2016 FRENCH MARKET REPORT CORPORATE REAL ESTATE

Transcription

1 2016 FRENCH MARKET REPORT CORPORATE REAL ESTATE

2 2016 FRENCH MARKET REPORT PUBLICATION DIRECTOR VALÉRIE MELLUL PUBLICATION EDITOR ISABELLE ASSENS RESEARCH CLÉMENT BOUDOU CINDY EMOND LUCIE MATHIEU

3 EDITORIAL REAL ESTATE PROJECT KEY DATA PRIME YIELD BUSINESS DISTRICTS GRAND PARIS Dear customers and readers, At Nexity Conseil et Transaction, our ambition is clear and simple: we strive to support your commercial real estate projects. We put our expertise at your service, providing a bespoke analysis of your needs and developing appropriate action plans. Because a real estate project always drives performance and/or transformation, you have indicated the importance of clear, readily-available information on market data and trends. Our 2016 French Market Report aims to respond to this need. Some key figures: In 2015, 23 billion was invested in commercial real estate in France. Office space in the Ile-de-France represented 65% of this volume and was negotiated at a prime yield of 3.25%. It posted annual take-up of 2.2 million m², of which 45% was in Paris and 35% was in the Inner Western Suburbs. During our recent survey, which sought to identify your expectations with regard to research, you asked that we focus on key markets and on specific issues. Therefore, in this annual publication you will find: - maps and analyses covering the main business districts in Paris and Inner Suburbs, - detailed figures and highlights concerning the Outer Suburbs, - information about the major Grand Paris project, which offers a forward-looking view of the tertiary markets in the Ile-de-France, - a chapter devoted to logistics and light industrial premises. We hope that our 2016 Market Analysis will be a useful tool as you plan your future strategy. We would be happy to provide any further information you may require. Happy reading, Isabelle Assens, Head of Research Nexity Conseil et Transaction DATA AT END 2015 INVESTMENT IN FRANCE 23 BILLION PARIS REGION OFFICE TAKE-UP 2.2 MILLION M 2

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5 CONTENTS The economy and investment in corporate real estate 04 Real estate in its economic and financial environment 05 Investment in France Office property in the Ile-de-France region 10 Take-up 12 Transactions > 5,000 m² 14 Movements of large corporates 16 Rents 18 Supply 20 Future supply 21 Outlook for Map of Grand Paris Logistics and light industrial premises 25 Logistics in France 29 Light industrial premises in the Ile-de-France region Appendix 30 Terminology

6 2016 FRENCH MARKET REPORT 4 REAL ESTATE IN IT S ECONOMIC AND FINANCIAL ENVIRONMENT FRENCH GDP GROWTH (%) % Sources: INSEE, OFCE POSITIVE FACTORS OIL PRICE 37$ 1 NEGATIVE FACTOR. UNEMPLOYMENT RATE 10% 0.0% PER BARREL 1.1% YR GOV. BOND RATE 0.995% 2.0% 1.7% 2016 (p) 2017 (p) A SLUGGISH RECOVERY SHOULD GAIN TRACTION IN 2016 Like other European countries during the past year, France has benefited from low oil prices between $45 to $50 per barrel, which have continued to decline in early 2016, a /$ exchange rate at barely 1.1, historically low credit costs due to quantitative easing, and less restrictive budgetary policies. The ECB decision on 3 December 2015 to extend its monthly 60 billion liquidity injections to March 2017, bringing the total to 1,500 billion, will continue to stimulate the European economy. Nevertheless, French growth is sliding and inflation is stagnant ended with GDP up by only 0.2%, with 2015 forecasts currently at 1.1%. This growth level remains consistently below the euro zone as a whole (0.9% in 2014, 1.5% expected in 2015). Since the subprime crisis, the slowdown in accumulated investment in France has weighed on performance of the various economic actors. In spite of everything, 2016 should see a recovery, and rising business investment rates could approach 4% according to the OFCE (French Economic Observatory). The cost of capital remains attractive since interest rates remain especially low (10 year French government bond "OAT" at around 1% and 3 month Euribor negative at -0.13% at the end of December 2015), business margins have recovered since mid-2014, particularly due to the CICE scheme (tax credit to support employment competitiveness), and their business outlook is improving. This recovery scenario remains uncertain due to the volatility of outside factors as well as slowdowns related to both private and public debt reduction. Though France s commitments to external operations works against a rapid return to a balanced budget, the French economy should start to pick up steam in 2016, reaching 1% growth in GDP during the first half of the year according to INSEE, achieving 1.6% to 1.8% for the year, and perhaps 2% in The quarterly pace of GDP growth should swing between 0.4 and 0.6% and, as a result of this stabilisation, the public deficit should fall to 2.7% by 2017, versus 3.7% in Finally, the employment rate, which has remained above 10% in mainland France, should gradually decrease starting in 2016, in the best case reaching 9.4% at the end of Recent statements by the government should help restore balance to the employment market with 500,000 training opportunities intended to facilitate re-entry to the workplace, and measures to support employment with small and medium-sized businesses. Data at 31 December 2015

7 2016 FRENCH MARKET REPORT 5 INVESTMENT IN FRANCE INVESTMENT IN CORPORATE REAL ESTATE IN FRANCE ( BN) Total excl. giga-deals ILE-DE-FRANCE OFFICES: 65% OF 2015 VOLUMES 23 Giga-deals >1 Bn A HIGH-VOLUME MARKET 23 billion was invested in commercial property this year, a slight decline compared with the 25 billion committed during This amount represents approximately 1% of national GDP in 2015, and the French market - which is both deep and diversified - attracts both domestic and international buyers. On the whole, the past year held few surprises: the breakdown of commitments, whether by asset class, geographic region or transaction size, changed little compared with Mega-deals continue to dominate as in previous years, reducing the total number of transactions (480 transactions in 2015 compared with 500 in 2014). Certain trophy assets changed hands during 2015, such as a boutique on Avenue Montaigne which sold for a market value in excess of 100,000/m². In addition, portfolio sales, which are frequently pan- European in nature, boosted volume with 22 sales that included assets located in mainland France. These French assets included in these transactions had an estimated value of 6.5 billion. GECINA s consolidated purchase from IVANHOÉ CAMBRIDGE of the head offices of ENGIE in La Défense and of PSA at Avenue de la Grande Armée in Paris 16 th arrondissement was the only acquisition over 1 billion signed in 2015, contrasting with 3 massive deals during Despite a growing number of large transactions over the past 4 or 5 years, sales of such scale remain the exception. investment BREAKDOWN IN 2015 COMMITMENTS BY SEGMENT 20% 15% 19% 30% 16% < 50 M 50 to 100 M 100 to 200 M 200 to 500 M > 500 M NATIONALITY OF BUYERS IN % 10% 25% 70 TRANSACTIONS > 100 M: 2/3 OF 2015 VOLUMES ct.nexity.fr

8 2016 FRENCH MARKET REPORT 6 INVESTMENT IN FRANCE PORFOLIO SALES > 80 M IN FRANCE Bn Number CONTINUED SHORTAGE OF PROPERTIES ON THE MARKET Another notable trend over the past several years was accentuated in 2015: properties for sale on the market are scarce, with investors divided between the opportunity to realise capital gains and the challenges faced when allocating capital to new property acquisitions. Thus, in today s competitive market, more than 10 offers are often received for a single property, while a year ago sellers would have been pleased to receive five. Trophy assets and value-added products are especially impacted by the lack of supply. For highly sought-after core / core + assets, supply is increasingly diverse and buildings, which had not sold when put on the market in 2014, bolstered supply this year. Investors are also more frequently planning to sell their healthcare and hotel asset portfolios, which diversifies core supply while meeting the growing demand for managed property. PORTFOLIO SALES: 20 BN IN THE LAST 5 YEARS RESOUNDING SUCCESS OF SPECULATIVE OFF-PLAN DEVELOPMENTS (VEFA) Lethargic supply, combined with tenants preference for high-quality buildings, explains investor appetite for VEFAs (off-plan developments) in With 42 transactions totalling 3.1 billion, it was a record year marked by a rise in speculative sales, even though investors are assessing their risk on a case-by-case basis. In the Ile-de-France (IDF), 17 speculative transactions were identified, totalling 1.3 billion. Among the most emblematic is Smartside, a 40,350 m² project to be delivered in 2017, developed by NEXITY and sold to EDF INVEST. The Paris region is at the heart of current events, and the Grand Paris project has attracted interest: several blocks in the Clichy-Batignolles area, which is currently undergoing redevelopment, have found buyers. VEFAs, which have been limited to the Paris region to date, spread to other regions in These sales took place primarily in Lyon, Lille and Toulouse, and were sometimes speculative ("en blanc") or semi-speculative ("en gris") in nature. SELECTION OF OFF-PLAN SALES IN ILE-DE-FRANCE, REFLECTING PRIME YIELDS AROUND 6% Building City Surface area Price Buyer Seller SMART SIDE Clichy (92) 40,350 m² Confidential EDF INVEST NEXITY ÉLÉMENTS Paris 13 16,000 m² 140 M AVIVA INVESTORS VINCI IMMOBILIER LOT 07 Paris 17 24,200 m² 140 M CARDIF EMERIGE VIEW Paris 20 21,375 m² Confidential AMUNDI NEXITY / CRÉDIT AGRICOLE IMMOBILIER BERCY CRISTAL Paris 12 15,000 m² 125 M CNP ASSURANCES OGIC

9 2016 FRENCH MARKET REPORT 7 INVESTMENT IN FRANCE PRIME OFFICE RETURNS VS 10-YEAR FRENCH GOVERMENT BOND RATES year French government bond rates (OAT) Prime office yield in Paris CBD bps PRIME YIELDS CONTINUE TO FALL Prime yields for property dropped by approximately 20 basis points each quarter, ending 2015 at just above 3%. But the deflationary financial environment has allowed property assets to outperform once again. Even in the Paris central business district (CBD), where rates have never been so low, they remain more profitable than most other financial assets, which have borne the brunt of the decline in 10-year French government bonds (OAT), which has remained below the 1% barrier for many months. Lower yields in the Paris CBD tend to extend to all prime products. Thus, new office space in major regional cities or Class A logistics centres along the North-South axis were sold at 5%, "speculative" office sales in the Ile-de-France showed a 6% yield and mixed office and light industrial assets in cities like Montpellier posted yields between 6.5 and 7%. In a competitive market environment, even non-prime buildings - distressed assets - saw their yields stall this year. Thus, there has been an overall decline in yields, but this has not upset the rankings among products and locations. investment Sources : Nexity Conseil et Transaction, Banque de France 2015 PRIME OFFICE YIELDS IN ILE-DE-FRANCE Rest of Inner Suburbs 5,10 % Outer Suburbs 5,50 % Paris CBD 3,25 % Inner Western Suburbs 4,50 % Rest of Paris 4,25 % ct.nexity.fr

10 2016 FRENCH MARKET REPORT 8 INVESTMENT IN FRANCE NO PROPERTY BUBBLE ON THE HORIZON Faced with relentlessly falling prime yields, it makes sense to wonder whether a property bubble exists. Recall that in 2007, right before the subprime crisis that triggered a worldwide recession, Paris CBD posted a 3.6% prime yield. This previous record low has been beaten over the past several months. For all that, the current context is very different. First, the risk premium for property, which was negative in 2007, is currently 225 basis points above the 10-year OAT rate. In addition, inflow of liquidity supports the investment market, while in 2007, speculation about bank failures and the end of financing through commercial mortgage backed securities (CMBS) triggered a standstill in property acquisitions, which at the time were being made at loan to value (LTV) ratios above 80% compared with an average of 50 to 60% today. Finally, during 2007 many opportunistic investors purchased property without effectively assessing their risk. Today s purchasers avoid such pitfalls. Thus, at this time there is no property bubble in France. ACQUISITIONS DECORRELATED FROM THE LETTING MARKET On the other hand, a related issue concerns the decorrelation of market values and prime yields from the letting market. On the one hand, investors tend to pay a premium for buildings with more secure rent schedules, with long-term leases signed with first-rate tenants. In this regard, it is fair to say that there is a decorrelation between the investment market and the letting market. INCENTIVES: 20% Another significative investment deal: COVEA bought from La Française AM a 7,445 m 2 empty office building to be restructured in 8-10 rue du Renard, Paris 4 th. UPSIDE > DOWNSIDE But somewhat paradoxically, investors are reassured by rents which remain relatively low in France, since they see a potential upside that exceeds downside risk. In addition, with rent incentives close to 20% over several quarters, lessors are exhibiting deflationary behaviour with regard to rents, undertaking renegotiations and using general incentives to attract new tenants. Despite everything, this decorrelation appears relative, since the investors themselves are fostering certain trends in the letting market. In addition, some investors deliberately choose to acquire vacant Paris buildings, planning a vacancy period in which they will conduct a major redevelopment. As an exit strategy, they plan to re-let better-quality space at higher rents than could have been collected from an existing tenant. This type of strategy, followed only in central Paris, aims to achieve maximum value through yields. It favours property location over rent schedules, adhering to the mantra «location, location, location» which is frequently heard in the property market. Importantly, it carries no major risk, since demand for acquisitions is high and supply is scarce in the capital. "LOCATION, LOCATION, LOCATION" In the eyes of French buyers, growth in rents can be achieved within the scope of profitable urban projects, or by working the asset to develop a service offering. Interestingly, foreign investors see more potential growth in rents, while remaining cautious in the case of tenants in place and the potential for re-letting the building. In addition to their main strategy, which aims to maximize short-term gains, a growing number of buyers are simultaneously developing an alternative strategy of holding the asset, renovating it and returning it to the letting market at a higher rent. In this way, institutional investors become more agile, reflecting their confidence in the property market over the long-term as well as their ability to seize short to medium-term opportunities.

11 2016 FRENCH MARKET REPORT 9 INVESTMENT IN FRANCE VERY POSITIVE OUTLOOK FOR 2016 Economic forecasts indicate that both the ECB s key interest rate and interest rates across the euro zone will remain low throughout 2016, even though they will be under greater pressure than in 2015 following the 0.25% interest rate hike announced by the U.S. Federal Reserve on 16 December There has historically been a lag of around one year between interest rate hikes and rising property yields. Accordingly, next year should see prime yields stabilize in the second half of the year, following a potential decline over the 1 st half to 2.5%, as was seen in Asia. Sales of certain luxury boutiques in the capital city s top districts have already recorded prime yields below 3%. PRIME YIELDS IN PARIS < 3% Some investors believe that certain assets have become too expensive, while the potential for value creation remains speculative. But overall, commercial real estate combines all the conditions that will continue to attract significant capital from investors around the world. Their reasons are many: - To build a portfolio optimised for national investors acting on behalf of savers. A transfer is happening from low-earning life-insurance policies to SCPIs (private REITs), which offer a 4.5 to 5% return. Inflows from these specialised property investment vehicles have probably exceeded 3.5 billion in 2015, i.e. potentially 15% of volumes to be invested. - Opportunity for asset managers and estate agents to achieve capital gains over a very short period of time. - Protection against future oil revenue losses for Middle Eastern sovereign wealth funds, especially when COP21 has led to a universal agreement on climate change. - Overall expansionist strategy of Chinese and Asian investors. There are many reasons to purchase commercial property, and expected volume for 2016 should once again reach 20 to 25 billion. Year after year, France receives approximately 10% of European commitments, compared with 35% for the United Kingdom. While domestic stakeholders sometimes look toward the global international market, foreign investors continue to pay close attention to France. Paris was in second position for those wishing to diversify their European holdings, A 2016 YEAR BETWEEN 20 AND 25 BN proving its solid potential for growth despite genuine obstacles. Completion of property acquisitions remains a long and complicated process, while the tax increases planned for 2016 do nothing to remedy the situation. The market continues to be slowed by a shortage of supply, despite the ongoing disposal of asset portfolios by certain major institutional investors. French stakeholders are often limited by regulations that require minimum holding periods to optimise the tax consequences of an investment (5 years recommended for OPCI and SCPI property investment funds, 8 years for life insurance) and by liquidity thresholds that must be met by management companies. Thus, domestic investors have relatively long-term strategies which limit the properties likely to be placed on the market. With the official creation of 13 new regions in early 2016, certain urban areas such as Bordeaux, Toulouse, Lille and Strasbourg could attract a larger number of property investors. Other secondary cities may also emerge, which could replenish the market. The lack of depth in local markets continues to dissuade purchasers, but the explosive growth of the digital economy is transforming a large number of business models, no doubt leading some investors to adjust their selection criteria in investment ct.nexity.fr

12 2016 FRENCH MARKET REPORT 10 OFFICE TAKE-UP ILE-DE-FRANCE REGION OFFICE TAKE-UP (MILLIONS OF M²) % OF 1 ST -HAND OFFICES PROPORTION OF OWNER-OCCUPIER SALES (% OF M²) Sales 12% Lettings 88% TAKE-UP BY SEGMENT (MILLIONS OF M²) AN ASYMPTOTE AT 2.2 MILLION M² 2015 held a number of surprises, with activity in each quarter frequently out of sync with expectations. Following a lacklustre first quarter, the market revived during the 3 rd quarter, during the typically quiet summer season. This momentum continued into the 4 th quarter. In the end, annual take-up totalled 2.16 million m², just above the levels achieved in This performance seems somewhat weak considering the growth of GDP in France, which rose more sharply. However, the office space market often reacts to the economic environment 12 to 18 months after the fact, leading to hopes that the property cycle will remain buoyant in 2016 as the recovery builds steam. The lack of transactions of greater than 5,000 m² was the main obstacle for the market in With only 57 recorded transactions, they represent just 721,000 m² for the year, i.e. 33% of the market as a whole, a very meagre result. Note than in 2014, 64 transactions were posted totalling 852,700 m². Fortunately, transactions concerning medium-sized properties between 1,500 and 5,000 m² performed significantly better. These lettings correspond to a more diversified kind of tenant, no doubt better able to respond to a rapidly changing economic environment. In an effort to market vacant properties, owners tend to offer office space of over 5,000 m² for division, permitting these transactions to translate into highquality office space. The share of new, redeveloped offices remained at 33% followed by recent or renovated offices. The poor relation remains older office space in an average state of repair, which may take many months to market, especially if it is in an undesirable geographic location. The 2015 market was extremely biased towards more well-established business districts. The Paris CBD posted very healthy results, while other Parisian arrondissements were also very active. The Hauts-de-Seine also performed well, accounting for 37% of take-up despite a decline of some 60,000 m² compared with 2014 and the predictable under-performance of La Défense. Other communes in the Inner Western Suburbs only partially offset this decline. The market remained more lacklustre in the Inner Northern, Eastern and Southern Suburbs. In addition to lettings, a number of owner-occupier sales took place, especially in Paris, thanks to interest rates that are more attractive than ever. All in all, 50 more transactions were recorded than in 2014, with this thriving market providing effective support for take-up. 0 < 600 m to 1,500 m 2 1,500 to 5,000 m 2 > 5,000 m

13 2016 FRENCH MARKET REPORT 11 OFFICE TAKE-UP TAKE-UP BY DEPARTMENT (MILLIONS OF M²) A MORE AGILE MARKET Although market segmentation shifts from one year to the next, it is striking to note that during the past two years, take-up has trended toward an asymptote of between 2.1 and 2.2 million m². A number of dynamics are playing out, rebalancing both transaction size and geographic distribution, thus providing stability. After a decade marked by wide variations primarily concerning movements by major occupiers, the office space market in Ile-de-France has become more agile and flexible, primarily driven by the internet economy that has spread across all business sectors. offices Outer Suburbs ACTIVITY LEVELS (TAKE-UP/OFFICE STOCK) > 9 % 6 % to 9 % 3 % to 6 % < 3 % Gennevilliers Villeneuvela-Garenne Saint-Denis Colombes Rueil-Malmaison Nanterre Saint-Cloud Suresnes Sèvres Meudon Courbevoie Puteaux Bourgla-Reine Boulogne- Billancourt Neuillysur-Seine 16 th Bois- Colombes Asnièressur-Seine La Garenne- Colombes Clichy Levallois- Perret 15 th Issy-les Vanves Moulineaux Malakoff Clamart Le Plessis- Robinson Châtenay-Malabry Châtillon 17 th Sceaux 7 th Saint-Ouen 8 th 9 th 10 th 14th 6 th 2nd st 1 18 th 5 th 3 rd 4 th 13 th Montrouge Gentilly Le Kremlin- Arcueil Bicêtre Bagneux Fontenayaux-Roses Cachan Villejuif Aubervilliers 11 th 19 th Pantin Le Pré- St-Gervais Les Lilas 12 th 20 th Bagnolet Vitry-sur-Seine Alfortville Bobigny Noisyle-Sec Romainville St-Maurice Charentonle-Pont Ivrysur-Seine Maisons- Alfort Montreuil Vincennes St-Mandé Bois de Vincennes Créteil Bondy Fontenaysous-Bois L'Haÿles-Roses Nogentsur-Marne Joinville-le-Pont Villemomble Rosnysous-Bois Neuilly- Plaisance Le Perreux sur- Marne St-Maur-des-Fossés Champignysur-Marne Bonneuil- sur- Marne ct.nexity.fr

14 2016 FRENCH MARKET REPORT 12 TRANSACTIONS >5,000 M² TAKE-UP > 5,000 M² (MILLIONS OF M²) New and restructured offices NUMBER OF TRANSACTIONS > 5,000 M² ,000 to 10,000 m 2 10,000 to 20,000 m 2 > 20,000 m nd -hand offices 50% INDUSTRIES BANKING- INSURANCES ADMINISTRATIONS BREAK POINT IN was once again less auspicious than 2013 for transactions of greater than 5,000 m². The second half of the year was clearly more active than the first, but despite everything, transactions of this type were lacking. They numbered 57, an all-time low, and posted a smaller average size. No transaction exceeded 45,000 m² which is unusual, with overall take-up totalling 720,000 m², just one-third of the market. Over the course of the year, however, occupiers maintained the advantage during negotiations, which could lead to major transactions as the market continues to shift. Property management departments prefer to renegotiate leases in certain cases, sometimes before the end of the term, securing lease renewals with no new transaction. Built-to-suit office projects and pre-lettings, which were very active in 2014 (45%) fell this year to 35% of the market with 16 transactions. Major occupiers have no doubt pursued consolidation and cost savings during the previous years. For bank insurance institutions, industries and the civil service, these operational and spatial reorganisations are things of the past. However, because these three business sectors still hold one-half of the major accounts market, investors have resumed their speculative projects. They rely on the future ambitions of tenants, who often take positions in turnkey projects to be delivered at a later date. In this framework, there is a risk that excess supply over 5,000 m² already on the market will not shift, except in Paris. Indeed, occupiers are faced with a number of choices. By way of example, for its planned relocation to the Inner Northern or Eastern Suburbs, which will relaunch in early 2016, the Ile-de-France region studied two options: either undertake construction of new headquarters, or choose an existing building. Among the selection criteria, public transport service is vital when the quality and efficiency of the premises becomes again the decisive factor, even when faced with financial constraints. Relocation will automatically involve a move to an approved green building, since by definition all large new buildings meet the latest standards. COP21 is not expected to have much effect, since the real estate sector has anticipated climatic change relatively well. The only snag is that large companies, such as certain banks, have announced their intent to reduce the greenhouse gas emissions of properties they occupy, which could trigger a number of transactions starting from 2016.

15 2016 FRENCH MARKET REPORT 13 TRANSACTIONS >5,000 M² Transactions > 5,000 m² of which new and restructured offices Number Volume Change vs Number Volume Change vs Paris CBD 8 80,600 m² 6 51,500 m² offices Rest of Paris ,300 m² 6 110,500 m² La Défense 8 80,600 m² 5 46,800 m² Inner Western Suburbs excl. La Défense ,800 m² ,700 m² Seine-Saint-Denis 7 73,900 m² 5 61,700 m² Val-de-Marne 0 0 m² 0 0 m² Seine-et-Marne 1 14,000 m² 1 14,000 m² Yvelines 1 12,900 m² 1 12,900 m² Essonne 2 25,100 m² 0 0 m² Val-d'Oise 0 0 m² 0 0 m² Total Ile-de-France ,200 m² ,100 m² SELECTION OF TRANSACTIONS 1 DSAF ACCORHOTELS LA POSTE 4 9 Courbevoie 12 Pantin NOVARTIS OCDE 2 CHANEL VILLE DE MONTREUIL CARLSON WAGONLIT TRAVEL B2V Rueil-Malmaison 5 8 Boulogne- Billancourt 2 Issy-les- Moulineaux nd 1 st 7 th th 7 Montreuil 10 BLABLACAR.FR 11 INRIA 3 12 BNP PARIBAS ct.nexity.fr

16 2016 FRENCH MARKET REPORT 14 MOVEMENTS OF LARGE CORPORATES MAP OF MAIN MOVES BY LARGE USERS Val-d Oise 9,800 m² 5,400 m² 9,400 m² Hauts-de-Seine 840,800 m² 17,700 m² Paris CBD + 7 th 233,400 m² 116,700 m² 69,600 m² 63,600 m² Rest of Paris 135,400 m² Seine-Saint-Denis 104,900 m² 12,000 m² 76,600 m² 68,000 m² 6,500 m² Seine-et-Marne 20,700 m² 163,900 m² Yvelines 116,400 m² 28,100 m² 10,400 m² 5,800 m² Val-de-Marne 17,700 m² Essonne 46,300 m² METHODOLOGY: For the 170 transactions of greater than 5,000 m² of office space in the Ile-de-France region recorded between 2013 and 2015, we have studied the original department and destination department as well as the reasons for large user movements. valeurs Endogenous movements Exogenous movements DEFINITIONS: Endogenous movements: moves by companies within their original department. Exogenous movements: moves by companies choosing to leave their original department.

17 2016 FRENCH MARKET REPORT 15 MOVEMENTS OF LARGE CORPORATES REASONS FOR MOVES BY LARGE USERS 23% 6% 15% 53% % 3% ENDOGENOUS MOVES: 66% Consolidation Cost savings Extension Modernity Others FROM MOBILITY TO FLEXIBILITY IN THE MARKET The geographic distribution of transactions greater than 5,000 m² shows that Paris and the Inner Western Suburbs clearly dominated the market in Although more than half of transactions involved a move within the same department, 9 companies left Paris for Hauts-de- Seine (Neuilly-sur-Seine, La Défense, Issy-les-Moulineaux and Rueil- Malmaison), while 2 relocated to Seine-Saint-Denis. Many major occupiers are constantly pursuing financial optimisation, though not all of them. In addition to approximately ten expansions and relocations to next-generation buildings, some tenants are returning to desirable addresses that are consistent with their institutional image and desire to attract new talent. Paris has achieved a solid breakthrough this year. Scarce and expensive new supply has found success among new entrants. The best example of this trend is the letting of 9,500 m² in the #Cloud Paris building to BLABLACAR, located in the heart of the second arrondissement. This type of company, which transcends the start-up business model, is becoming a key player in the future tertiary market. The uberisation of the economy may have its limits, creating distorted competition for certain products or commercial services, but it also sparks the desire to take part in a dynamic economy and speeds innovation and transformation in businesses across a wide range of sectors. Many large companies are now questioning their working methods and the set-up of their offices. Beyond the campus-like feel that attracted them, tenants are rethinking their property as a way to create well-being and add value for their employees. ORANGE is testing new concepts at Villa Bonne Nouvelle, SOCIÉTÉ GÉNÉRALE is planning to operate as a flex office at Val de Fontenay, co-working spaces are targeting both independent workers and major groups such as AXA, which has let space from NEXITY in the Blue Office at Maisons-Laffitte. Within these "third spaces", interactions between employees of major companies and innovative start-ups, entrepreneurs and freelance professionals become a reality. Decision makers in rapidly growing companies are less susceptible to the implementation of long-term property development plans which do not suit their rapidly changing business. Both lessors and developers must adapt their supply in terms of office space and services, price and contractual flexibility to meet the changing needs of these occupiers. Beyond the financial issues, in today s real estate projects the concept of geographic mobility in the strictest sense has eased somewhat, while flexibility is driving a growing number of major moves. offices ct.nexity.fr

18 H H FRENCH MARKET REPORT 16 OFFICE RENTS AVERAGE 1 ST -HAND HEADLINE RENTS ( /M 2 /YEAR EXCL. TAXES AND CHARGES) H H H H H H H H H H Paris CBD Saint-Denis La Défense H H SQY / Outer Suburbs PRIME HEADLINE RENTS IN ILE-DE-FRANCE ( /M 2 /YEAR EXCL. TAXES AND CHARGES) Inner Western Suburbs 575 H H H H H H Boulogne-Billancourt Paris CBD 760 Inner Eastern Suburbs 275 Bois de Boulogne Rest of Paris 760 Inner Southern Suburbs 330 Inner Northern Suburbs 325 Bois de Vincennes Outer Suburbs 230 RENTS FOR NEW PROPERTIES APPROXIMATELY TEN DEALS SIGNED IN PARIS AT A RENT > 700/M² Take-up of new and redeveloped office space fell by approximately 20,000 m² compared with 2014, which was itself a disappointing year. Owners had to come to terms with weak demand, while one year supply approached 1.3 million m². Despite this observation, signs of a recovery emerged in The discrepancy between headline rents and net economic rents stopped growing wider. Owners were able to maintain their nominal value, while rent incentives, though high, were no longer rising: an average of 1.5 to 2 months of rent-free periods are granted per year of firm commitment, even though certain markets still require greater incentives of between 2.5 and 3 months. Following the budgetary restrictions of previous years, following a relatively over-supplied market, in 2015 some occupiers have taken positions in the best buildings within the most prestigious business districts, where supply is scarce. In the Paris CBD, there was a solid revival of transactions for rents in excess of 700/m², with about ten deals signed in 2015 versus only 2 during Substantial efforts by owners over the past two years have allowed the capital to rediscover its appeal. Tenants in the banking, consulting, luxury and internet sectors have chosen high-end buildings, both redeveloped and renovated. There is only a slight distinction between new and second hand buildings in Paris, so long as they both offer outstanding services. Prime rents for 2015 posted a slight increase, reaching 760/m². This positive trend has extended to the Inner Western Suburbs, excluding La Défense. Among the 12 contracts signed for new or redeveloped offices, 4 had a nominal value greater than 450/m². On the other hand, the rest of the Inner Suburbs posted a 26% drop in new take-up, which did not encourage a recovery in rental values. Finally, in the Outer Suburbs, take-up of new properties showed vitality with 20% growth in volume, primarily in Saint-Quentin-en-Yvelines and Marne-la- Vallée. However, rental values remain utterly stable in these areas, with prime rents having difficulty exceeding 220/m². PRIME RENT: 760/M²

19 Q FRENCH MARKET REPORT 17 OFFICE RENTS Department METHODOLOGY: Number of boroughs in the sample Representativeness of the sample (% of take-up in the department) Proportion of take-up in the Ile-de-France Paris 12 90% 38% Hauts-de-Seine 14 87% 31% Seine-Saint-Denis 6 71% 5% Val-de-Marne 6 70% 3% Yvelines 9 64% 3% Essonne 6 62% 2% Val-d Oise 4 72% 2% Seine-et-Marne 3 29% 1% Index of second-hand rents in Ile-de-France Nexity Conseil et Transaction Research Department has put together a rental index for the Ile-de-France region, based on headline rents for secondhand office space transactions. This quarterly index has been backdated to 01/01/2002. Its general principle consists in fixing the geographic breakdown of the sample so that locations of transactions from one quarter to the next do not influence changes in the index. RENTS FOR SECOND-HAND PROPERTIES: PRIORITY GIVEN TO QUALITY Following relative stabilisation at the start of the year, the second-hand rent index for the Ile-de-France gained 2 points during the second half of It ended the year at As with rents for new properties, the strength of Parisian take-up has led to a substantial rise in rents for second hand properties, as occupiers have generally preferred higher-quality premises. Within the capital, renovated office increased its share of take-up to 25%, while the secondhand rent index soared by 4 basis points in one year to reach This trend was reversed in the Inner Suburbs, where rental values fell slightly compared with the end of Renovated properties recorded a surprising drop, comprising just 40% of take-up in 2015, compared with over 60% in Very few large transactions were signed in the Inner Suburbs this year, which explains this trend to a large degree. Even for small and medium spaces, renovated offices found less favour, with take-up declining by 8%. Recent offices, offered at attractive rents, fared somewhat better. In the Outer Suburbs, any similarities between rents for new and second-hand properties ended. This latter index rose sharply to reach 106.1, as opposed to at the end of This reflected a 30% increase in take-up of renovated properties. Qualitative repositioning of supply through light renovation is often an effective strategy to let the abundant supply that exists within these territories. offices Creation of the sample More than 12 million m² of second-hand offices were transacted in 220 boroughs between 2006 and From these, we have selected 60 boroughs accounting for 85% of the transaction volume over the period. Take-up between 01/01/2006 and 31/12/2015 determines each borough s final weighting in the index. INDEX FOR 2 ND -HAND OFFICE RENTS IN THE ILE-DE-FRANCE REGION 150 Calculation of the index The average rent for the last six months of transactions is recorded for each borough once a quarter. A weighted average rent for the Ile-de-France region (see creation of the sample) is then calculated and converted to base 100 in Q If there are no transactions listed for the last six months, the average rent for the previous quarter is used Q Q Q Q Q Q Q Q Q Q Q Q Q Q Index for 2 nd -hand office rents CCI ct.nexity.fr

20 2016 FRENCH MARKET REPORT 18 OFFICE SUPPLY SUPPLY IN THE ILE-DE-FRANCE REGION (MILLIONS OF M²) Q SUPPLY BY AREA (MILLIONS OF M²) Paris Hauts-de-Seine Rest of Inner Suburbs 1995 Outer Suburbs Immediate supply One year supply TYPOLOGY OF ONE YEAR SUPPLY (MILLIONS OF M²) Q Q Q Q Q Q Q Q New and restructured offices 2 nd -hand offices Q Q Q Q Q A YEAR FOR RENOVATIONS Initial absorption of immediate supply was noted in 2015, with one year supply absorbed to a lesser degree. They returned to their 2013 levels, at 3.9 and 5.2 million m² respectively. Between 85% and 90% of the 5.5% decline in immediate supply was attributable to lettings. However, previously insignificant phenomena became more widespread: some supply was held back for renovation, or even withdrawn from the market or reconverted to housing or assisted living facilities, especially in the capital and the Inner Western Suburbs. One year supply was taken up more slowly due to several deliveries planned for In Paris, over 110,000 m² new and redeveloped properties will enter the market, following two buildings within the Quadrans development (46,000 m²) to be completed this year in the 15 th arrondissement. In Hauts-de Seine, where the D2 tower and a portion of the Majunga Tower in La Défense are vacant, a number offices under construction are expected for 2016, including 3 in Boulogne- Billancourt. In total, the additional 380,000 m² to be delivered in the next 12 months in Ile-de-France, combined with the 900,000 m² in immediately-available new office space should be enough to meet demand. Second-hand supply fell by 2% over a one year period. With the best renovated properties generating the most interest, certain opportunistic owners elected to undertake extensive work, and their buildings were temporarily removed from the supply. This includes Élysées La Défense, now known as Window, which will offer more than 40,000 m² of redeveloped office space in Another example, the Nieuport in Vélizy-Villacoublay will offer over 57,000 m² of renovated and certified office space in High-quality supply is constantly being renewed, even for offices of less than 5,000 m², where renovations are proceeding to achieve a new record of 863,000 m². On the other hand, vigorous take-up in Paris will result in a slight reduction of supply in the capital this year, from 1.4 million m² at the end of 2014 to 1.2 million at the end of This level does not begin to approach the Hauts-de-Seine, the department with the region s greatest supply at 2.1 million m². At the current rate of transactions, it will take nearly three years to fully market the inventory in the Inner Western Suburbs. Nevertheless, offices with greater than 5,000 m² available are relatively new, well-served by public transport and dividable by up to 80%, making high-quality space available to medium-sized businesses while accelerating the letting of these buildings. In the Outer Suburbs, where supply is up slightly, two-thirds of the space remains in an average state of repair. Reconversion to housing stock is generally too unprofitable for these assets. Some owners have elected to undertake less extensive works, and the number of renovated properties has risen by 8% over one year.

21 2016 FRENCH MARKET REPORT 19 OFFICE SUPPLY MARKETING PERIODS AND VACANCY (months) (%) MONTHS OF NEW SUPPLY IN STOCK After gradually climbing since 2007, immediate supply posted its first decline, with the Ile-de-France vacancy rate falling to 7.5% versus 7.9% at the end of last year. Nevertheless, the theoretical marketing period of the supply remained relatively stable at 23 months. In fact, take-up over the past 3 years, used to calculate this figure, has also declined, as the 2.3 million m² from 2012 is no longer part of this average. offices Marketinf periods (months) 2005 HAUTS-DE-SEINE: 3 YEARS TO MARKET 2010 Vacancy rate (%) CURRENTLY AVAIBLE OFFICE SPACE MAP OF SUPPLY IN BUSINESS DISTRICTS 16% Marketing periods in Ile-de-France = 23 months For new office space, supply rose incrementally while take-up declined. It will now take 15 months, compared with 14 months for last year, to let the supply of new and redeveloped office space. Despite everything, this market is more fluid, since it still takes 27 months to move older buildings in an average state of repair, notwithstanding the decline in immediatelyavailable second-hand properties. As usual, Parisian sectors have struck a balance, with a marketing period of the supply at less than one and a half years. The market fluidity threshold for the Paris CBD has become critical, with a vacancy rate of only 5% accompanied by strong demand. Supply in Eastern Paris is also tight, with a vacancy rate of just 2.3%, the lowest in the Ile-de-France. Beginning in 2017, deliveries in the Paris Rive Gauche ZAC (mixed development zone) will start to replenish supply. The region s highest vacancy rate reached 14.4.% in the Inner Southern Suburbs, specifically in Hauts-de-Seine South. This sector clearly lacks sufficient demand to take up its excess supply over the short to mediumterm. Péri-Défense and Hauts-de-Seine North could also find themselves in a similar position. The Inner Suburbs offer outstanding opportunities, while the Outer Suburbs have a lack of demand, which is at times significant. Periods to fully let supply which extend past 3 years shows how certain markets are poorly positioned for the long term. 14% 12% La Défense Péri-Défense Hauts-de-Seine Nord Inner Southern Suburbs 10% Rueil - Nanterre Boulogne - Issy Neuilly - Levallois 8% Inner Northern Suburbs Ile-de-France vacancy rate = 7.5 % Outer Suburbs 6% 4% Paris CBD Rest of Paris Inner Eastern Suburbs Dynamic markets Markets offering opportunities 2% Over-supplied markets 0% Markets with insufficient demand 0 months 10 months 20 months 30 months 40 months 50 months 60 months 70 months ct.nexity.fr

22 2016 FRENCH MARKET REPORT 20 FUTURE SUPPLY NEW AND RESTRUCTURED FUTURE SUPPLY >5,000 M² BY 2019 (MILLIONS OF M²) Immediate 2017 Certain 2018 Average take-up of new and restructured offices > 5,000 m² over 3 years 2019 Uncertain PARIS CBD: 12 CERTAIN PROJECTS BY 2018 METHODOLOGY: To calculate the absorption capacity of new supply, we have determined the level of immediate new supply and supply for delivery by 2019 for each area and compared it with average take-up of new and restructured offices in the last five years. In order to estimate new certain and uncertain production, our commercial teams reviewed supply and office projects potentially deliverable before the end of 2019, taking into account the following criteria: the project s progress (building permit, urban planning, investor financing, etc.), the vacancy rate, the area s dynamism, competitor projects and the operator s capacity for risktaking. A REPLENISHED MARKET IN LA DÉFENSE AND IN PARIS With nearly 800,000 m² available immediately, the supply of new space greater than 5,000 m² is more extensive than last year. The million m² barrier will be surpassed once buildings in progress are added to the mix during With an average of 550,000 m² taken up over the past three years, the market has a substantial surplus at the present time. Concerns about a lack of quality supply in certain established sectors has given way to renewed investor optimism and confidence. They are enjoying the benefits of a favourable environment and are less hesitant to launch speculative transactions. A number of certain projects - three-quarters of them new - have been identified for 2017 and This volume is almost equal to the amount of immediate supply, and will replenish a market which has shown a desire for new builds. Again, the most significant projects are taking place in La Défense and its surrounding areas, where over 300,000 m² are expected (of which 238,000 m² are certain), including 51,000 m² at the Alto tower and 45,000 m² at the Canopy building in Courbevoie. Despite record absorption in 2014, La Défense was able to replenish its high-quality building supply. In Paris in addition to 17 active transactions in the market for 2016, a number of significant projects will be delivered in 2017 and In the CBD, no less than 11 buildings will be launched, including major redevelopments, led by the newly-created Clichy-Batignolles district, where the first delivery will take place in early 2017 with the 20,000 m² Season building. Outside of the business district, the south of Paris has assembled a number of transactions, led by the Paris Rive Gauche ZAC (mixed development zone). This new supply will replenish a Parisian market with a relatively low vacancy rate and a clear desire for high-quality buildings. In the Inner Northern and Eastern Suburbs, immediate supply is just beginning to be absorbed, and the launch of future projects remains uncertain. However, nearly 100,000 m² with Universeine in Saint-Denis and the first tranche of City Seine in Ivry-sur-Seine are expected in 2018, provided that potential demand supports these large-scale projects. Supply remains uncertain in other sectors of the Ile-de-France, with over 300,000 m² of potential office space between 2017 and Area Take-up of 1 st -hand space > 5,000 m² from 2013 to 2015 Immediate and certain supply from 2016 to 2018 Breakdown of development with permission granted Absorption capacity of certain supply Paris CBD 167,100 m² 239,900 m² 34% 43% 23% 17 months Rest of Paris 317,700 m² 322,400 m² 39% 45% 16% 12 months La Défense 187,000 m² 238,100 m² 62% 38% 0% 15 months Inner Western Suburbs excl. La Défense 586,300 m² 944,800 m² 45% 39% 17% 19 months Rest of Inner Suburbs 228,000 m² 420,300 m² 31% 16% 52% 22 months Outer Suburbs 138,700 m² 190,400 m² 79% 14% 6% 16 months Total Ile-de-France 1,624,800 m² 2,355,900 m² 45% 34% 21% 17 months

23 2016 FRENCH MARKET REPORT 21 OUTLOOK FOR 2016 TENANTS AT THE HEIGHT OF DIGITAL TRANSFORMATION IN 2016/2017 A more sustained economic recovery as from 2016 should benefit employment, household consumption and corporate investment. Office occupiers are likely to have better visibility over their business in the short to medium term, following a lacklustre Some tenants, whose financial position remains uncertain should benefit from relatively low rents in 2016, enabling them to sign leases to buildings that better suit their needs before rental values again start to increase in the second half of the year. Because the market should gradually shift in favour of lessors, other occupants may be less able to renegotiate terms with their current landlords, leading to relocations. Other innovative and agile companies will change their location due to rising sales, an expanding workforce, or the desire to attract and/ or retain talent. Major occupiers will continue their consolidation, and could occasionally leap at opportunities. However, only the public sector appears to be planning large-scale movements, coordinated by France Domaine, with the goal of streamlining occupancy and property costs. Due to these favourable factors, annual take-up of office space in 2016 should reach 2.3 million m², following the strength recorded in With 2 million m² expected by the end of 2017, there will be an abundance of certain supply of new properties. In order to avoid obsolescence in the eyes of potential tenants, second-hand office space - which makes up three-quarters of supply - will continue to undergo more frequent renovations. During 2016, 45 to 50% of these products will be affected, versus scarcely one-third 10 years ago. Beyond these figures, all businesses, regardless of their size and activities, are currently adapting to new circumstances driven by the booming sharing economy. The growing power of start-ups shows that the Internet economy is becoming a driver of the future tertiary market in France. Alongside pioneering small and medium businesses, certain major web companies are currently taking up substantial office space, at times within pricey buildings in the heart of Paris. The profitability and sustainability of the digital sector is well-established and leads to highly promising forecasts. A profound transformation of the French economy is under way. The ever-present digital transformation extends far beyond web-based stakeholders. All tenants must adapt their property to the growing need for connectivity and flexibility. Many companies are preparing for their digital transformation, creating a new source of demand for the office market in the coming years. The impact of new working methods, innovative services such as WiFi, integrated into connected, intelligent buildings, teleworking and co-working spaces will gradually refashion the appearance of the Ile-de-France market. The influence of the Internet economy on office space in the Paris region is far more visible than the Grand Paris project. Although transport lines are slowly starting to take shape within a more reasonable time frame from the tenants point of view, new extensions of service expected in 2020 involve relatively few business districts in the Ile-de-France, except for the extension of metro lines 12 and 14 to meet junctions 13, 17 and 19 of the périphérique. Congestion will be relieved in the Inner Western Suburbs when the RER E connects La Défense to Gare Saint-Lazare, planned for Thus, it is still too early to see any positive effects on these market sectors with excess supply. Finally, in the Southern part of the Paris region, the tertiary market will develop along future metro line 15. But the completion date is further in the future (2025) and it is likely that these developments will be mixeduse business parks rather than pure office space, to work in collaboration with major research centres and universities near Cachan-Villejuif-Val de Bièvre and the Orly-Rungis economic hub. offices FORECAST FOR 2016: TAKE-UP 2.3 MILLION M 2 NET ECONOMY CO-WORKING DIGITAL TRANSPORTS 2020 ct.nexity.fr