the paris office market overview & forecast 2013

The Paris office market

Overview & forecast 2013

3 The Paris office market – Overview & forecast 2013

Editorial

Economy act 1 to 4: The "double dip" is finally afact in Europe …

In our previous issue of the “Overview and Forecast” in

December 2011, the economic outlook for the Euro zone

and France was darkening and this year had done nothing

to contradict this forecast. 2012 is the logical result of a

mechanics of economic and financial events which have

shaken the world since 2007 and which have led the

economies of the Euro zone into a "double dip" in 2012.

Act 1 started with the financial crisis in the summer of

2007 and culminated in 2008 with the bankruptcy of

LEHMAN BROTHERS. Act 2 began in 2009 with

developed countries slipping into a recession. The States

quickly implemented and coordinated social and economic

"buffer" policies at the expense of a sharp rise in public

debt. On the other hand, the "private" financial crisis was

also counteracted by the management of toxic debt from

banks by some states (e.g. Ireland). Act 3 concerns the

success of some of these coordinated proactive policies

with a rebound in economic growth in 2010. Nevertheless,

this improvement is short-lived since it is immediately

followed by the European sovereign debt crisis (Greece

and Ireland first then Spain, Portugal and Italy) in the wake

of the explosion of debt from Member States. Finally, act 4

started when, spurred on by international finance

operators and large international (IMF, OECD) and

European bodies, "peripheral" countries implemented

extremely severe austerity policies.

If in principle the "depressing" effect of austerity on growth

was already known, the impact on the economy was

largely underestimated. The current situation of European

countries is partly due to this error.

Initially, the commonly accepted equation was that a

reduction by 1 point of GDP of the structural deficit would

result in a fall in growth of 1/2 point. Last October, the IMF

reviewed this analysis as it recognised that the impact of

the austerity measures had been clearly underestimated

and that the growth reduction coefficient was actually 0.9

to 1.7 instead of 0.5. The result is that countries in

Southern Europe are back in recession and are suffering

the chain of events of the "austerity trap": attrition of

domestic demand, rapid deterioration of activity and

confidence indicators, unemployment, recession,

continuous increase in deficits and debt; and finally the

knock-on effect of other countries in the Euro zone into the

"double dip".

Since the end of 2011, a deterioration in economic growth

has been obvious in the Euro zone (stagnation followed by

a decline in GDP). We have noticed significant disparities

from one country to another since 2012: growth in the

Nordic countries and in Germany, and recession in the

South and France in a middle position of 0. This

deteriorated environment has resulted in a rapid fall of

business climate and activity indicators since the spring in

countries in Core Countries.

Indeed, with regard to international trade, the main

customers of European companies are primarily

European; Europe accounts for nearly 65% of the export

flows from Germany and 62% from France (including 15%

for Italy and Spain); the recession of some European

countries could not do anything else than affecting their

economic partners, which is the case this year.

In recent weeks, the publication of the European GDP

figures, although not as bad as expected, confirmed a

recession and forecasts for the 4th quarter suggest further

deterioration.

Along with this decline in economic activity, the current

financial situation has also been turbulent this year.

Another psychodrama almost took place this summer on

the financial markets in relation to the sovereign debt of

peripheral countries. In July, new rumours about Greece

leaving the Euro and the sharp rise in Spanish interest

rates led the ECB to make assertions to bring a certain

calm to the financial markets. At the same time, the

implementation of the Basel III regulations for banks,

coupled with their existing balance sheet problems, had a

pro-cyclical effect on the economy due to tighter access to

debt for all economic players.

In this European landscape, France holds the middle

ground. GDP has stagnated for a year but the economy

has not fallen into recession. Business climate and activity

indicators have deteriorated but less than the European

average.


The employment situation has deteriorated on a monthly

basis but with large regional disparities. In addition,

France, in spite of its high debt and the downgrading of its

rating (Standard & Poor’s in January and Moody's in

November), has a historically low debt cost with a return

on 10-year OAT bonds of between 2 and 2.30% since the

summer (i.e. a zero interest rate loan given inflation).

...which is partly reflected on the office market inthe Greater Paris region

As commercial real estate does not operate

independently, poor economic conditions affected the

market in 2012. Since the start of the year, the office

leasing market in the Greater Paris region has

experienced a slowdown of around 20% compared to

2011. Year-end forecasts have estimated the number of

square metres taken up in the Greater Paris region to

reach 2.1 million square metres, representing a decrease

of approximately 15% compared to 2011.

The economic crisis is reflected at two levels on the office

market in Paris. Firstly, in the inability of the market to

absorb the available supply which is stable for the 3rd

consecutive year. With 3.5 million square metres

immediately available, the vacancy rate in the Greater

Paris region is around 6.7%, which places Paris as one of

the cities with the lowest levels of availability in Europe.

The only significant change in terms of the available

supply is the slow but constant reduction in the number of

new square metres. The second concrete sign is the

change in rent in 2012. In most markets, headline rental

values have demonstrated a downward trend since the

start of 2012, particularly in sectors where there is an

abundant supply (Western Crescent). Such a fall in the

official values masks a pronounced change in economic

values which are tending to deviate further and further

from the rent displayed.

Companies, following a crisis management rationale focus

on costs, adopting opportunistic behaviours and looking

for bargains from owners who are increasingly inclined to

grant them substantial incentives to fill their buildings. .

More and more frequently, companies are also

renegotiating their leases, using every opportunity

available to them to reduce their rent (three-year periods,

end of leases, index-linking) whilst landlords are becoming

increasingly willing to make concessions to keep their

tenants.

In contrast, the investment market is playing its own much

happier part. Since the start of the year, the volumes

invested on the Paris market are ahead of 2011. It seems

unlikely that this advance will be retained in the 4th quarter

given the acceleration which occurred on the market in

2011 due to the end of the tax benefit under Article 210-E.

At the year end, the total investments in the Greater Paris

region should be between 10 and 11 billion euros.

The investment market for the past year has been marked

by several memorable events. Firstly, the real re-

internationalisation of the players, with a sharp increase in

investments by foreign investors.

Capital flows into France have diversified towards the

east, with a significant part coming from investors from

Asia and the Middle East.

On the other hand, the number of large transactions has

also increased, with no less than three transactions of

more than 500 million euros completed, the highest since

2007. Active investors on the Paris market are still focused

on prime assets. Fierce competition has even led to a

contraction in yield of the most sought after assets. Finally,

this year, we have noticed the emergence of new

financing channels such as those provided by insurance

companies and debt funds which are placed on "core" and

"core+" assets

Virginie Houzé

Head of Research France


The leasing markethas adjusted to theeconomic context

"Filling vacant buildings is the top

priority of owners, which even comes

before the amount of rent charged"

Jacques BaggeHead of Leasing Paris

Large turnkey contracts have allowed the market toget back on its feet

Almost sluggish since the start of the year, economic

growth has not been forthcoming. Even so, this year, the

leasing market for office space should still record

approximately 2.1 million sq m of take-up, although this is

down compared to last year.

Without any excessive optimism, the market mainly owes

this honourable result to the settlement of very large

transactions often initiated several months previously, the

last conditions precedent of which have been recently

lifted. Therefore transactions for more than 5,000 sq m

amounted to more than 40% of the area leased in the

Greater Paris region at the end of September.

In addition, two basic trends seem to have emerged on

this market segment. Firstly, the share of presales is

increasing. In 2009, 1/3 of leased surface area was pre-

sold, the remaining 2/3 was leased in existing buildings. In

2012, the ratio was reversed. More than half of large

surface areas are leased in new, undelivered

buildings. Another major trend is the increasing share of

turnkey properties. If pre-leasings are more numerous,

they now generally go through tailor-made operations. The

share of "standard" pre-leasings is less than half than in

2009 in favour of turnkey transactions, particularly rental,

which account for nearly half the large pre-leasing

transactions in 2012.

In the case of large transactions over 25,000 sq m, this

year they are exclusively concerned with turnkey leases

and individual user accounts; the main motivation of which

is the aggregation and consolidation of staff.

Breakdown of the take-up for individual transactions above 5,000 sqm *

Source : Jones Lang LaSalle

* as at end of Septembre


How is this phenomenon explained?

Firstly, this is an illustration of the professionalization of

the real estate function. The Corporate Real estate is now

much more professional with more detailed requirements

and very precise specifications. Moreover, if many

companies are turning towards this type of operation, it is

because the existing supply of office space on the market

does not necessarily correspond to their expectations or

their specific needs.

For example, at the moment, the campus model is very

popular with businesses, which are, to some extent,

abandoning the tower model which is sometimes

considered to be expensive and a bit arrogant. Therefore

this year, the companies which have completed the largest

transactions, EDF (33,000 sq m in Palaiseau), THALES

(49,000 sq m in Vélizy-Villacoublay) and SANOFI (50,000

sq m in Gentilly ) have chosen this type of building.

Attractive lease conditions for new buildings therefore

strengthen this interest and encourage some firms to build

a tailor-made operation.

In a constrained economic environment, sectors in the

inner and outer suburbs have therefore appealed to

businesses for which the price factor has been, and still is,

a determining factor.

In general, the sectors which, this year, have new supply

at competitive prices, have showed good levels of activity

at the expense of markets with unsuitable supply at high

rents.

Supply: torn between oversupply and shortage

For almost three years, the stock of office space available

in the Greater Paris region has remained at an equal level

of around 3.6 million sq m, which at the end of September,

represented a vacancy rate of 6.75% for the region. The

relative slowdown in demand has not therefore resulted in

a rise in the immediate supply this year.

The crisis has highlighted extremely marked differences

between geographical areas in terms of availability.

Overall we are seeing a two-tier market with Paris, on the

one hand, which is suffering from a lack of products and

quality supplies and the inner suburbs, on the other hand,

which is generally "supply-rich" or even "over-supplied" in

the western Paris region.

With a vacancy rate of 4.3%, the supply in Paris city

centre tends to fall faster than the average (-16% over 2

years) whereas it has steadily increased in the inner

suburbs (+13% in 2 years), mainly in the Western

Crescent (+15% in 2 years), where the bulk of the new

supply and completions are concentrated. In the Greater

Paris region, the share of available new buildings is

continuing to slowly decline with 22% of vacant stock

(compared to 26% one year earlier). Once again behind

this average, significant disparities are appearing among

the sectors. The inner suburbs (including La Défense)

have, to date, included most immediately available new

supplies with a total of 500,000 sq m, i.e. 57% of vacant

new supplies in the Greater Paris region, unlike in Paris

which includes four times less.

Vacancy rate as at 30th September 2012



This imbalance is not likely to improve since, in 2013,

almost 500,000 sq m, currently under construction and

available for leasing, could add to the vacant stock, if no

tenants are found by then. More than 80% of these areas

under construction are in the inner suburbs, which

represents no less than 410,000 sq m under development

and deliverable by the end of 2013 (including 120,000 sq

m in La Défense with the "Eqho" and "Carpe Diem"

towers).

In the Western Crescent, the Northern Loop (with

92,000 sq m launched speculatively mainly in La Garenne

Colombes) could mechanically see its vacancy rate

increase, which is already high at almost 14%. The same

applies for the Southern Loop which currently has 60,000

sq m of projects launched speculatively in Boulogne-

Billancourt, available within one year, awaiting marketing.

The same is true in the Southern inner suburbs, which has

become an area naturally sought after by

telecommunications companies, manufacturers and

pharmaceutical groups, where the new supply available

could double in 2013 (60,000 sq m currently under

construction).

Good news, however, for Péri-Défense where very few

new projects have been launched speculatively (25,000 sq

m), as the vacancy rate is already near 17% despite good

leasehold performance this year. The same is true in the

Northern Inner Suburbs, where few new transactions will

emerge speculatively in the course of next year (22,000 sq

m), as the vacancy rate is more than 11% in the sector.

In Paris, future new supplies expected in 2013 only

represent 70,000 sq m in total. They are mainly situated in

the 17th district (partly in the ZAC des Batignolles) and in

the 11th district with the "Parisquare" operation. In the

Central Business District, only the "Solstys" operation will

be delivered during 2013, with slightly more than 10,000

sq m remaining available.

The dichotomy of market supply should not therefore

diminish in 2013, as it is relentlessly putting continuous

pressure on rental values.

Projects under-construction to be completed within the next 12 months


Partly of totally vacant projects

100% pre-let

Projects under construction by size


Rent: a balance of power in favour of tenants

Once again, we are finding a two-tier market in the

Greater Paris region. In Paris, we can see a dominant

trend in the stability of headline values (except the 5/6/7th

districts are down) given the limited supply and a

sustained level of demand for the capital which captures

more than one third of areas leased at the end of

September (although this level is in decline).

The Central Business District has returned to its initial

position as the most expensive market ahead of the left

bank market (5/6/7th districts) which had displaced it last

year following a series of transactions of around €830/ sq

m. It even confirms a slight increase in "prime" rent which

has gone from €770 to €795 /sq m (+3.25%) during the

third quarter. In the Golden Triangle, these values even

reach €805 / sq m due to a recorded scarcity of "prime"

buildings. Consultancy firms and law firms, in competition

for the few new buildings in the sector, are willing to pay

the high price.

In the Western Crescent, and particularly in the Inner

Suburbs, the high rental supply has instead put a

downward pressure on values. If headline rental values

have so far only recorded a limited fall, the fact of the

matter is that economic rents are becoming increasingly

disconnected from the values displayed. Commercial

incentives are tending to increase in some areas,

particularly in locations where risks have been taken by

owners and where the vacancy is high.

In general, rents are fiercely attacked by businesses which

are logically reducing their costs. Some owners have

started to adjust their values downwards, more in line with

market reality which has changed in the past 5 years.

Caution is still the order of the day for owners. Very

attentive to businesses, they are more imaginative than

ever and are willing to make significant efforts to fill their

buildings and to thereby reduce the vacancy rate of their

portfolio as well as through renegotiations to avoid any

departure of tenants.

In La Défense, "prime" rent is also experiencing its first dip

and during the 3rd quarter was positioned at €530/sq m,

due to a lack of large transactions recorded for new

buildings. Beyond that, since 2006 the business district

has been suffering a significant decline in its leasing

activity in an increasingly competitive environment, with

rents perceived as expensive. The dispersed, belated

repositioning of rents according to the strategies of the

owners, the aging of stock and the unsuitability of the type

of buildings to meet the current demand of business are all

factors which explain this difficult period for the sector. The

sharp increase in immediate supply expected in 2013 with

the first deliveries of the towers in the Renewal Plan for La

Défense will inevitably continue to influence "prime" rental

values.


Large transactions,drivers of theinvestment market

"Paris has enhanced its image with

international investors which were

traditionally positioned on the London

market"

Stephan von BarczyHead of French Capital Markets Group

The buoyant activity of the Paris investment market

observed since the 2nd quarter of 2012 continued during

the summer, with a volume of transactions at the end of

September which is ahead of 2011. However, the 4th

quarter should not be as active as last year which was

deeply affected by an activity related to the end of the tax

benefit under Article 210-E. Dynamics and investor

appetite has led us to revise our initial forecast for 2012

upwards, with a total investment in the Greater Paris

region, which should be between 10 and 11 billion euros.

Three sales for more than 500 million euros have

boosted the market

This year, the investment market in the Greater Paris

region has been sharply boosted by very large

transactions, particularly by those for more than 500

million which made a comeback over the summer.

In general, Paris primarily attracts large investors, with

almost 70% of capital invested there. The location of the

three biggest sales of the year illustrates this: QATAR

INVESTMENT AUTHORITY (QIA) has purchased from

KANAM two office buildings in a portfolio: the "Néo" and

"Cité du Retiro" buildings for 622 million euros and "52-60

avenue des Champs-Elysées" (currently occupied by

VIRGIN MEGASTORE) from GROUPAMA for an

estimated amount of around 500 million euros. Finally, JP

MORGAN (for an Asian fund) purchased "52 avenue

Hoche" and "Avant Seine" from EUROSIC for 540 million

euros.

Overall, sales in the segment of more than 100 million

euros are rising and represent more than half of the

volume invested in the Paris region since January. If we

analyse the risk level of these sales, we can see that

investors are still cautious in this time of economic turmoil.

They are mainly positioned on secure or ultra-secure

products (57% and 28% respectively), in summary, on

assets without any vacancy, and with leases for a fixed

term of at least 6 years at the time of purchase.

Risk level of the investment transactions above €100 million in the Paris region



The capital of Sovereign Wealth Funds is dominant

Already started last year, the investment market has

continued its re-internationalisation throughout 2012, and

international investors accounted for more than half of the

capital invested since the beginning of the year.

Whether owned directly or indirectly by the State,

Sovereign Wealth Funds manage public financial assets

(foreign exchange reserves, surplus savings and revenue

from natural resources such as oil and gas). To invest

their large amount of liquidity, major Sovereign Wealth

Funds are turning to real estate, mainly distributed in

Europe between London and Paris.

The largest Sovereign Wealth Fund in the world1,

NORGES – which its government has authorised since

2011 to invest in real estate – made a prominent entrance

onto the Parisian market last year through the creation of

a joint venture over the summer with AXA REIM (50% of

1.4 billion euros). NORGES reconfirmed its interest in

Paris this year by creating another joint venture, this time

with GENERALI. The insurer gave the joint venture five

buildings in Paris worth 550 million euros, of which the

Norwegian pension fund takes 50%. It has, in total,

invested more than 1 billion euros in 18 months in the

Greater Paris region.

Finally, number two, ABU DHABI INVESTMENT

AUTHORITY (ADIA) purchased "90 boulevard Pasteur"

from CREDIT AGRICOLE for an estimated 250 million

euros.

The appetite of these investors, which is mainly focused

on beautiful Parisian stone and on the best locations,

holds true once again with two transactions signed on the

Champs Elysées this year. These are numbers 52-60 sold

to QIA and number 100 purchased by NORGES.

1 According to the Sovereign Wealth Fund Ranking (October

2012)


Origin of the cross-border investment in France

2012

2009

2007


And mid-size transactions?

In general, the capital for this asset band of between 50

and 100 million euros mainly comes from domestic or

European investors.

If the largest transactions have been won by international

buyers, the market of medium-sized transactions is still the

favourite hunting ground of French investors who are

responsible for more than 60% of the volumes invested in

this asset size. The share of French investors has become

larger than foreign investors, particularly in relation to very

good levels of collection from REITs in 2012, which allows

them to be positioned on larger unit-sized assets than in

the past.

German investors - historically active purchasers - were

absent during the first half of the year (only 3% of invested

capital) or were even net sellers. However, they

reappeared in the second half of the year, totalling 13% of

the capital invested on the Paris market. Of particular

importance is the purchase of the head office of

l’EXPRESS rue de Châteaudun in Paris by ALLIANZ and

the sale of "Forum 52" in Issy-les-Moulineaux to RREEF.

In contrast, open-end funds, which have begun to liquidate

their portfolios, are starting to market assets, such as

KANAM or AXA IMMOSELECT with the sale of the

"Liberté 2" building in Charenton-le-Pont for 255 million

euros.

Relative stability of prime yields

Prime yields have generally remained stable on secondary

markets in Paris and in the inner suburbs.

However, investors are still willing, in some cases, to

position themselves at lower yields for products, the cash

flow of which is secure over a long period, particularly

medium-sized products (50 million euros) which have the

characteristics of "trophy" buildings (situated in Paris, in

cut stone, with top of the range services).

Consequently, we have noticed a fall in yield by 25 basis

points on the best markets in Paris. Thus, in the Golden

Triangle, the prime yield is positioned in a range between

4.50% and 5.00%

Investment transactions above €100 million in the Paris region


Single asset

Assets sold within a portfolio


Outlook: 2013 a yearof opportunities

The economy in the continuation of Act 5: when willit recover?

Growth prospects for the coming months have been

revised downwards and according to economists, the start

of 2013 will not announce the long-awaited recovery.

In France, 2013 will be the year when fiscal austerity

measures are in full effect in households and businesses

(the tax burden will be at its historical high), while at the

same time, employment prospects are poor. It is likely that

one of the main drivers of French growth, consumption,

will remain sluggish due to a decline in the standard of

living of households and job worries. The need to initiate

structural reforms in France is even more relevant, which

Moody's highlighted again in November when France's

rating was downgraded.

At international level, 2012 was the year of awareness on

the part of large organisations such as the IMF and the

OECD: austerity at all costs and at any price is a mistake,

in as much as its effects on the economy are negative.

There has been a change in tune in recent months. Yes to

the restoration of public accounts but at a reduced pace in

order to safeguard economic growth as much as possible.

In recent weeks, Europe and the markets have shown

greater tolerance on the subject: an easing of objectives

and of deadlines for budget compliance without the

markets being "up in arms" against these announcements.

Europe is seen as the sick man of the world and its weight

in the global economy makes its recovery even more

necessary for growth.

The new buzzword in France is commercial

competitiveness as the country must regain market share

which has been lost over the past ten years on

international markets. Companies have already been

given some signs in recent weeks: negotiations on jobs

and employment contracts between unions and employers

have started and the government has introduced an

unconditional tax credit for companies of approximately 20

billion euros. It remains to be seen if the negotiations will

lead to an agreement which is acceptable to all parties

and if the company tax credit will be enough to give them

the boost they need for recovery.

Therefore, if we can legitimately forecast that the first few

months of the year will still be marked by stagnation or

recession, decisions on changes during the second six

months are unpredictable. In any event, if activity should

pick up mid-year, the effects will not be immediate on the

job front or on company investments which shall first try to

restore their margins.

.


2013: the hunt for lease vacancies for owners, thehunt for costs for businesses

The harsh economic environment and rising

unemployment could affect the commercial real estate

market in 2013. SME activity is closely correlated to a

country's economic situation and the financial difficulties of

companies can be felt. For 2013, we expect the level of

take-up to be slightly down compared to 2012 between 1.9

and 2 million square metres.

Businesses are revising their real estate policy and the

type of demand is changing profoundly. For the last 5

years, businesses have been in crisis management

dominated by the logic of reducing their costs. The

majority of this year's transactions have been made with

that logic. Demand will remain essentially motivated by a

search for savings and a rationalisation of occupied areas

by bringing together teams. Businesses will therefore try to

vacate any unoccupied or under-occupied areas or will at

least try to find a subtenant.

A lack of visibility on their own operating results does not

induce them to commit to costly relocation projects which

are most often accompanied by an internal reorganisation

of the company's workforce. They are turning more

towards renegotiating their leases. Enjoying rapid growth

this year, they will undoubtedly occupy a significant share

of the market next year, facilitated by successive

increases in the construction index. All opportunities shall

therefore be exploited.

If the renegotiations do not result in a favourable outcome,

businesses will consider, in a second stage, relocation.

They will have to face extremely constrained environments

in terms of cost and geography. For social reasons, they

will often prefer a similar environment to their current

location, leading to endogenous movements. Established

tertiary districts, which are currently offering attractive

lease terms, could benefit from this dynamism as the

difference in rent between central sites and peripheral

sites is tending to shrink.

Finally, 2013 could be marked by several opportunistic

movements by businesses in a favourable market in order

to relocate to new buildings, close to public transport,

which are directly connected to the capital.

Supply is abundant, particularly in the inner suburbs and

there is no shortage in the supply of new properties. In

addition, approximately 500,000 sq. m of new projects

currently under construction in the Greater Paris Region,

to be delivered by the end of 2013, will increase the

number of new buildings available in some "supplier"

sectors. In a slowed-down leasing market, we can

therefore examine the time taken to clear this new supply

when, according to a study we conducted, on average

30% of new office space programmes (excluding turnkey

or individual user account), delivered between 2009 and

2011, were occupied at the time of delivery, 40% after 6

months and 55% after one year.

Within this context, rents will remain under a downward

price pressure, particularly in areas where the available

supply exceeds demand. The apparent resistance of rents

so far has started to crack, and the rental values displayed

will continue to fall in 2013 as economic values are

already low. According to owners, incentives could

become even more pronounced in some "over-supplied"

sectors.

In La Défense, the leasing market will only recover with a

readjustment of the values. 2013 should therefore be a

year of transition, before a more pronounced recovery in

2014-2015 once the values have been adjusted and the

supply of new properties has been renewed. More

generally, in the inner suburbs, the markets should

prosper due to a high quality supply for competitive rents.

In Paris city centre, particularly in the Central Business

District, the lack of supply should keep "prime" rental

values and second hand rents for the best products at a

high level. However, this is a specific, isolated

phenomenon related to the lack of qualitative supply in this

sector.

14 Le marché des bureaux en Ile-de-France – Bilan & Perspectives 2013

A return to a conventional level?

The outlook for the investment market in 2013 should be

at a "conventional" level, observed for 10 years. We are

therefore forecasting an invested volume of between 8

and 10 billion euros next year.

If the first few months of the year are usually relatively

quiet, the first half of 2013 could be an exception. This

year, the arbitrage plans of investors have begun much

earlier than usual and should be released at the beginning

of next year.

In an uncertain political and fiscal context, investors

remain very cautious in their analyses even though rental

values are under pressure. However, the attractiveness of

Paris at European level and the resilience of its real estate

market are all factors which will continue to attract

investors from around the world..

We await the arrival of new investors from Asia, such as

Korean and Malaysian investors, as well as Chinese

insurance companies which have recently been allowed to

invest in overseas property.

German investors should also be present.

With regard to French investors, insurance companies

should still be active on the Paris market to acquire high-

quality assets with fixed long-term leases.

The interest of Sovereign Wealth Funds for the Paris

market could slow down next year. Having invested in

London and Paris, some funds are looking to invest in

other "core" European markets such as Germany or

Switzerland. NORGES, along with AXA, has invested 784

million euros in Germany by purchasing the "Kranzler Eck"

in Berlin and the "Neue Welle" in Frankfurt from RBS.

They also acquired under a sale and leaseback, the

headquarters of CREDIT SUISSE in Zurich for 800 million

euros.

In terms of product typology, purchasers will undoubtedly

be primarily looking for quality assets, with secure yields.

Prime yields are therefore likely to be maintained for the

best assets.

The "value added" investors’ interest for "secondary"

assets is real. However, this requires the market to have

non "prime" assets to arbitrate, that buyers and sellers

agree on the asset valuation and that they are fundable.

Note that investors are able to find funding for "core"

assets. For "value added" assets, banks do not hesitate

with regard to their most loyal customers and high-quality

borrowers.

Contacts

Virginie HouzéDirectorResearch DeparmentParis+33 (0)1 40 55 15 [email protected]

Sophie BenaïnousResearch ManagerResearch DepartmentParis+33 (0)1 40 55 85 [email protected]

Manuela MouraConsultantResearch DepartmentParis+33 (0)1 40 55 85 [email protected]

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the paris office market overview & forecast 2013

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