The sameistrueofretailers. Theylove the publicgaze. the ring,becausethatiswhentheyare in The bignamesalwaysperformtheirbestin behind thescenes… In thecircus ringand #02 -Locations [2] (Knight Frank-january2016) Italie 2andCourSaint-Emilion). shopping centres (Beaugrenelle, LesHalles, exception ofSaint-Michel)aswellParisian all majorshoppingstreets (withthe notable of 12ITZswere created, coveringalmost 2015. Abroad approach prevailed. Atotal ITZs forPariswaspublishedon24September The Macron Lawapplication decree defining whether ornotyouare intheITZ. principle, thatisallover!Thequestionnow could remain openuntillater intheevening.In shut upshopat7pmor8pm,whiletheother street sellingdifferent products: onehadto The samefortwoneighboursonthe had therighttoopen,whileotherdidn't. did theytalkabout?Sundayopening.One When twohardware store ownersmet,what situation, withincomprehensible inequalities. rulings andwhathadbecomeaninextricable the uncertaintyfollowingprevious court until midnightonweekdays.Thisfinallyends ITZs canopeneverySundayoftheyearand company anditsemployees,shopsinthese Provided anagreement isinplacebetweenthe created Tourism International Zones(ITZs). (compared withfivepreviously), thislawhas Sunday openingsfrom thisyearforretailers In additiontotheintroduction of12potential Seethe1 st editionofUndertheEye-Macron andITZLaw THE RETAIL MARKET

59 60 this case,thesalvation ofretail districts for specialisation oftheretail space.In however, andthere isalsopotential nothing inevitableaboutthisoutcome, and afallinvalues.Therespurned is There isariskoftheselocationsbeing excluded from theconsumers'paradise? on theITZ,allthoseareas adjacenttobut And whataboutthosewhomissedout be". concept store tobreak intothe"placesto difficulty foranew retailer oraburgeoning local shops,nottomentiontheincreased eviction ofcertainindependentsand consequences, startingwiththeriskof situation islikelytoleadunforeseen terms ofleaseholdtransfersandrent. This those siteswillpushupprices,bothin competition betweenretailers chasing on primelocations.Theevenfiercer This willresult inadditional pressure even greater. they are fulfilled,Paris'appeal willgrow Hopes haveneverthelessbeenraised.If less availabilityofstaff. advantage ofthepotentialoffered, dueto instance, willhavemore trouble takingfull of course.Independentshops,for Not everyoneisonalevelplayingfield, ofbetween10%and20%. in turnover Many retailers are expectinganincrease regulatory environment." 10% and20%asaresult ofthis increase inturnover ofbetween "Many retailers areexpectingan average spending. into weekendsandanincrease invisitors' logically expectlongervisitsthatextend visitors andthetourismindustry. We could levelled attheFrench capitalbyforeign put anendtooneofthemaincriticisms – acitythatdoesn'tsleep…Thatwill New York andothermajorworldcapitals into theevening.Pariswillsoonbelike able toopensevendaysaweekandlate des Prés andintheMaraiswillsoonbe on theChamps-Élysées,Saint-Germain Galeries Lafayette,Printemps,thestores across Paris… is asuccess,theywilleventuallyspread should expectthatiftheITZexperiment in applicationdecrees, isflexible. We regulation. Thecreation ofITZs,asdefined certain French retail taboosconcerning of theMacron Lawisthatithasended And let'snotforgetthatthemainimpact coming shoppingdistricts. establish themselvesastheup-and- it givesthemanopportunitytogradually strong handtoplayinthisrespect, since concepts. Someareas ofParishavea for launchingandbreaking increative local shops.Theywillbecomeareas outside ITZswilllieinindependentand

The VIP area THE RETAIL MARKET 61

such an event is the sign of the street's continuing appeal. Champs-Élysées, Furthermore, the new premises measure 1,100 sq m – an enormous area for the Parisian market, which frequently deals Saint‑Honoré, Opéra in units under 50 sq m. Madeleine, Saint-Germain Rimowa was not the only company to position itself on Faubourg Saint-Honoré in 2015. Evocative names include the des Prés, Marais… Opera Gallery, which also set its sights on a large area, the tailor Cifonelli and finally Baccarat. The circus ring? These are the prime spots for Parisian The revival of the Faubourg Saint-Honoré has not been at retail, included in the new International Tourism Zones. the expense if the Rue Saint-Honoré – far from it. The street Several districts, each with their own identity and continues to be a great success among luxury and high-end ambiance, complement and compete with each other… brands. One by one, Alexander McQueen, Guerlain, Coach But they have all become the preserve of the most luxury and Tory Burch opened stores in 2015. Chanel and LVMH brands, the most famous names and the most established continue to advance their pawns, one from the corner of groups. They are an exclusive dominion. Rue Cambon, the other from Place Vendôme. Large timeless firms, more specialised brands, young designers: all are Champs-élysées: drawn by these few hundred metres offering the quintessence of Paris and proximity, for some, to the finest luxury hotels. Opportunities are rare to seize a foothold on this ultra-famous avenue, which attracts a considerable flow of tourists. Last year we wrote that Rue Saint-Honoré was in the It is therefore no surprise that the opening of a process of being transformed into a leading luxury new luxury watchmaking concept store by address. That transformation is now complete. jeweller Dubail covering almost 500 sq m Vendôme / Paix / Castiglione: created a massive buzz in 2015 (Pierre Dubail is our specialist – see page "Large timeless firms, more Perpendicular to Rue Saint- 74). The Champs‑Elysées continues specialised brands, young Honoré, the junction of Rue de its ascendancy, with an increasingly la Paix and Rue de Castiglione, shrewd mix of major luxury brands designers: all are drawn by with Place Vendôme at its centre, and mass retail. This combination is these addresses offering the continues to cultivate its image as a gradually erasing the difference between temple to quality watchmaking, quality the north and south sides of the avenue. quintessence of Paris." jewellery and luxury. Van Cleef & Arpels So much so that some, like Le Queen, has expanded on Place Vendôme, have even crossed the divide. This bastion enlarging its historic store. Due to a lack of Parisian nightlife has moved from number of opportunities, however, most new arrivals 102 to 79, incidentally freeing up 700 sq m. Who have been concentrated on Rue de la Paix, in a wants to move in? Paris is awash with rumours. Apple game of Monopoly already mentioned above. A game and others have been announced… which shows how rare played between a select few, luxury firms with a shop-front in such events have become. The answer is due to be revealed the district and which often belong to the same elite segments. very soon and will no doubt be the sensation of 2016. Poiray has moved to Rue de la Paix. Its former store, at the corner of the Rue des Capucines, opposite Bulgari, has been taken over by Buccellati, which left Place Vendôme following Saint-Honoré / Faubourg Saint-Honoré: the takeover of its old building by LVMH.

Rue Saint-Honoré has been back in the retail limelight But anyone who has walked across Place Vendôme in the last for several years now, sometimes even eclipsing the two years has had the privilege of witnessing the large number Rue du Faubourg Saint-Honoré, for which it had formerly of construction sites. It has been overrun by scaffolding, been an understudy. That was not the case in 2015. tarpaulin and hoardings as the opportunities of tomorrow take shape, or rather took shape, since many of those Rue du Faubourg Saint-Honoré made a dramatic entrance opportunities have already been seized. We have already onto the scene. We have already mentioned Rimowa. mentioned the building on the corner of Place Vendôme and However, the luggage manufacturer's arrival is significant in Rue Saint-Honoré, which was previously home to Buccellatti, more than one respect. Firstly, because it is the first French Guerlain and a few others. In that case, the cards were known store for Rimowa: choosing Faubourg Saint-Honoré for in advance: it was bought by LVMH to create its local flagship 62 Lauren… Surely anewmagnetforfansofretail diversity! chocolate-maker PatrickRoger, Kenzo,DiorandRalph former Le Palacio car park. It will sit alongside Darty, Fauchon, Leroy Merlinhasannouncedanew5,000sqmsiteonthe premises inParis.Notfaraway, onPlacedelaMadeleine, store tobecloseitsrivalDartyandopenfirst retail in suburbanareas, hasset itssightsontheformerHabitat household appliance distribution giant, a common sight first Parisianstore there. MeanwhileBoulanger, the quality Italianprêt‑àporter brand,isopeningits sold toPiaget.Harmont&Blaine,ahigh- previous siteonRuedela Paix, whichwas address, solutiontoits asanalternative Montblanc, forexample,chosethis luxury mixcontinuedin2015. Capucines towards amass marketand the retail transformationof Boulevard des Omega, Bally, Lacoste, Weston andC&A, arrival of Bucherer and then Tommy Hilfiger, Having begunproperly two yearsago,withthe Opéra /Madeleine: Castiglione retail area istakingshape. drawing toaclose.ReunificationofthePaix/Vendôme/ following onfrom theAnnick Goutalstore. Itwillsoonbe it hadpreviously beenlimitedtotheevensideofstreet, retail sitesonRuedelaPaixandPlaceVendôme, although regeneration hadnaturallyalready begunduetothe lackof the commercial regeneration ofRuedeCastiglione. This to a veryhigh-end and celebrity clientèle, should promote Group, which owns the neighbouring establishment, catering The reconfiguration oftheformerHôtelLottibyCostes jeweller, willbeestablishingitsfirstsiteinFrancethere. to thePlaceVendôme. Graff Diamonds,thefamousBritish retail spaces are let, bringing a completely new retail range even beendelivered yetandalready alargeproportion ofits before theofficial end.The redevelopment oftheRitzhasnot store. Butevenwiththegameopen,round wasconcluded alongside thesite nowchosenbyVersus Versace. Since then, the largest Ralph Lauren store in Europe, over 1,200 sq m, began toglowbrightagainin 2012withtheinaugurationof of Parisianretail. Ithadbecomefainterforatime.But it Left Bank'sstarisshiningonce againbeneaththebigtop architects Carmody and Groarke have confirmed that the Boulevard Saint-Germain,DonatellaVersace andEnglish By openingthefirst Versus Versace store inFranceon Saint-Germain desPrés: continues, withasometimes Opéra/Madeleine district astonishing retail mix." "The seachangeinthe Galeries Lafayette contemporaryartfoundation continues without any public access. Meanwhile,the work ofthe future also provide anopportunitytopromote newareas, currently passages andcourtyards intheheartofblock,whichwill are expectedtobealignedwithBHVHommebyopening up These variousretail sites,largelydevotedtomen'sfashion, the finestItaliangastronomy. ‑Croix‑delaBretonnerie.Rue Sainte Thiswillbededicatedto 4,000 sqmofretail spacehassuddenlybeencreated on wasconfirmedinSeptember2015. Almost in ParisVision, of thefirstEatalyinFrance,whichwementionedlastyear by BHV, anurbanredevelopment isunderway. Thearrival Bretonnerie, whose land is almost exclusively controlled Temple, RuedelaVerrerie andRueSaint-Croix dela In theblockbordered byRuedesArchives, Ruedu Polo SportRalphLauren. Andit'sfarfrom over! Nike's openingonRue du Temple wasfollowedin2015by Gucci, Fendi, Givenchy and Valentino on Rue des Archives. will actasadrivingforce, with thelargestAppleStore inParis seven. Buttheywillbemuchbiggerandhand‑picked:Apple From 21retailers, Marché Saint-Germainwillmovetojust in 1996.Banimmo,itsnewowner, hasentirely redesigned it. and RuedeSeine,hadbeenstrugglingalongsinceitscreation the intersectionofRueClément,Lobineau,Mabillon Saint-Germain. This2,700sqmshoppinggallery, nestledat will seetheopeningofbrandnewandbeautifulMarché difficult torival Saint-Germaindes Prés in2016!TheNew Year themes ofpersonalandhomeequipment.Itwillnodoubtbe The movementisnotsettoendyet,withthefocusontwin junction withSaint-Germain. recently openedastore onBoulevard Raspail,closetothe (Compagnie Françaisedel’OrientetlaChine)forinstance programmes offering new opportunities to retailers. CFOC reaffirmed, encouragedbyseveralbuilding redevelopment Saint‑Germain's commercial revival hasbeencontinually (1,300 sqm),followedbyUniqlo,Marks&SpencerFood of GaleriesLafayette,withtheopeningMoncler, and Nespresso. Nottomention, inalittle"French Major manoeuvres beganin2014 byBHV, owner touch", theMeatBarrestaurant from Hugo Saint-Germain oftheRightBank. Desnoyer, the artistbehindanewstyleof Marais, whichisclearlyevolvingintothe butchery. NoMadame, noMonsieur, weare A similarphenomenoncanbeseeninthe not vegan here… But how chic it is!And not veganhere… Buthow chic it so delicious… Marais: THE RETAIL MARKET 63

in the building opposite the future Eataly and extends as far as Rue du Plâtre. The space was designed by Rem Koolhaas, the 2000 Pritzker prize-winner, and aims to attract almost 100,000 visitors a year. The ultimate aim of this vast programme is to create a new kind of shopping-cultural centre incorporating the district's gay culture, which is exceedingly hip and intellectual and simultaneously high end, while embracing its heritage. Beautiful and bohemian! The scale and quality of the project cannot fail to influence the whole district, especially since it has been entirely classified as a ITZ. Sandro and The Kooples didn't take long to realise the potential generated by the transformation in progress. They have opened stores on the corner of Rue des Archives and Rue Sainte-Croix‑de‑la‑Bretonnerie. Vilebrequin, Lipault and Nature & Découvertes have done the same. John Galliano has meanwhile announced that it will move in across the street. A stone's throw away, Scalpers will soon set up its first French store. And the gradual eviction of a number of outdated and slightly chaotic local stores is set to continue. These will be able to move to less attractive streets, or perhaps not. It is difficult to imagine the coexistence of a launderette and a major fashion house, a grocery store and the champion of Italian high-end gastronomy… "The Marais is levelling out while Saint-Germain des Prés stands out as a hot spot for 2016." 64 Revival this formofcommerce. Shopping centres asmodelsforsociety. Thishottopicis experiencingarevival in Fundamentally, couldthere beaprinciplemore relevant tocurrent affairs today? managed, pleasantforcustomers andconducivetobusiness. Closed? This same environment must be enclosed enough to be controlled and sufficiently welcomingandaccessibletoattractvisitors andfacilitatetransactions. Open? Theideabehindshoppingcentres istocreate anenvironment thatis Open. Closed. Urban shoppingcentres

THE RETAIL MARKET 65

Parisian retail is not restricted to shopping streets. There the Cité des Sciences. Over 24,500 sq m, there are shops, are also arcades and shopping centres. This format, often restaurants and leisure facilities, including a 16-screen perceived as foreign to the Parisian tradition, is actually deeply cinema, a laser game and an immense indoor skydiving tube, rooted in its history. The Passage du Caire was a forerunner. not to mention culture, with the museum just next door. Vill’Up This covered shopping arcade was built in 1798 by Caisse was set to open in October. But that was before the fire, in des Rentiers, a contemporary investment fund (the origins summer 2015, which damaged 10,000 sq m of the future of the real estate market certainly go back a long way!). The facilities. None of the retailers that had committed to Vill’Up in concept was honed by Galerie Vivienne in 1823. The aim was advance has made any moves to withdraw. The opening has to offer a controlled retail environment. 150 years later, this been pushed back to 2016, with skydiving on hold. was the same governing principle behind the creation of the While we wait, the main news is the restructuring and large Parisian shopping centres, hybrids of shopping arcades expansion of the Forum des Halles. It must be said that the and suburban malls. challenge is significant: the centre was built above Châtelet- This retail format has therefore become traditional. It has even Les Halles station, which serves 800,000 passengers a day, had time to mature, but is also in the process of reinventing and is located at the centre of one of the largest pedestrianised itself. areas in Europe. The project includes the complete redevelopment of the district, from underground levels to the In Paris, the start of the revival was triggered by Beaugrenelle, rooftops. Objectives include a complete redesign of flows, whose reopening in October 2013 created a massive buzz. to clarify and differentiate them following a €1 billion Following a transformation at the initiative of Gecina, the investment of private and public money. The canopy, centre's 50,000 sq m were no longer just a place a diaphanous roof acting as a landmark in the for commerce, but a living space. It boasts district, will be unveiled to the public in 2016. some of the leading national and international Its 7,000 sq m will house a dance school, retailers, a diverse and varied food hall, a "Cool attitude and a hip hop centre and a library, along with 10-screen multiplex, and a very advanced an 8,500 sq m commercial extension range of services ranging from iPads to sophistication. Confidence to the Forum. Culture, commerce, and pushchairs and wheelchairs. All of this is and style… Parisian shopping environment, all carefully managed and of a superb quality and arty architecture centres are all swing and beautifully designed… with an environmental commitment – Beaugrenelle also has the largest green swag!" The programme will finally be completed roof in Paris, at 7,000 sq m. Above the in 2018, with complete delivery of the shops and department stores, above the existing 64,000 sq m GLA and of the planned buyers and sellers, bloom sage, euphorbia and extensions, representing a total of 15,000 sq m mugwort. It is no longer just a shopping centre. It is a GLA. But the new face of the Forum des Halles is utopian image of communal living. Beautiful, clean, safe and already emerging, with the announcement of the arrival of relaxed, where you need to make an effort to be bored. a 700 sq m flagship store for Muji, and another for Lego. L’Exception, an e-commerce site specialising in creative We often talk about the lack of separation between private brands, will open a 360 sq m store, representing its first life and work. However, the great mixing pot goes beyond physical presence. And what's next door? A restaurant run by those two simple dimensions to encompass consumption Alain Ducasse and a café-book shop selling Taschen editions and interweave commerce and philanthropy. We consume and run by the team from the trendy restaurant from the flea- everything, even freedom and what is offered free of charge, market district, Ma P’tite Cocotte. Goodbye to the crowded and everything is an opportunity for consumption. Therefore, and vaguely distressing centre, goodbye the interminable the citizen-consumer was born, or perhaps that should be the excavation of Les Halles! consumer-citizen… Cool attitude and sophistication. Confidence and style… The success of Beaugrenelle, with no fewer than 24 million Parisian shopping centres are well awesome and wicked! visitors in the last two years, 20% of whom were tourists, They're all swing and swag. shows that the desire is real. It has proved to be a big hit, winning the 2015 award for the best European shopping centre from the International Council of Shopping Centres. The main story of 2015 is likely to be the inauguration of Vill’up. €110 million has been invested in the development of this concept, in a bay of one Paris's leading museums, 66

The young alternative scene THE RETAIL MARKET 67

The discreet charm of Parisian "hipness"

Competition between national and international retailers Petites Écuries, Grand Amour Hôtel on Rue de la Fidélité for the best sites is still fierce. This is putting pressure and Hôtel Providence on Rue René Boulanger, all three in on rents. With the creation of ITZs, this pressure could the 10th arrondissement; as well as Hôtel Henriette on Rue further increase in the future. In this climate, where can des Gobelins (13th arrondissement). Pigalle, Batignolles, Porte young brands and creative concepts go if they are not Saint-Martin, Buttes aux Cailles and Jourdain – addresses backed by a large established group? which mean little or nothing on the retail real estate market. These are all districts which are not on the radar but are popular As in so many cases, the answer no doubt lies in alternative with young well-off Parisians and are winning over increasing solutions. Paris offers a few, still to be confirmed. Not all of numbers of tourists. These are the same characteristics which them will work. But some will offer a new stage for the retailers made the Marais a retail success 15 or 20 years ago. of the future. These are all districts and addresses which could Which ones? As we have shown, retail and tourism therefore represent a potential solution for retail are intimately linked. Similarly, in the hotel concepts and business models. Science industry, life is not limited to the opening and fiction? Maybe not! The movement is reopening of majestic palaces. Alternative nascent, but exists nevertheless. La players are establishing themselves, "Something is afoot in Récolte, with its seasonal and organic particularly through the boutique- bohemian Paris, far away produce and guarantee of short supply hotel model. Boutique hotels are small from the traditional main chains, opened in Les Batignolles (17th independent establishments, with arrondissement). The Bio C Bon chain very creative architecture, design and shopping addresses. And is opening more and more outlets in services, which seek to create a unique, what if it works? " similar locations. Elodie Bruno, Yvonne trendy style in response to excessive Yvonne and Pairs in Paris, young shoe, standardisation. It is quite a simple concept: leather goods and sneakers brands, have "Are you unique? So are we, so come to us, we chosen the 9th arrondissement close to Pigalle, have 30 or 40 rooms for friends!" There are hints to open their first stores. Benefit, a young American of luxury, at a much lower cost. Traditional hotel codes cosmetics brand, is testing the Parisian market on the are muted in favour of lively communal areas, particularly Rue Tiquetone (2nd arrondissement). Finally, Hircus offers its the hotel bar and restaurant, which welcome non-residents. cashmeres on Rue Commines, in the far Haut Marais (3rd Parisians who come for a meal or a drink, sometimes unaware arrondissement). Commune de Paris has moved in just next that it is possible to sleep there, represent 25% of turnover door and Bonne Gueule has opened its first store as a result for this generation of hotels. That is the key. "When they enter of the men's fashion blog of the same name. a hotel, non-resident customers want to be immersed in the Parisian atmosphere, not find themselves surrounded by Something is afoot… And what if it works? tourists eating breakfast."[3] That is the perspective of Pierre Moussié, one of the players in this market. In September 2015, he opened the Hotel Providence, a 4-star hotel with just 18 rooms. Paris has long lagged behind cities such as New York and San Francisco in the niche boutique-hotel segment. The success of Mama Shelter, launched in 2008 by Serge Trigano in the 20th arrondissement, no doubt encouraged new initiatives. In any case, a series of openings took place in the space of a few months. All at addresses off the beaten track: the Hotel Bacheaumont, on the street of the same name in the nd 2 arrondissement; Grand Pigalle Hôtel on Rue Victor Massé [3] "Coup de jeune sur l’hôtellerie", Le Monde, 2 december 2015 (9th arrondissement); Hôtel Paradis on Rue des 68 its historicrecord." by 10%inayearandisclose to property inParis hasincreased "Average rentfor retail things are verydifferent ofcourse. Elsewhere, farawayfrom theVIParea, available property inprime locations. leading stores, isspreading toall in rents, whichhadonly affected the Paris! Itisevencertainthattherise moderation hasnotwonthedayin One thingiscertainhowever: we applaud. continue toperformtheirfeatswhile that remains, thetrapezeartistswill the publicandofretailers. Aslongas the result counts:thesatisfactionof behind Parisianperformance.Only discreet abouttheproduction secrets however. Shhhhhh!We mustbe are fewfigures orofficial records, teeter andare stillwayuphigh!There Prices ofParisianstores continueto happening place Paris isthe #03 -Prices higher thanthepsychologicalbarof comes up,itwillbeletatvaluesfar hold ofit!Andassoonanopportunity sites ontheChamps-Élysées,itkeeps a brandgetsholdofonetheprime star thoroughfare ofglobalretail. When rare, duetoalackofopportunity, inthis that ismainlybecausetransactionsare €20,000 persqminZoneA2015,but been anytransactionsformore than Champs-Élysées. There maynothave That isobviouslythecaseon are stillsnappedupataransom. Increasingly sought-afterprime locations rising. where transactionsare rising,valuesare up theaverage,butthatstillmeans expensive transactionsnaturallypushes locations. Thescarcity oftheleast the declineinactivityoutsideprime This phenomenonnaturallyalsoreflects after ariseof€130inyear, or+10%. past. We are closetoanall-timerecord 2015 –alevelonlyachievedonceinthe sq m ofweightedarea attheendof which stoodatmore than€1,390per of signingnewleasesforretail property, rise inaveragerent inParisatthetime upward movementcanbeseeninthe The moststrikingevidenceofthis there are €18,000ayearinZoneA, Saint-Honoré. Thehighestvalues Champs-Élysées? RueduFaubourg What takessecondplaceafterthe spectacular. And theserisescansometimesbe are amajorcharacteristicof themarket. Nevertheless, rent risesacross theboard ranking ofParis'mostexpensiveareas. above "second place"locationsinthe difference iseffectively around 20% of rent from otherprimelocations.The therefore standsoutsharplyinterms for acity. The Champs-Élysées That kindofpositionisclearlyunique further." On thecontrary, itisspreading prime locations isnotlettingup. "Upward pressureonrentsin Causeway Bay-sur-Seine! seen inthepast.TheChamps-Élyséesis just overthelevelofsometransactions €22,000 ayear. Afterall,thatisonly Champs‑Élysées couldbeletforalmost currently estimatethatthecream ofthe €20,000 forproperties inZoneA.We a lackofopportunities fornewcomers. activity –dueto alackofdemandorelse not benefitingfrom intensetransactional the inflationaryphenomenon are those areas ofParisthatremain immune from That istheruleeverywhere. Theonly surge inrents. machine isinmotionandfuellingthe and luxury fashion brands. The transaction however, alongwithfashionableretailers also becomingmore widespread here, though, ofcourse.Theincreases are These are nottheruleindistrict of nearly30%onthehighestvalues. between €6,000and€6,500,anincrease The Marais,meanwhile,isregistering the junctionwithRuedeCastiglione. inflation isnowmovingwestward, beyond end, closesttoFaubourgSaint-Honoré, the street. Longrestricted toitswestern phenomenon, whichisspreading along it isnotexemptfrom theinflationary Honoré hasnotsetanynew records, be rashtosay. Although RueSaint- years. Finallyanoasisofcalm?Itwould nevertheless beenspectacularinprevious not exceed€12,500.Inflationthere has was more stablein2015.Rents there do Its extension,theRueSaint-Honoré, than half,compared with2014. representing asharpincrease ofmore (in €excl.taxesandcharges/sqm/year) Prime rental valuesinZone A Source: KnightFrank Boulevard Haussmann Rue Saint-Honoré Avenue Montaigne Saint-Honoré Rue duFaubourg Champs-Élysées Avenue des or area Shopping street Avenue deFrance Rue ÉtienneMarcel Avenue Hugo Victor Capucines /Madeleine Marais Saint-Germain desPrès Sèvres / 8 1 8 8 8 Arrondissement 13 1 16 1 4 6 st st th th th st th th th and2 , 2 and7 and9 th th nd

, 8 nd th th th and9 th

12,500 15,000 18,000 22,000 5,000 1,500 2,300 6,500 7,500 9,000 2015 800 11,300 12,000 12,000 21,000 5,000 1,700 2,300 5,000 7,000 9,000 2014 600 Rent 10,000 10,000 10,000 21,000 5,000 1,700 1,800 4,500 7,000 5,500 2013 600 THE RETAIL MARKET 2015/2014 Change

69 70 outlook Economic climate and spending the meantime. spending! There istherefore hope,althoughthere isnoreason toexplore newdirections in the mostimportantfactorforretail, alsohappenstoappearthemostvigorous. Longlive will beready tostepoutfrom thewingsin2016?Itjust sohappensthathouseholdspending, their performanceisnotquitegoodenoughyet.Theyare improving. learning, Perhapsthey in 2007and2008.Sincethen,theyhavemadeareturn tothehigh-wire andtheswings.But well-known showcalledGrowth. Butthatwasbefore. Before thedoubledipweallremember, They maywellhavebeenresponsible forsomeofthegreatest feats,upintheheavens,ofa Paris' bigtop.Iftheywere trapezeartists,theywouldnodoubtbeleftoutofthefinalparade. Consumption, investmentandexports–thoseare thekeyfeatures oftheenvironment around previous forecasts expects anincrease of1.2%,representing anupward revision compared withits even slightlyhigherthancurrently forecast. TheBanquedeFrance,forinstance, to havebeenconfirmedanditmayevenbethatthefinal resultsfor2015 are 0.3% increase, are ratherencouraginginthisrespect. Theupward trend appears out oftheeconomicgloom.Theresults forthethird quarterof2015,witha Yes, wealways wantmore. More growth, strong growth, enoughtobringus want more! result seensince2011.It willnotmake2015avintageyear, however. We anticipated at the start of the year (+0.9% on average) and is even the best improvement in2015compared with2014.Thatwasmore thanwas 1.1% isbetterthan0.2%.TheFrench economyrecorded asignificant Higher, faster, stronger! [4] GDP: 2016estimates GDP: 2015estimates play anessentialrole ineconomic scenarios. overcome certainpsychological hurdles amongeconomicplayers,whoweknow change inclimate.Itremains tobeseenwhetherthischangewillsufficient to for the Eurozone, but France is approaching a sufficient level to mark a significant predicting anincrease of1.4%.Nothingstupendousandstillbelowtheaverage 2016 issettocontinuefollowthisupward trend. Onaverage,economistsare (e): OECD,Economic Outlook,9November2015 (d): European Commission,Autumnforecasts, 5November 2015 (c): IMF, IMF World EconomicOutlookdatabaseand forecasts, October2015 (b): ECB,Eurosystem macroeconomic forecasts, 3December 2015 (a): French FinanceMinistry, Forecasts forDraftFinanceAct2016, 30September2015 Eurozone France Eurozone France Source: BanquedeFrance,Economicindicators,4December2015 Government/ Government/ 1.5% (b) 1.7% (b) 1.0% (a) 1.5% (a) ECB ECB [4] . IMF (c) IMF (c) 1.5% 1.6% 1.2% 1.5% Commission (d) Commission (d) European European 1.6% 1.8% 1.1% 1.4% OECD (e) OECD (e) 1.5% 1.8% 1.1% 1.3% Average Average 1.5% 1.7% 1.1% 1.4% regarding long-termincomeprospects. Therefore nothingcan individual to have a positive outlook for the future, particularly And confidenceisessential to spending,which requires the the averagelevelrecorded sincetheindexwascreated in1972. 2007, theconsumerconfidence indexhascomecloseto significantly in recent quarters. For the first time since regarding theirown situation hasimproved Firstly, becauseconfidenceamongtheFrench are reasons tohopeasmuch. sustainable andcontinuingin2016?There Is there achanceofthemovementbeing was onlyreached once,in2011. returning tothetopofthatrange,which was interrupted.Franceisnevertheless years ofconstantgrowth inconsumption it hasnotemergedsince2007,when10 billion ofmonthlyexpenditure, from which squeezed intothebandbetween€40to€42 That isnothingspectaculareither. Franceremains energy), consumptionofgoodsrose by+1.6%year-on-year. explained byacontractioninnewvehiclesalesandcheaper GDP growth in 2015. Despite falling in October (-0.7%, Household consumptionactedasadrivingforce forFrench locations willbenefitthe in termsofhousehold spending. Butthebest 2016 isfavourable "The outlookfor most." income andtemporary incomeinequalproportions. Thatwill On alike-for-like basis,households donotspendpermanent (allowances, remuneration from ashort-termcontract,etc.). part (salary, pension,etc.)andamore fragileortemporarypart be excellentnewsforspending. of evenaslightfallinunemploymentare confirmed,thiswould beat animprovement inthe employmentsituation.Ifforecasts Secondly, because theFrench havesomethinginreserve. an individual'sincomeisbroken downintoapermanent The householdsavingsratewas15.2%inmid-2015. factor needstobeaddressed toachievethis,however: That isslightlybelowthe15.9%recorded inthe could becomeafavoured option.Oneunknown previous year, butremains farhigherthanthe French couldonlyberestored, thenspending savings rateseeninneighbouringcountries: If theconfidenceandenthusiasmof 11% inItaly, lessthan10%inSpainand5% not enterretail flows. in theUK.Franceistherefore unusualinthis security, butitisalsomoneywhichdoes to spending.Havingmoneysavedoffers respect. Itisunusualbutalsodamaging THE RETAIL MARKET

71 we needtobealittlemore patientforalltypesofretail France, butalsounevenlydistributed.Unfortunately, national level:householdsavingsare veryhighin clientele. Since this is where the margins lie at a both largetouristflowsandabetter-off domestic advantage forprimelocations,whichbenefitfrom retail turnover, no doubt with a fairly significant The coming months are likely to be favourable to ahead to2016withconfidence. spending, althoughthere are manyreasons tolook Questions therefore remain inrelation tochangesin renewed growth. income, withaknock-oneffect onspending'scontributionto could havealong-termimpactonanticipationsofpermanent be afactortomonitoroverthecomingmonths,ascrisis "Major disparities in rentahead 2016!" one hand,andawideninggapbetweenlocationsontheother. new upward pressures onthebusiestshoppingareas, onethe This situationshouldlogicallyleadtoachangeinrents, dueto and alllocationstobenefitfrom these favourable prospects. Basically, trends in 2016 will be similar to those of the previous year. A widegapguaranteed…Luckily, trapezeartists are flexible!

2015 [3] BanquedeFrance,Economicindicators,4December THE RETAIL MARKET

73 74 questions for over Asia andtherestofworld. arrival ofnewclients fromall confident inthefuture, withthe The luxury industry canbe DUBAIL Président Pierre dubail THE RETAIL MARKET 75 Knight Frank: Already well established in KF: Driven by the emergence of new middle- Place Vendôme, you are now setting up on the classes worldwide, the luxury sector has enjoyed Champs‑Élysées. Why have you chosen this fantastic success for more than a decade now. location in particular? Are you looking to attract What is the outlook for this industry that is so vital alternative clients who do not frequent Place to the French economy? Vendôme? P. Dubail: France is the leading tourist destination. People all Pierre Dubail: The Champs-Élysées was lacking a real luxury over the world are fascinated by Paris. jeweller close to the Golden Triangle. Our decision to set up shop there is a carefully considered family decision. The luxury industry can be confident in the future, with the arrival of new clients from all over Asia and the rest of the world. Our Dubail luxury watch-making and jewellery store opened at the end of November 2015. The major watch brands have The luxury industry will continue to thrive by offering these new followed us, fifteen in all: Rolex, Cartier, Bulgari, Chopard, middle-classes more innovations, quality, originality, rarity and Franck Muller, I.W.C., Jaeger-Lecoultre, Lange & Söhne, products adapted to their needs. Montblanc, Panerai, Piaget, Richard Mille, Roger Dubuis, Tudor Our family company is a partner of major watch brands and of and Vacheron Constantin. our jewellery brand Dubail. We are confident in our new venture This very luxurious store is also a shop window for national and at this location, which foreigners say is the most beautiful international clients. avenue in the world. By setting up on the Champs-Élysées in this tourist area with the presence of luxury stores, we want to reach out to new clients who might not venture into Place Vendôme. For millions of new buyers, Paris is the Champs-Élysées.

KF: Does a store on the Champs-Élysées require a different design and positioning?

P. Dubail: The watch brands we display in this store have all asked to be marketed in their own space with their specificities. At the front, we present revolving windows specially designed for the Champs-Élysées. We have deliberately chosen luxury watch brands with high price-tags. We will also display our limited series here. This is the ideal place to showcase all the latest watches and our jewellery creations.

KF: With over 500 square metres, this new address gives you a lot of space. It is a trend that seems to be emerging in Paris for luxury watch-making and jewellery stores. Why do you think that is?

P. Dubail: In the luxury sector, products are presented and clients are received under the best conditions. We wanted two major brands, Rolex and Cartier, to be represented on the ground floor and first floor with a corner display and exhibition. The other brands also have a fit-out tailored to their image with an attractive sales area. The Dubail jewellery is presented in seven windows on the first floor. The basement floor is reserved for the Rolex after-sales service. The trend for brands is to open large stores worldwide that rival each other. 76 Knight Frank is an international consultant in real estate Knight Frank France is the French branch of Knight decisions. Frank LLP, a British company founded nearly 120 years ago and now operating in 58 countries. It offers its In France, the company operates in the corporate clients the skills of its 13,610 professionals, working real estate market, mainly comprising offices, retail from 417 offices worldwide. premises and industrial or logistics buildings. A global platform and an independent partnership, Knight Frank France serves two separate groups of specialising in tertiary and residential real estate and clients: owner investors and tenant companies. employing professionals dedicated to their clients, Knight Frank France was founded over 40 years ago Knight Frank enjoys a unique position in the world of and is organised into six business lines: Offices, Retail, real estate consultancy. Capital Markets, Property Management, Knight Frank Drawing on the constant support of its clients and Valuation and L'Atelier Knight Frank (a spatial design its recognised integrity, Knight Frank is increasingly consultancy). establishing itself as the consultant of choice. The Knight Frank France team includes 80 professionals working from Paris. Historically specialising in the real estate market in the centre of the capital, the company has gradually widened its field of expertise and is now a recognised consultant in areas including La Défense and the Western Suburbs of Paris. The Capital Markets department, along with the independent subsidiary Knight Frank Valuation, also support their clients throughout France.

Contacts Press Philippe Perello Ludivine Leroy CEO Paris Office Marketing & Communications Partner Knight Frank LLP +33 (0)1 43 16 55 93 +33 (0)1 43 16 88 86 [email protected] [email protected]

Cyril Robert Carol Galivel

Knight Frank Research Galivel & Associés +33 (0)1 43 16 55 96 +33 (0)1 41 05 02 02 [email protected] [email protected]

Nadège Pieczynski Analyst +33 (0)1 43 16 88 84 [email protected]

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