CB RICHARD ELLIS ANNUAL REPORT THE PARIS REGION OFFICE MARKET

Transcription

1 CB RICHARD ELLIS ANNUAL REPORT THE PARIS REGION OFFICE MARKET 2009 Investments France - Offices Paris Region - Regions - Retail- Light Industrial / Logistics

2 CB RICHARD ELLIS EN FRANCE Covers 35 metropolises in France Agency Advisory services to occupiers and landlords Offices - Industrial - Warehouses Retail Investment Strategic advice for property sales and leasing Offices - Industrial / Logistics Retail Hotels Global Corporate Services Global services to international groups Portfolio Management - Consulting Building Consultancy Valuation Building valuations Optimise revenues Due Diligence Offices - Industrial - Logistics Retail Housing Residential Block and unit sales for inverstors Sale and letting of apartments and private mensions Property Management Manage and secure the returns from your assets Debt Advisory Space planning Vannes Project management Research and Marketing Market analysis, research and outlook Rennes Nantes Laval Caen Angers Bordeaux Le Mans Rouen Chartres Le Havre Toulouse 30 locations in France 790 employees Lille Paris Ile-de-France Tours Dijon Limoges Orléans Montluçon Turnover 2008: million euros Metz Nancy Clermont-Ferrand Lyon Annecy Bourgoin Jallieu Brive-la-Gaillarde Chambéry Grenoble Strasbourg Mulhouse Avignon Sophia-Antipolis Montpellier Aix-en-Provence Nice Marseille CONTACTS OFFICES Maurice GAUCHOT Tél.:33(0) Fax:33(0) maurice.gauchot@cbre.fr Marc-Henri BLADIER Tél.:33(0) Fax:33(0) mh.bladier@cbre.fr RESEARCH Aurélie LEMOINE Tél.:33(0) Fax:33(0) aurelie.lemoine@cbre.fr Text completed on 6 th March 2009 by the CB Richard Ellis Research department. Written by: Alexandre Dassonville, Sabine Echalier and Edouard de Laboulaye CB Richard Ellis Ressources - Economic Interest Group - Head Office : , rue de Courcelles Paris - Siren RCS Paris Reproduction of all or part of this document is authorized on express condition that the source be credited. Although information published in this overview has been obtained from reliable sources, CB Richard Ellis or the CB Richard Ellis Group can on no account be held responsible for its accuracy

3 1 2 3 CONTENTS GLOSSARY MAIN IMMOSTAT DATA IMMOSTAT GEOGRAPHIC BREAKDOWN AND ECONOMIC CONTEXT OFFICES IN ILE-DE-FRANCE 5 REAL ESTATE SITUATION 9 THE CYCLES FOLLOW OUTLOOK 2009: CYCLE LOW POINT? GLOSSARY Net absorption The balance between the amount of space taken and vacated by occupiers in a market in a given year. Turnkey scheme A transaction concluded when the building is still a project or under construction, but whose structure will be modified to suit the needs of the occupier. User-owned property A development undertaken for the company that will occupy the building that may or may not own the land. Take-up The totality of transactions to let or sell carried out by occupiers, including turnkey schemes in a given period. Immediate supply The amount of space that is currently vacant and available to let or for sale. Definite supply Premises being constructed, redeveloped or renovated. Premises on which works have not yet started but for which the works start date is set. Space that will definitely be vacated. Probable supply Premises for which full administrative approval has been granted but building works will only start when one or several occupiers have agreed to take some or all of the space. Premises for which planning permission has been filed or ones for which planning permission has been granted but will only become definitive once the Period for third-party recourse has ended. Premises that will probably be vacated. Possible supply Sites controlled by a developer that has clearly expressed an intention to build development projects that for some reason, such as feasibility or construction date, are still very uncertain Premises that will possibly be vacated. Old building A building is more than 10 years old and has not been renovated or redeveloped. New building A newly constructed building, less than 5 years old, that has never been occupied. This category of buildings is subject to VAT when sold. Recent building A building less than 10 years old that has not been renovated or redeveloped and has already been occupied. Renovated building A building that has already been occupied and has been renovated to a degree that does not require planning permission. Redeveloped building A building that has been completely redeveloped and transferred to the VAT regime. The main facades may or may not be conserved. Cost of construction index A reference index calculated and published quarterly by INSEE that measures the change in prices of building materials. This index is particularly used by lessors as a basis to readjust rent annually. This index is often used by lessors in commercial leases as a basis for annual readjustments of the rent. For residential properties it has now been replaced by the rent reference index. Headline rent The headline rent corresponds to the value on the lease agreed between the parties. Economic rent The economic rent is the rent that is actually paid by the tenant, after deduction of fees and other incentives. Average weighted rent Average rent in a given geographical area weighted by the stock of space in each arrondissement or town forming the area. Prime rent Average rent of the ten most expensive transactions identified during the previous six months in a given area. Only transactions on units larger than 500 sq. m are considered. (CB Richard Ellis) Vacancy rate The ratio of the immediate supply of space to total stock of space for a type of asset in a given area. (source ORIE or EPAD) CB Richard Ellis 1

4 OFFICES IN ILE-DE-FRANCE MAIN IMMOSTAT DATA Immostat zone Immediate supply Take-up Immediate supply Take-up Paris CBD 221,000 sq. m 487,000 sq. m 272,000 sq. m 297,400 sq. m Paris Centre West 60,000 sq. m 120,900 sq. m 77,000 sq. m 69,200 sq. m Paris 5/6/7 24,000 sq. m 23,500 sq. m 48,000 sq. m 31,000 sq. m Paris 12/13 38,000 sq. m 57,100 sq. m 55,000 sq. m 51,700 sq. m Paris 14/15 57,000 sq. m 99,000 sq. m 50,000 sq. m 47,000 sq. m Paris 3/4/10/11 37,000 sq. m 57,600 sq. m 44,000 sq. m 53,600 sq. m Paris 18/19/20 63,000 sq. m 20,900 sq. m 71,000 sq. m 47,000 sq. m La Défense 142,000 sq. m 271,900 sq. m 117,000 sq. m 265,600 sq. m Northern River Bend 157,000 sq. m 188,200 sq. m 175,000 sq. m 106,400 sq. m Neuilly / Levallois 77,000 sq. m 108,100 sq. m 77,000 sq. m 103,100 sq. m Peri Défense 135,000 sq. m 117,800 sq. m 175,000 sq. m 258,800 sq. m Southern River Bend 126,000 sq. m 281,300 sq. m 137,000 sq. m 168,400 sq. m Southern Inner Rim 144,000 sq. m 183,000 sq. m 208,000 sq. m 119,300 sq. m Northern Inner Rim 175,000 sq. m 142,800 sq. m 152,000 sq. m 149,800 sq. m Easter Inner Rim 59,000 sq. m 46,100 sq. m 60,000 sq. m 162,400 sq. m Marne La Vallée 67,000 sq. m 81,900 sq. m 95,000 sq. m 52,100 sq. m Roissy Pole 78,000 sq. m 22,400 sq. m 73,000 sq. m 22,500 sq. m St Quentin En Yvelines 113,000 sq. m 81,400 sq. m 165,000 sq. m 77,000 sq. m Southern Outer Rim 307,000 sq. m 233,900 sq. m 344,000 sq. m 141,400 sq. m Rest of Outer Rim 343,000 sq. m 131,500 sq. m 350,000 sq. m 135,800 sq. m Total 2,423,000 sq. m 2,756,300 sq. m 2,745,000 sq. m 2,359,500 sq. m Source: Immostat Vacancy rate Share of new / redeveloped Share of new / redeveloped Average rent for Immostat zone at 1 st January 2009 in immediate supply in take-up new, redeveloped at 1 st January 2009 in 2008 and renovated buildings Paris CBD 5.0% 36% 29% 580 Paris Centre West (excl. CBD) 2.4% 13% 5% 435 Paris 5/6/7 3.8% 52% 1% 485 Paris 12/13 3.0% 21% 20% 401 Paris 14/15 2.7% 0% 3% 405 Paris 3/4/10/11 2.6% 0% 5% 348 Paris 18/19/20 5.9% 61% 56% 255 La Défense 3.6% 24% 55% 480 Northern River Bend 12.7% 37% 72% 269 Neuilly / Levallois 5.6% 5% 24% 425 Peri Défense 8.5% 6% 54% 312 Southern River Bend 6.1% 19% 31% 401 Southern Inner Rim 11.6% 36% 45% 274 Northern Inner Rim 7.9% 33% 71% 243 Easter Inner Rim 4.3% 32% 70% 256 Marne La Vallée 6.9% 18% 24% 190 Roissy Pole 7.1% 4% 16% 144 St Quentin En Yvelines 12.1% 12% 54% 193 Southern Outer Rim 10.1% 33% 56% 208 Rest of Outer Rim 3.0% 10% 45% 167 Average 5.4% 24% 44% 317 Sources: CB Richard Ellis and Immostat CB Richard Ellis

5 IMMOSTAT GEOGRAPHIC BREAKDOWN OFFICES IN ILE-DE-FRANCE ECONOMIC CONTEXT A key region The Ile-de-France is the 2 nd European region in terms of gross domestic product, behind North Rhine-Westphalia, but a long way ahead of Bavaria and Greater London. The region has 5.5 million employees, accounting for more than 20% of the national workforce. The employment density is on average 10 times higher in the Paris region than in mainland France overall. The city of Paris is one of the municipalities with the highest concentration of jobs (approximately 16,000 jobs per km 2 ). Thus, 30% of the region s workforce is concentrated in the capital alone, which represents only 1% of the surface area of the Paris region. The weighting of Paris itself in regional employment is falling as it stood at 36% 20 years ago. In any case, the capital holds a significant position in the region s economy, alone representing: 42% of the establishments in the Ile-de-France; one in every two jobs in finance, real estate and personal services; approximately one job in three in business services, administration and healthcare. The Hauts-de-Seine departement comes 2 nd in all other activities apart from research and development, in which it comes behind Essonne. This departement, with approximately 6,000 head offices and 16% of regional employment, has a higher GDP than Barcelona. It is also here where most establishments with more than 500 employees are based in France. KEY FIGURES Ile-de-France France Area in km 2 12, ,965 Population (in millions) Total employment (in millions) Employment density per km Unemployment rate (at Q3 2008) 6.5% 7.3% Median of household income 19,945 16,910 Establishments active at 1 st January ,358 3,754,620 Source: INSEE EMPLOYMENT FROM 1996 TO % 15% 10% 5% Source: INSEE Outer Rim Regions Inner Rim (excluding Paris) Paris 2009 CB Richard Ellis 3

6 OFFICES IN ILE-DE-FRANCE The economy of the Paris region is reliant on services, with 84% of regional employment concentrated in this sector. Financial activity has a strong presence in the Paris region. Together, Paris and Hauts-de-Seine have 31% of the national workforce and 77% of the regional workforce in this field. Business services also have a significant presence. In this regard, the region represents 45% of national jobs in the consultancy and assistance activity and 45% of French researchers are based in the Paris region. The main specialties and business sectors are energy, health, new technology, aeronautics and even automotive. The diversity of the economic fabric of the region is often cited as an advantage for reducing sectoral risk. BREAKDOWN BY DEPARTEMENT OF ESTABLISHMENTS WITH MORE THAN 500 EMPLOYEES IN THE ILE-DE-FRANCE IN 2006 Essonne 7% Yvelines 11% Hauts-de-Seine 29% Seine et Marne 5% Paris 25% Val de Marne 7% Val d'oise 7% Seine-Saint-Denis 9% Results for 2008 Source: INSEE Traditionally, the economy of the Paris region suffers more than elsewhere in France in times of economic slowdown. The Paris region is more sensitive to the international environment. Itisby far the leading French region in terms of foreign company presence and is one of the world leaders in this field. Thus, approximately one third of the 500 largest international groups have a main office in the region (source: IAURIF). However, thanks to its economic and industrial fabric, the Paris region fared better than elsewhere in France in After a growth of 1% in 2007, industrial activity in the Paris region fell in 2008 (-1.4%, compared with the +3% expected). Only the food industry and capital goods did well. The turnover in business market services grew by 5.9%, a performance similar to mainland France as a whole and slightly better than expected. Company bankruptcies and creations and salaried employment grew more rapidly in the capital region in 2008 than in mainland France as a whole. Salaried employment increased by 1.3% but slowed down in the 3 rd quarter 2008 mainly due to the loss of jobs in industry. Thus, despite the economic situation, the unemployment rate in the Paris region fell in the 3 rd quarter 2008, settling at 6.5%. However, the employment market suffered in Essonne and Val d Oise. In 2009, the unemployment rate in the Ile-de-France is likely to increase considerably due to announced job losses, but the employment market will still remain more fluid than in other regions. In 2008, almost a quarter of new companies set up in France were in the Paris region. This percentage is down on the 1999 level of 28%. In line with the national trend, finance and real estate, as well as hotel and catering and retail, saw a downturn in terms of the setting up of new companies. Paris itself saw 37% of the region s company creations in This figure has been falling constantly since 2000, the year in which 44% of company establishments were concentrated in the capital. The increase in local taxes in Paris announced for 2009 could help to reduce this percentage in the future. After several years of stability, the municipality has actually confirmed a significant increase in local taxes and the introduction of a new departmental tax of 3% on developed land. However, the local tax system will continue to be noticeably more advantageous in Paris itself than elsewhere in the Paris region. TRENDS IN GDP IN VOLUME 6% 5% 4% 3% 2% 1% 0% -1% -2% Ile-de-France Regions Source: INSEE QUARTERLY TRENDS IN UNEMPLOYMENT RATE 12% 10% 8% 6% Ile-de-France Paris France Source: INSEE CB Richard Ellis

7 REAL ESTATE SITUATION 2008, a pivotal year Finally, the financial and economic storm will have shaken, but not destroyed, the commercial real estate market in While the investment market fell by 54% between 2007 and 2008, the Paris region office market fared better with only a 14% reduction in volumes marketed. At the same time, immediate supply increased and rents were adjusted downwards. However, for the time being, the market has not yet reached its turning point and 2008 is to be regarded as a transitional year with trends expected to intensify in Demand in decline THE MAIN REAL ESTATE COST REDUCTION MEASURES IN 2009 Relocation 9% Real estate cost audit 24% Consolidation on existing site 30% Sample of 95 occupiers Source: CB Richard Ellis Lease renegotiation 37% OFFICES IN ILE-DE-FRANCE The impact of the economic slowdown has been felt since September. Until then, demand was higher than in After the Summer, companies became much more careful and preferred to wait and see, with longer negotiation periods. Others opted simply to abandon their search, preferring instead to renegotiate existing leases, thus limiting the costs involved with moving. All sizes of floor areas were affected by this slowdown. SME movements, like those of large companies, are sustained by the need to reduce overheads and streamline surface areas. Thus, 6,200 requirements were received by CB Richard Ellis in It is true that this level is still higher than in 2007, but demand has been much more fragile. Thus, in 2007, the demand transformation rate was on average 53% whereas it fell to 50% for TRENDS IN TAKE-UP IN ILE-DE-FRANCE (In million sq. m) In addition, while most transactions were signed within 3 months in 2007 (64%), this proportion fell to 56% in 2008, with a strong increase in requests taking between 6 and 12 months, increasing from 10% to 15%. Take-up drops off but does not disappear altogether As a reflection of the economy and the need for companies to cut costs, take-up fell throughout Europe with slowdown more pronounced at the end of the year. This trend has been particularly marked in Dublin and Vienna. Generally speaking, the activity seen in Europe is similar to that seen in In Ile-de-France, 2.4 million sq. m were marketed in This level is down 14% on 2007, but is still significant and higher than the 2004 and 2005 levels. 00 Source: CB Richard Ellis / Immostat BREAKDOWN OF TAKE-UP BY SIZE BRACKET >5,000sq.m 43% < 5,000 sq. m > 5,000 sq. m < 500 sq. m 19% What should be learnt from this year? 1 Due to the desire to make savings, the geography of transactions has changed. Indeed, many companies moved from Paris to the suburbs to benefit from opportunities available, particularly in the Western Crescent which saw higher take-up than in the capital (a rare phenomenon). The Eastern Inner Rim also enjoyed great appeal, quadrupling their take-up in 2008 compared to ,000 sq. m - 5,000 sq. m 8% Source: CB Richard Ellis / Immostat 500 sq. m - 1,000 sq. m 12% 1,000 sq. m - 3,000 sq. m 18% 2009 CB Richard Ellis 5

8 OFFICES IN ILE-DE-FRANCE However, we should note that in relation to development of the immediate supply, Paris has not been deserted but rather companies already located there prefer to renegotiate leases rather than move completely has been a year sustained by the major transactions segment with more than 1 million sq. m taken up, representing the 3 rd best year since This market has essentially been boosted by major reorganisations started in Indeed we can cite, amongst others, BNP Paribas in Nanterre, LCL in Villejuif In addition, these transactions involved buildings under construction or to be developed, increasing the portion of pre-lettings and turnkey developments to 53% in this property segment. GEOGRAPHIC BREAKDOWN OF TAKE-UP Northern Inner Rim Western Crescent Southern Inner Rim 30% 25% 20% 15% 10% 5% Outer Rim Paris Centre West 3 Properties of less than 1,000 sq. m also played an important role in take-up, particularly due to companies looking to expand, at the expense of complete moves by small and medium-sized companies. These transactions are mainly in Paris and in Paris Centre West in particular, although this area has lost out to the Western Crescent. Easter Inner Rim 2007 La Défense Rest of Paris The choice of location corresponds to the desire to make savings in most cases. Thus, the most expensive sectors, such as the Paris CBD, are falling behind others which offer extra high-quality space with lower rents enabling streamlining of occupied surface areas. 5 Take-up paradoxically accounted for by business sectors severely affected by the crisis. With 34% of take-up, the banking and finance sectors featured significantly in completed transactions in This proportion should, however, be further defined, as it is more to do with a structural effect (major restructuring referred to above) than a real repercussion of the crisis. The industrial sector also represented a significant portion with 19% of take-up. Immediate supply increases after 5 years of decrease In line with the fall in take-up, available supply increased in 2008 in most European markets. The EU-27 (27 European Union countries) vacancy rate index gradually increased and stood at 7.47% by the end of 4 th quarter of 2008 compared to 6.83% one year earlier. Source: CB Richard Ellis / Immostat BREAKDOWN OF TAKE-UP BY SIZE OF PREMISES 100% 80% 60% 37% 34% 30% 26% 23% 29% 40% 20% 40% 37% 44% New / Redeveloped Renovated Second-hand The good level of marketing observed during previous years enabled vacant stock to be reduced reaching a low in 2007 with 2.42 million sq. m. In 2008, supply increased (+13%), particularly in the final quarter due to the reduction in take-up in the same period. The vacancy rate in the Ile-de-France is 5.2% at 1 st January Even though this increase may appear to be significant, it is still insufficient in some geographical areas which have experienced undersupply in recent months. Therefore, even in growth, Paris still has a low vacancy rate, at 3.7%. La Défense has one of the lowest vacancy rates in the region (3.6%). At 1 st January 2009, supply of properties of less than 1,000 sq. m represents 25% of immediate availability compared with 21% at the end of 2007, due to the reduction in SME activity. On the other hand, the 1,000 sq. m to 5,000 sq. m segment has seen a fall, at no more than 35% of available stock compared to 43%. Source: CB Richard Ellis / Immostat TRENDS IN IMMEDIATE SUPPLY AND VACANCY RATE IN ILE-DE-FRANCE (At period end) % 10% 8% 6% 4% 2% The percentage of new or redeveloped properties stands at 25% of vacant stock in the Paris region. Even though this proportion increased in 2008, it still hides major geographical disparities and insufficient supply with regard to the specific requirements of occupiers Immediate supply in million sq. m Sources: CB Richard Ellis and Immostat Vacancy rate CB Richard Ellis

9 Furthermore, this trend goes a long way towards explaining the high level of pre-lettings. Fewer new construction starts In 2008, new construction starts recorded by the DREIF were at 2007 levels (1 million sq. m). However, they are down on 2006 (-13%). There are two factors underlying this development: 1 Financing difficulties are responsible for the halt in some new speculative project start-ups at the end of The reluctance of banks to lend has meant some developers have had to put off their projects until a later date; 2 Players caution (in particular developers) in response to both the slowdown in activity and the increase in immediate supply. The market has therefore reacted well to this reversal compared to previous years. Unlike the fundamentals of the crisis in the 1990s, supply is now controlled and remains at a reasonable level particularly in a market which has matured. Since 2006, pre-lettings and turnkey schemes have accounted for 41% of new construction starts. Effective management of future supply In Europe, many new constructions were started in 2008, which will provide supply in the short term. However, the almost complete standstill in speculative project start-ups in the middle and at the end of the year will have an impact on supply by 2010 and beyond. In the Ile-de-France, despite increasing throughout the year, definite future supply (including all property areas) fell during the final quarter to 2.3 million sq. m at 1 st January 2009, a level equivalent to that seen at the end of This reduction is due to the slowdown in new construction start-ups (new developments and renovations) and the reduction in vacated space as a result of the wait and see attitude of companies in this uncertain climate. 72% of property involves buildings of more than 5,000 sq. m. Probable supply of properties over 5,000 sq. m is, however, stable, with hazards during 2008 (peak in October 2008). Rising to 2.4 million sq. m for the whole of the Ile-de-France, the level is equivalent to that already seen last year. Turnaround in rents The reduction in rents also reflects the weakness of the economy and of the financial situation of companies. The EU-27 index slid by 0.5% in the year and 2.5% compared to 3 rd quarter However, some markets fared better than others. This is particularly true for some major German cities and for the Swiss market. But most of the main Western European markets saw a significant fall in rents (London, Madrid, Dublin, Frankfurt, Paris). The extent of the fall is linked to available supply. The fall in rents also affects Eastern countries, which are experiencing, amongst other things, a reduction in exports and influx of foreign capital. Average headline values were stable until peaking in July ( 326). From September, they entered a downturn phase in response to negotiation difficulties and the slowdown in demand. Thus, at the end of 2008, the average rent for new or redeveloped buildings in the Paris region stood at 317 net/sq. m pa. It is particularly on this type 2009 CB Richard Ellis QUARTERLY TREND IN FUTURE SUPPLY > 5,000 SQ. M (New, developed and vocated, in million sq. m) Source: CB Richard Ellis TRENDS IN CONSTRUCTION STARTS AND IMMEDIATE SUPPLY (In million sq. m) TRENDS IN EU-27 RENT INDEX March-01 Q4 05 Q1 06 Q206 Q3 06 Q4 06 Q1 07 Sep Sources: DREIF and Immostat March-02 Sep-02 Index (base 100 = March 2000) Source: CB Richard Ellis 94 March-03 Definite Sep March-04 Sep-04 Q Construction starts March-05 Sep Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 March-06 Probable 02 Sep-06 March Sep-07 March Immediate supply NOTE Please find further details on the immediate supply from page 15. Sep-08 Annual trend 08 25% 20% 15% 10% 5% 0% -5% -10% OFFICES IN ILE-DE-FRANCE 7

10 OFFICES IN ILE-DE-FRANCE of building that negotiations are most delicate, as the average value for second-hand buildings only fell by 0.8% to 237 net/sq. m pa. Generally speaking, these are essentially the business sectors which suffer as a result of the fall in rental values.theinner suburbs remain attractive thanks to high-quality properties at values lower than those in the traditional business districts (better value for money). Prime references are also experiencing contrasting developments. In TRENDS IN HEADLINE RENTS (Atperiodend, current net/sq. m) 1, all business sectors, they are down compared to 1 st January 2008, yet with a recovery for Paris Centre West during the 2 nd quarter. Real estate fees stabilising Source: CB Richard Ellis Average prime Paris Centre West Average prime La Défense Average prime Western Crescent Average Ile-de-France (new, redeveloped and renovated) In mid-2008, due to the effect of the global economic slowdown, the cost of raw materials (including food and energy) initiated a turnaround in trends, after the increases of recent years and the historical peaks between Spring and Summer Spurred on by this decrease, building operating costs may also have fallen. This observation is not confirmed at present. Indeed, whether because of maintenance costs, transportation of waste or even upkeep of green spaces (among others), costs increased or remained stable at best. Contracts with the various service providers are, at present, difficult to negotiate and in something of a stabilisation period. As a consequence, overall office charges are consolidated for the three types of building making up the service sector in the Paris region (High-Rise Buildings, Haussmann style buildings, Labour Code buildings*). Charges are divided up depending on their specific details, such as surface area, the presence or absence of air conditioning or even security. In 2008, these breakdowns were all the same as the previous year. At the end of 2007, overall costs ranged from 70 to 76 net/sq. m for a High-Rise Building (depending on whether there was a Building Manager), from 44 to 53 net/sq. m for a Labour Code building (depending on the size and whether there was a security guard and/or a Building Manager) and from 22 to 32 net/sq. m for a Haussmann style building. DIFFERENCE BETWEEN HEADLINE RENTS AND REAL RENTS FOR NEW OR REDEVELOPED BUILDINGS (End start 2009) Range Trends compared to 2007 Paris < 5,000 sq. m 10% 20% West < 5,000 sq. m 15% 20% North < 5,000 sq. m 8% 17% East < 5,000 sq. m 10% 15% South < 5,000 sq. m 10% 15% IDF > 5,000 sq. m 8% 17% Source: CB Richard Ellis BREAKDOWN OF THE BUDGET OF CHARGES BY TYPE OF BUILDINGS (At end 2007) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 17% 20% 20% 37% High-Rise building TOUGHER NEGOTIATIONS The situation is now more favourable for occupiers and negotiation is getting tougher. In fact, owners are agreeing increasingly significant support measures, wanting to keep headline values high and limit vacancy levels. On average, exemptions now stand at 2 months for every year of commitment. However, this trend depends on the location and the quality of the assets. 5% 8% 19% 25% 41% Haussmannian buildings (private heating) 18% 6% 8% 25% 43% French Labour Code building Security/Guard Maintenance (and services) under contract Utilities Multitechnical Insurance * non Haussmannian or High-Rise building Inter-company restaurant Schedules works Maintenance not under contract Operating fees Source: CB Richard Ellis Property Management CB Richard Ellis

11 THE CYCLES FOLLOW TRENDS IN ILE-DE-FRANCE TAKE-UP AND EUROPEAN GROWTH (In million sq. m) % 12 years 7 years 11 years 6 years 6-7 years? 3.0 4% % Highs 2.0 2% OFFICES IN ILE-DE-FRANCE Lows 1% 0% 0.5-1% -2% IDF take-up Outlook 2009 Trends lows and highs European growth FMI outook Cycle length Sources: CB Richard Ellis / Immostat / FMI : market evolution Globalisation and economic growth gave a boost to companies experiencing rapid growth (many jobs created). The real estate market grew, developers started many speculative projects to respond to the high level of demand. The range of products available in the Ile-de-France was relatively varied: occupiers could choose according to their search criteria (location, costs, etc.). Demand was high but faced with limited supply in the 1 st half of the 1980s. Take-up struggled to take off. From 1986, the stock of service-sector property increased rapidly thanks to both active demand, creating a climate of confidence for developers, and to the abortion of the agrement which facilitates administrative procedures. As a result, take-up saw more rapid growth. A record was broken in 1989 with more than 2 million sq. m let or sold. Despite the high number of completions and, consequently, the extremely rapid growth of property stock in the Paris region, supply was for the most part absorbed and selling-off periods were short. Foreign companies, in search of market share, saw an opportunity in the Paris region market, as opposed to London where rents were significantly higher. In this "euphoric" climate, rental values rapidly increased. The average rent in the Ile-de-France tripled between 1981 and This strong growth was for the most part down to the Parisian market, particularly driven by the "paquebots", major office projects in the Central Business District. High demand, alongside the availability of new developments, escalated prices and even created a certain level of speculation. Indeed, players tended to anticipate the increase in values, despite economic growth that was starting to slow down The last peak in take-up was in This date seems therefore to be the end of one cycle and the start of a new one. In this troubled period, a historical return to past cycles in the real estate markets is required. BEFORE 1982: Take-up was low compared to the levels seen today and relatively homogeneous even with variations that were not very contrasting but which remained significant enough at the time to mark a cycle. The high point for take-up was in 1982 with 850,000 sq. m out of constructed service-sector property of just over 27 million sq. m. COMPARATIVETRENDSINTAKE-UPANDTHESERVICESECTOR IN THE ILE-DE-FRANCE Ratio take-up/stock Linear trend of the take-up / all property ratio Annual trend in stock Stock: base 100 = % 7% 6% 5% 4% 3% 2% 1% Sources: CB Richard Ellis, Immostat and ORIE 2009 CB Richard Ellis 9

12 OFFICES IN ILE-DE-FRANCE TRENDS IN TAKE-UP AND DEFINITE SUPPLY WITHIN A YEAR (In million sq. m) Source: CB Richard Ellis and Immostat IDF take-up Immediate supply within a year The growth seen in the real estate sector led to growing professionalisation. On the one hand, the development industries were booming in response to the high demand from occupiers. On the other hand, office premises were gradually coming to be considered as a performance tool and a budget item included in companies' financial statements. Real estate was becoming a lever for both savings and for image. Office property constructed was ageing and was limited in terms of flexibility in Paris, particularly and more generally in Ile-de- France. Demand from occupiers for more suitable premises was increasing and encouraged construction. All of these factors were selfpropagating and would lead to formation of a bubble which was to burst in the 1 st half of the 1990s : the real estate crisis at the root of the economic crisis From the 1990s, the real economy quickly turned round in Europe following the effects of the real estate and financial crashes and the toughening up of monetary policies. Speculative attacks on currency led to a European Monetary System crisis in To support the changes, the central banks continued to increase interest rates, which affected activity and led to acceleration of unemployment and recession, which would continue until The (too) rapid growth of above-inflation market and rental values, falling demand and the explosion of speculative developments at the end of the 1980s led to a period of over-supply. Take-up reached its critical point in After 3 years in decline, real estate activity picked up again with the economy which was making a comeback (positive variation of almost 3 points of French GDP between 1993 and 1994). Dynamic domestic demand, low interest rates, growth in exports, corporate investment (driven by the need to increase standards in a competitive international context) and the fall in unemployment were all factors At the same time, the consultancy industry developed to help all those involved in real estate. A return to this cycle reveals malfunctions in real estate sector at this time. EMPLOYMENT GROWTH AND TRENDS IN TAKE-UP IN THE ILE-DE-FRANCE Take-up base 100 = 1991 Employment variation rate Sources: CB Richard Ellis and IEIF based on Unedic data The bearish phase of the take-up cycle lasted for 3 years % 6% 4% 2% 0% -2% -4% CB Richard Ellis

13 that encouraged the real estate needs of companies. Although confidence was returning, developers were continuing to be cautious and the stock to be absorbed remained high until the mid 1990s. As a result, speculative schemes remained limited. With positive net absorption, supply gradually waned and tension reappeared in the 2 nd half of the 1990s. This even restricted some activity, in particular major transactions. Take-up increased regularly until 2000 when a new high was reached (2.5 million sq. m let or sold). This extraordinary level was facilitated by the explosion of the start-up phenomenon at the end of the 1990s leading to highly active transactions for small surface areas and a high level of anticipation for growth in companies (size of prelettings and turnkey schemes). The cycle turnaround ended up causing the dot-com bubble to burst which would lead to many SMEs going bankrupt. With supply under strain, rents greatly increased from The rarefaction of available property in the traditional sectors would also encourage the boom or the strengthening of new service sectors. In this period of growth, there were many forces driving demand: mergers and acquisitions, creation of new companies (particularly in information and communication technology), the need for growth, modernisation of spaces (companies were in a position to release more funds for their real estate projects). MARKETING PERIOD (In months) Source: CB Richard Ellis Marketing period METHODOLOGY The marketing period is build from the ratio of (immediate and future) supply and take-up Marketing period middle / long term OFFICES IN ILE-DE-FRANCE : a healthier real estate market The bursting of the dot-com bubble (stock markets, employment, etc.) and the difficult geopolitical climate (e.g. 9/11) were factors which had repercussions for the health and confidence of companies and for demand for office space. After the boom, the early 2000s were dominated by streamlining and the desire of companies to make savings. However, supply was controlled and overproduction avoided. The fall in activity led directly to a fall in rental values. This, together with the gradual recovery of the economy, greatly encouraged opportunist demand (all the more significant as the ICC was having an increasing influence on on-going leases). It also provided the opportunity for many healthy companies to modernise their sites and to move in response to their growth needs. Cycle 2006 >? The "subprime" crisis, triggered in August 2007, brought about an unprecedented financial crisis. Major international banking groups found themselves in liquidation. The balance of the financial world was upset and an entire system was called into question. This event caused a domino effect and an economic crisis ensued of which we do not yet know all the implications. Freezing of credit had direct repercussions on the real estate market, first and foremost on investment. The occupier market found itself increasingly affected by growing concern and the gradual economic slowdown. As a result, as in any bearish phase, demand slowed down, supply increased and rents fell. Immostat was created in 2001 with the purpose of improving the transparency of the market in a context of growing professionalisation of tools and stakeholders. The decline in the take-up cycle lasted for 2 years. The downswing has already lasted 2 years 2009 CB Richard Ellis 11

14 OFFICES IN ILE-DE-FRANCE COMPARATIVE TRENDS IN TAKE-UP AND AVERAGE RENT IN THE ILE-DE-FRANCE (+ LINEAR TRENDS) Take-up base 100 = 1991 Linear take-up trend Average rent base 100 = 1991 Linear rent trend Sources: CB Richard Ellis and Immostat Observations / lessons learnt The cycles follow on from each other but are not the same. Every downturn in activity, every crisis is the result of underlying factors, endogenous or exogenous to the market itself. In the long term, take-up has continued to increase as have rental values. The low points of cycles over time are not as low as the previous ones and the high points are higher. Crisis periods show that there is a solid take-up. This take-up corresponds to the structural requirements of companies and is not directly linked to the economy. Rental values rise more rapidly than they fall. It is also interesting to note that the downswings in cycles are shorter than the upswings. This observation demonstrates the market s ability to react in hard times. The increase in the amount of property associated with the expansion of the service sector has had an impact on transactions completed, which have become more consistent, on a market which has developed, organised itself and become more professional. Its absorption capacity has increased. In good times, the market s absorption capacity is close to ~6% (take-up/stock). However, if the structural changes in the market have enabled gradual growth in the long term, there is probably an unknown maximum threshold which is yet to be confirmed, corresponding to a certain "maturity" of the market and depending on the country s growth capacity, the population, the number of companies set up, etc CB Richard Ellis

15 OUTLOOK 2009: CYCLE LOW POINT? As the months go by, the worse the economic outlook of analysts gets. The financing difficulties affect both businesses and households. Economic uncertainties are affecting the confidence of all agents. In their hesitancy, they are limiting the risk they take on and are making economic choices, either deferring spending or taking more drastic measures (redundancies), which, in fact, have repercussions for all links in the economic chain, making this crisis worse. Whatever the case, the outlook for worldwide growth is still vague and sometimes contradictory, complicating any forecasting activity. In early 2009, activity forecasting investigations in the Paris region revealed nothing to suggest an imminent recovery. The cash flow of companies is tight, order books and company director confidence are extremely low. Job cuts are again likely to affect the temporary employment and industry sectors. Due to the structure of the economy in the Paris region, the consequences of the economic and financial crisis in terms of employment are at present not as serious in the Ile-de-France as they are elsewhere in France. "The weighting of industry in means of production and the rate of recourse to temporary work are, indeed, lower in the Paris region than elsewhere in France" reads an INSEE document. In any case, activity in the Ile-de-France will largely remain below its potential in Turnover in the automotive industry could fall by 17%. A bleak situation is expected in intermediate goods and more specifically in metallurgy and transformation of metals. In market services, businessmen are banking more on a stabilisation of activity. The performance of temporary work and consultancy and advertising firms is expected to be particularly poor. In its annual report, the Banque de France states that in the Paris region, directors of SMEs appear calmer than the directors of large companies will confirm the slip in the Paris region office market. Companies will remain cautious and will keep a watchful eye on changes in the economic situation which will justify an adjustment of their strategies. Generally speaking, businesses will avoid making real estate decisions wherever possible. The rise in unemployment will be confirmed in direct connection with the slowdown of activity of companies which, going beyond putting a freeze on hiring, will have to make redundancies. As a result, these decisions will have a direct impact on office requirements. Premises that are currently occupied could become too large. In addition, companies will seek to optimise their sites by reducing the sq. m/workstation ratio, sometimes at the expense of employee comfort. Surplus space will be put on the market, oroffered to sub-let, furthermore freeing up cash in a period when margins are considerably tighter. Even if a new office rent index is currently being studied, it will not be adopted in the next few months. The ICC will continue to influence on-going leases and could generate some movement with a negative net absorption. However, companies will favour renegotiation of leases to avoid the costs involved with moving. What is more, some owners are even expected to take the initiative by suggesting it themselves so as not to lose their tenants and to limit the risk of vacancy of their building and benefit from values that are still high. Even if it is lower than that seen over the last 3 years, demand from major groups will always be present. These groups will press ahead with their real estate consolidation and streamlining strategies they started several months, or even years, ago. WORLDBUSINESSCLIMATE(BASE100= ) Source: Centre de Prévisions de l Expansion, December 2008 FORECASTS FOR THE FRENCH ECONOMY IN THE MEDIUM TERM Wolrd growth + 4.9% + 3.4% + 0.5% France GDP + 2.1% + 0.7% - 1.4% Household consuptiom + 2.5% + 1.3% + 0.5% Business investment + 7.3% + 1.5% - 4.1% Exports + 3.1% + 1.1% - 3.6% 3-month interest rate + 4.8% 3.8% 1.63% Treasury bonds (10 years) + 4.4% 3.7% 3.4% Inflation (annual average) + 1.5% + 2.8% + 1.5% Trade balance (in billion ) Sources: INSEE, Consensus Centre de Prévision de l'expansion (March 2009), FMI, Crédit Agricole KEY TRENDS OF THE ECONOMY IN THE ILE-DE-FRANCE Results Trends in turnover Industry - 1.4% - 6.5% Corporate market services + 5.9% - 0.3% Trends in overall workforce Industry - 3.2% - 1.7% Corporate market services - 3.1% - 1.2% Trends in investments Industry Corporate market services Source: Banque de France, February 2009 OFFICES IN ILE-DE-FRANCE 2009 CB Richard Ellis 13

16 OFFICES IN ILE-DE-FRANCE Finally, the desire to make savings will benefit the sectors in the inner suburbs which are a good cost/location alternative to Paris. We believe that the total take-up for 2009 will be between 1.6 and 1.9 million sq. m. Although the upper value is relatively optimistic, it is connected to the cycle analysis carried out previously (see graph on page 9), aligning itself in the long term. The more or less good volume will continue to depend on developments in the economic situation which will be a major determining factor in the attitude of occupiers. A fall in demand and a negative net absorption will, of course, contribute to an increase in supply. Thevacancy rate in the Paris region is therefore expected to increase to 6.5-7% by the end of The increase in supply in the short term will be the combined result of 2009 completions (work started in 2006 and 2007) and vacated space, particularly in Paris. The fall in rents will be confirmed in 2009 and certainly in Rents for prime locations are likely to fall significantly which will restart some activity by creating opportunities for some occupiers, particularly in Paris. Few owners anticipated the drop in rents in However, even the most hesitant among them should adapt to the market if they want to maintain a low vacancy rate in their buildings. Indeed, some asking rents, sometimes too expensive for the products offered (mainly in Paris), will experience significant drops (possible exceeding 25% compared to 2008). The gap between Parisian rents and suburban rents should remain wide enough to pick up this opportunist demand. As a result, the sectors in the Inner Rim will follow the bearish trend, but probably to a lesser extent. All in all, Parisian rents should gradually return to more consistent values in line with the products offered. Average rental values (quality space and intermediate location), like prime rents, will adapt sufficiently to the fall in the traditional business districts where rents had gone up disproportionately. While occupiers will be inclined to move to the suburbs, demand will not, however, be huge as overall demand is slowing down. Owners are expected to make efforts with regard to headline and economic values. Support measures will continue to increase and will, generally speaking, be more easily granted by owners, particularly if they are concerned about keeping a relatively high headline rent. Finally, the two factors determining the markets ability to weather the storm will be demand and the magnitude of future supply. If, for demand, the outlook is highly dependent on the economy in general, where supply is concerned, real estate stakeholders have a role to play. We will see exactly what this is. OUTLOOK BY BUSINESS SECTOR 2009 Industry and construction Variation / 2008 Food industries - 0.7% Consumer goods - 2.2% Cars % Capital goods - 3.0% Intermediate goods - 7.1% Energy + 0.4% Building and public works - 6.3% Services Variation / 2008 Telecommunications + 3.0% Insurance (damages) + 2.5% Computing activities + 2.2% Education and Health + 1.9% Advertising + 1.9% Operational services + 1.2% Consultancy and assistance + 0.5% Financial intermediation + 0.5% Real estate activity - 3.5% Temporary work - 5.0% 1 trend in production in volume 2 trend in turnover Sources: Xerfi (December 2008), Heuler Hermes SFAC (January 2009) CB Richard Ellis

17 Deciding factor: future supply With 1.7 million sq. m, definite future supply of more than 5,000 sq. m is stable compared to 1 st January This stability should, however, be further defined. The increase in renovated and second-hand properties (+110,000 sq. m, or +28%) makes up for the decrease in new or redeveloped properties (-105,000 sq. m, or -8%). Even if new speculative projects slowed at the start of 2008 and almost came to a stop at the end of the year, vacated space contributed to supply. Owners are preferring to take the renovation route, which is less expensive and therefore less risky than redeveloped, which at present involves a lot of administration and is difficult to finance. Probable supply is also stable compared to early 2008 in the Paris region totalling 2.4 million sq. m. Several projects ready to be started are, for the moment, on hold and are no longer included in definite supply. Furthermore, developers are showing a certain reluctance to start new projects and are holding out for better times. FUTURE SUPPLY > 5,000 SQ. M (In million sq. m) OFFICES IN ILE-DE-FRANCE As a result, on the whole, renewal of supply in the mid term will no longer be guaranteed. Paris Almost 200,000 sq. m of new property will be added to the Parisian stock. Almost all of these buildings will be completed in 2009 and They mainly involve redeveloped schemes on the left bank such as Carré Suffren, Tour Cristal, Tour Olivier de Serres or even the new Farman building. Renovated properties or properties in usable condition make up a significant portion of large-scale definite future supply (160,000 sq. m), particularly in the Central Business District. Probable supply stands at 270,000 sq. m of which just over 200,000 sq. m are new or redeveloped. This involves, amongst other things, buildings located in North Eastern Paris which today are very likely to be put off until a later date New/ redeveloped Definite Source: CB Richard Ellis 2010 Vacated in used state/renovated 2011 New/ redeveloped Probable 2012 and + Vacated in used state/renovated Finally, despite 630,000 sq. m of future supply of more than 5,000 sq. m, there will be no over-supply in the mid term in Paris itself, more so in the Central Business District as most of the supply is located in the rest of Paris and a significant part will be postponed. However, we must not overlook definite future supply of less than 5,000 sq. m which totalled 308,000 sq. m at 1 st January Indeed, this property segment has always driven much of the Parisian market. However, it is important to emphasise that, today, we are not aware of several potential vacated spaces. Even if it is difficult to measure to what extent, they should increase. La Défense With 230,000 sq. m at 1 st January 2009, definite future supply greater than 5,000 sq. m is limited in relation to constructed property and take-up seen over recent years. Furthermore, only 60,000 sq. m will be added to stock in 2009, with the rest scheduled for 2010 and beyond. And probable supply will not calm the market because even though it totals 271,000 sq. m, the first available property is not expected before 2010 (for the C1 tower which is only 8,000 sq. m) and given the current climate, most of it will be put back to a later date. GEOGRAPHIC BREAKDOWN OF FUTURE SUPPLY > 5,000 SQ. M (Definite and probable) Inner Rim 16% Western Crescent 22% La Défense 12% Source: CB Richard Ellis Outer Rim 34% Paris Centre West 6% Southern Paris 6% North Eastern Paris 4% 2009 CB Richard Ellis 15

18 OFFICES IN ILE-DE-FRANCE Western Crescent With 428,000 sq. m, definite future supply greater than 5,000 sq. m is on the increase compared to 1 st January 2008 (+9%) but is down on 1 st October This change is due to the increase in new and redeveloped supply. Speculative schemes remained adequate in the middle of the year and only slowed down at the end of the year. As a result, some completions will add to the market in the short term, particularly in Boulogne-Billancourt, Rueil Malmaison and Issy-les-Moulineaux (47%) and 483,000 sq. m of probable supply could also be added to the market (particularly in Boulogne-Billancourt, Issy-les-Moulineaux, Levallois-Perret and, to a lesser extent, in Gennevilliers and Colombes). They are essentially made up of new schemes with a high level of uncertainty regarding their completion date. Inner Rim Large-scale future supply stands at 647,000 sq. m, registering a 46% fall in one year. This significant fall is essentially due to the adjustment of new and redeveloped probable supply. There were many speculative project start-ups in the middle of the year (probable supply converted to definite supply) in line with completions (supply that became immediate) and the good level of marketing in 2008 which enabled some of this supply to be absorbed. Major projects were started in Saint-Denis where 38% of definite future supply is concentrated. 3 buildings (60,000 sq. m) are currently being built in Montreuil which will create supply in the Eastern Paris region. The breakdown of probable supply is relatively similar. Outer Rim Future supply greater than 5,000 sq. m totals 1.4 million sq. m, up 15% compared to 1 st January 2008 but still down 10% compared to 1 st October. The absorption of supply is difficult and restocking is likely to increase in Finally, the slowdown in new/restructured activity is recorded throughout the Ile-de-France. Even if during the year, buildings were started speculatively, things clearly slowed down in the 4 th quarter. As a result, supply will increase in the short term, at the rate of completions and vacated space and in line with the level of demand is sure to be a restocking period. On the other hand, in the mid term, the absence of new construction starts is likely to influence high-quality supply. This tension will push rents up once more, but this scenario remains to be seen, by 2011 at the earliest... INDICATOR OF MARKET PRESSURE ON IMMEDIATE AND FUTURE AVAILIBILITY Source: CB Richard Ellis Tension Balanced Fluid METHODOLOGY The indicator of market pressure corresponds to a ratio between the sum of probable and definite (immediate and future) supply and average annual take-up since The result of this calculation gives an indicator of the pressure on the market compared to the rate of takeup in each zone. It also gives an indication of future pressure. SYNTHESIS AND TRENDS 2009 Theorical letting period Potential for shock renewal Vacancy rate Rent ParisCentreWest Rapid Low Rest of Paris Average Low La Défense Rapid High Western Crescent Average High Northern Inner Rim Average High Southern Inner Rim Longer than average High Eastern Inner Rim Rapid Low Rest of Ile-de-France Longer than average High Source: CB Richard Ellis CB Richard Ellis

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