Market View Real Estate Markets

Transcription

CB RICHARD ELLIS
Market View
Real Estate Markets
ILE-DE-FRANCE / FRANCE
4th Quarter 2008
ECONOMIC CONTEXT
Pharmaceutics, aeronautics and space,
telecommunications and insurance will
remain healthy in 2009.
The French economy slowed down
considerably in 2008 and is unlikely to
avoid slipping into recession in 2009. The
first indicators available point to a recession
starting at the end of the 1st quarter 2009.
Yet despite the widespread loss of
confidence and visibility, France will
probably not be hit as hard as other major
powers.
Consumer spending will be weak in 2009.
The downturn in the job market will trigger a
significant rise in unemployment and limit
wage increases. Families are already
anticipating a deterioration in their situation
and consider it an inappropriate time to
make big purchases. The sudden drop in the
inflation rate, however, which is the only
positive feature of the economy, means that
consumer purchasing power will probably
not be squeezed in 2009. As a result,
average consumer spending should still rise
slightly during the year.
MAIN TRENDS
Investment France
Investment
Prime yields for offices
Office market Ile-de-France
Take-up
Immediate supply
Average rent
Industrial space
Ile-de-France
Take-up
Immediate supply
Average rent
Logistics France
Take-up
Immediate supply
Average rent
Retail
Prime yields for offices
Evolution / 4 Quarter 2007
th
In addition – despite a clear need for
upgrading, a government plan to boost the
economy and a fall in ECB rates – business
investment is expected to plunge as
deflationary expectations, lack of visibility
by entrepreneurs, blocked interbank
lending, and tougher credit conditions get
the upper hand. To make matters worse, the
amount of self-financing going on will
probably slow down as the cash flow
situation in many companies (especially
SMEs) deteriorates.
The trade deficit of France, which has been
getting worse for several years now, is
expected to reach an all-time high as a result
of falling demand worldwide.
Rescue packages for investment will have an
impact. Optimistic forecasters believe the
effects will be visible in the 2nd half of 2009.
But whatever the year’s results, any real
upturn will not be sustainable as long as
banks are restricting access to credit and are
still harbouring subprime loans.
The outlook for entrepreneurial activity in
secondary or tertiary sectors of the economy
literally collapsed at the end of 2008.
The sectors that will suffer the most will
probably be clothing-textiles, household
goods, car industry and temporary work.
KEY FIGURES
=
=
INVESTMENTS - FRANCE
Volume
Share of office
Share of French
Inter-investor sales
Prime yields
12.5 Bn€
79%
54%
57%
5.75%
OFFICES - ILE-DE-FRANCE
=
=
Transactions
Immediate supply
Definite future supply**
Probable future supply**
Average rent*
2,359,600 sq. m
2,745,000 sq. m
1,611,300 sq. m
2,666,900 sq. m
€322
LIGHT INDUSTRIAL SPACE AND WAREHOUSES - ILE-DE-FRANCE
Transactions
Immediate supply
Speculative projects
Semi-speculative projects
Rents*
1,124,000 sq. m
2,442,500 sq. m
167,300 sq. m
365,100 sq. m
€54 - 110
LOGISTICS - FRANCE
Transactions
Immediate supply
Speculative projects
Semi-speculative projects
Rents*
2,401,600 sq. m
2,296,500 sq. m
949,500 sq. m
3,069,300 sq. m
€35 - 54
Source: CB Richard Ellis and Immostat
* New, redeveloped or renovated premises, net/sq. m pa
** > 5,000 sq. m
© 2009 CB Richard Ellis, Inc.
Real estate Market View
THE INVESTMENT MARKET IN FRANCE
Investments in standard commercial real estate in France
(in billion €)
Three years of growth wiped out
French investments
In 2008, 12.5 billion euros were exchanged for standard
commercial real estate investments in France. As anticipated, the
volume of investment plunged to the one recorded in 2004.
Coming as the fall did after two years of all-time high investment
levels, it was a particularly brutal 55% drop.
The financial turmoil, into which we were dragged by the
subprime crisis and which has been worsening ever since, has
hammered the real estate market, a market where a much wider
range of financial mechanisms has been introduced in recent
years. Following a sudden slowdown at the start of 2008, the
distribution of credit has been virtually frozen since 15 September,
when Lehman Brothers collapsed. In addition, the hesitancy
displayed by real estate players in reaction to the market
turnaround was reinforced by the gradual deterioration in the
economy and the prospects of a downturn in the letting market.
Over the months, against such widespread depression, investors
have reduced their activity: 4.1 billion euros invested in the
1st quarter, 3 billion euros in the 2nd quarter, and 2.5 billion euros
in the 3rd quarter. As expected the last three months were slightly
more active due to some investors increasing their sales because
of refinancing difficulties, a need for cash, and a need to
compensate for depreciations to protect the distribution of
dividends.
Smaller and smaller transactions
Foreign investments
30
25
20
15
10
5
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
Sources: CB Richard Ellis and Immostat
Quarterly trends in investments in commercial real estate in France
(in billion €)
10
8
6
The nosedive in the volume of investment was partially due to the
increasing difficulty in financing transactions above a certain sum.
Borrowers have to inject a much higher percentage of their own
funds because banks have increased their equity requirements,
and leverage is limited to 65-70%. Banks are also more risk
averse so they are systematically working in partnership with other
banks to finance schemes exceeding 50 million euros. Thus
investments exceeding 100 million euros, which accounted for
more than 58% of the market in 2007, have dropped
substantially, and there has been no deal exceeding 250 million
euros. The market has therefore turned towards medium and,
above all, small transactions.
4
2
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08
Breakdown of investments by size of deals
4th Quarter 2008
(in volume)
Tighter credit conditions, already palpable at the start of the year,
became even tighter in autumn. The result is a sharper reduction
in the size of investments: the average investment was 28 million
euros in the 1st half, 26 million euros in the 3rd quarter and
21 million euros in the 4th quarter. Let’s remember that the average
transaction size in 2007 was 44 million. The market was therefore
split in two at the end of 2008. On the one hand it was frozen for
large transactions and, on the other, fairly fluid for small
transactions.
The sale of portfolios, which benefited from a significant premium
the previous year because they offered large volumes of properties
in an under-supplied market, was directly affected by banking
2
> €100 M
35%
Between €50 and 100 M
23%
< €50 M
42%
(in volume)
Retail
Light industrial space /
warehouses
9%
12%
Premiums for offices
Offices
79%
Geographic breakdown of investments excluding indivisible multi-city portfolios
(in volume)
Provinces
Paris Centre West
26%
16%
Rest of Paris
7%
Outer Rim
Western Crescent
13%
19%
Inner Rim
8%
In warehouse and industrial markets, following the active
3rd quarter, investment activity has suffered because of the
withdrawal of multi-product investors who were very active on
the previous year’s market and because of the fall in the sale of
large portfolios, in particular portfolios of logistics space. However
with a 12% share of the market, the logistics segment still matches
the levels of investment in the segment of 2002, 2003 or 2007.
Similarly, the retail market, fuelled in 2007 by retail chains
outsourcing real estate and the sale of shopping centres, has been
penalised by the freeze on finance for large investments and the
lack of supply. It also suffered from troubles affecting SIIC property
companies; which tend to dominate this sector. The retail market
therefore slipped back to the percentage of investment it
represented in previous years before the one-off boom in 2007.
Breakdown of sales / acquisitions by type of investors
(in volume)
Occupiers
OPCIs
Privates
Developpers
SCPIs
Other institutional investors
Open-ended funds
Asset managers
Insurance companies
Investment funds
Property companies
Sales
Acquisitions
21%
19%
28%
16%
5%
3%
11%
14%
5%
0%
3%
5%
4%
3%
26%
1%
17%
15
10
5
0
5
10
15
20
25
30
In the provinces, where cyclical events tend to be buffered, the
slowdown took shape much later in the day and was less extreme
than in the Paris region. Approximately 3 billion euros were
invested in the provinces, representing 26% of investment volumes
excluding sales of portfolios where the locations are unknown, an
all-time percentage. But after a good first half when investment
continued at the rate seen at the start of 2007, mainly due to the
sale of schemes off plan, there was a significant decline in activity.
3
4th Quarter 2008
10%
1%
20
The market in La Défense collapsed, coming to a virtual standstill
at the end of the 1st quarter. By contrast, in the CBD of Paris, the
end of the year was slightly more active as the downturn in prices
made it more attractive. But whatever the slight variations,
investment slumped in both these business districts where 40% of
investment activity was concentrated in 2007. Peripheral markets
– the Inner Rim and especially the Western Crescent – are home
to quality office buildings at lower prices and have better
weathered the storm.
8%
0%
Source: CB Richard Ellis
Hardest impact for long-standing business districts
Market adjustments in Ile-de-France at the end of 2007 were
particularly severe. Only 8.5 billion euros of transactions took
place, compared to 20.3 billion in 2007. This is because the
areas with the highest valued properties and thus the largest
transaction amounts were the ones to feel the brunt of financing
difficulties.
25
In a context of risk aversion, investors have shied away from the
trend to diversify assets, returning to their old preference of office
buildings.
La Défense
11%
30
restrictions and the sudden reining back of investors’
diversification strategies. Portfolio sales grew scarcer as the year
progressed: 2.1 billion euros invested in the 1st half and 1.3 billion
euros in the 2nd half.
Breakdown of investments by type of products
French institutional investors return
Breakdown of buyers by nationality
At the start of the year, the slowdown in investment was clearly
due to mismatched supply and demand for inter-investor sales
because prices were falling. Investors were selling less, accounting
for only 46% of transactions in the 1st quarter when developers
and owner-occupiers were fuelling the market. Later, these types
of sales were affected by banking restrictions so the share of interinvestor sales rose again. At the end of the year this share had
returned to long-term trends. Institutional investors, in particular
insurance companies, were the first to start selling again followed
by property companies whose selling activity increased the most
towards the end of the year, illustrating their new debt reduction
strategies.
For buyers, more credit restrictions and higher credit costs have
greatly impacted investors who rely on leverage, and are the main
reason behind the market’s ill health. Investment funds that were
big players at the start of the year have since retreated, while
property companies are faced with the difficulty of finding equity
on the stock market, which reduces their investment capacity.
Institutional investors were not quite as exposed to restrictions on
debt levels because they have more funds; they accounted for
47% of investment. Investment trusts, or SCPIs, and, in the 1st half
of the year, open-ended funds were the most active. Note that
halfway through the year insurance companies started buying
again (previously they were net sellers) and OPCI investment trusts
gained market share at the end of 2008. As a result once again
the French dominated the market, most foreign investors having
left in the 2nd half (69% of investment was by domestic players).
(in volume)
French
North American
British
German
Other
60%
54%
50%
40%
30%
20%
17%
14%
11%
10%
4%
98
99
00
01
02
03
04
05
06
07
08
Comparative rate trends
(at period end)
Construction
Cost Index (Q3)
3-month Euribor
12%
Gouvernment
Prime office
bonds (10 years) yields CBD
10.46%
10%
8%
Outlook 2009
The year ahead does not look particularly rosy. If the number of
instructions underway at the start of the year is anything to go by,
a vacuum can be expected in the 1st quarter. The financial crisis
has drifted into a generalised economic crisis and the fears of
recession are already proving founded. The prospect of a
downturn in the French letting market that would precede a fall in
rents will not help improve the confidence of investors. Also, at
the start of the year banks and investors will be busy renegotiating
existing conditions of finance. Access to credit will probably not be
restored before half way through the year.
6%
5.75%
4%
3.51%
3.26%
2%
0%
-2%
98
99
00
01
02
03
04
05
06
07
08
Sources: CB Richard Ellis, Banque de France, INSEE
4th Quarter 2008
Nonetheless, these factors indicate that the lowest point of the
cycle is close. We believe that most of the rise in yields has taken
place. It is worth remembering that the overall rise in yields over
twelve months for prime offices was 200 basis points in some
sectors. In the CBD of Paris, prime yields are now between
5.75 and 6.25%, which is close to levels seen at the end of 2003.
This strong rise in yields has led to a better spread of yields in
comparison to financing costs, making real estate more attractive.
In addition, the slump is no longer a surprise and players have
accepted and integrated the degree of repricing going on. In the
1st half 2008, some sellers refused offers because they hoped to
get a better price, then were later forced to withdraw the asset
from the market or close the deal under even worse conditions. But
this situation is unlikely to be repeated. In 2009, there will be
opportunities to be had for investors with funds available. We
therefore predict an upturn in the volume of investment in the
2nd half at readjusted prices.
4
Prime yields at 1st January 2009
Offices Paris CBD
Offices La Défense
Offices Western Crescent
Offices Inner Rim
Offices Outer Rim
Offices Provinces
Logistics France
Light industrial space France
Industrial parks France
Retail France
Shopping centres France
Retail parks France
5.75% - 6.25%
6% - 6.75%
5.85% - 8%
6.75% - 9%
7% - 10%
6.85% - 8.25%
7.5% - 8.5%
8.5% - 9.5%
8% - 9%
5.25% - 9.5%
5% - 7%
6.15% - 9%
*NB: In the absence of prime transactions in some sectors, the figures were partly supplied by
market experts.
(in million sq. m)
Q1
Q2
Q3
The size and quality of demand slips
Q4
Although demand was relatively resistant to the deterioration in the
business climate during the first three quarters of 2008, it fell
considerably in the 4th quarter for all sizes of floor areas. In an
uncertain economic climate, companies that have the possibility of put
back their real estate projects until a later date are doing so, pending
a clearer view of their future. Enquiries that are being received for
space are often occupiers testing the market on the look out for an
opportunity. This fall in the amount and quality of demand is the
reflection of the underlying concern of business leaders and has
resulted in progressively longer turnaround times for transactions.
3.0
2.5
2.0
1.5
1.0
THE OFFICE MARKET IN ILE-DE-FRANCE
Trends in quarterly take-up in Ile-de-France
0.5
Take-up for 2008 satisfactory
2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: CB Richard Ellis / Immostat
Geographic breakdown of take-up in 2008
< 1,000 sq. m 1,000 - 5,000 sq. m > 5,000 sq. m Total
Paris Centre West
28%
17%
5%
16%
Southern Paris
10%
6%
2%
6%
North Eastern Paris
6%
6%
2%
4%
La Défense
3%
10%
18%
11%
Western Crescent
23%
25%
31%
27%
Inner Rim
11%
14%
26%
18%
Outer Rim
19%
22%
16%
18%
Breakdown of take-up by business sector in 2008
(> 1,000 sq. m)
Industrial sector
19%
Other services
6%
Public sector
9%
Real estate services
5%
Legal - Consultancy
9%
Communication - Creation
4%
Information technologies
8%
Some markets did however fare well in 2008. A few very large
transactions – including Société Générale’s own-account scheme in
Fontenay-sous-Bois – led to letting activity in the Eastern Inner Rim
multiplying by four. Letting activity also resisted in the Northern Inner
Rim and was at a satisfactory level in the Western Crescent, albeit
lower by 8%. It is worth noting that take-up in this sector was higher
than in Paris itself, a rare event indeed. This result confirmed our
forecast at the start of the year of demand shifting from the capital
to peripheral markets.
Companies in the banking and finance sector played a major role in
the Paris region market this year, accounting for 34% of take-up. They
were followed by industrial groups (19%), in particular high tech
industries.
The share of new or redeveloped space in take-up equalled 44%. The
interest shown by occupiers in good quality schemes has not
waned, in particular in periods when cutting costs is essential
because this type of building means the ratio of square metres per
workstation can be optimised.
5
4th Quarter 2008
Transports - Logistics
Distribution
6%
Banks / Insurance companies
34%
Despite a slowdown, take-up totalled almost 2.4 million sq. m in
2008. This level corresponds to a 14% fall on 2007’s figures, a
comparison to be taken with a pinch of salt because 2007 was a
particularly strong year. Although the 4th quarter is usually the most
active, it was not so in 2008, accounting for just 21% of the total, an
indication of what’s in store for 2009.
Transactions in the bracket for large units, above 5,000 sq. m,
were one of the essential sources of take-up, totalling 1 million sq. m
or 43% of the year’s volume. The share of pre-lettings and ownaccount schemes in this size bracket is 53%. Note that 5 transactions
of more than 40,000 sq. m greatly affected the market as they alone
totalled 275,000 sq. m. The market for small units
(below 1,000 sq. m) was stable and accounted for 31% of take-up.
Transactions for medium units, from 1,000 sq. m to 5,000 sq. m,
struggled due to the downturn in business activity accounting for 26%
of take-up compared to 32% in 2007.
Take-up in Paris was significantly lower, down 32% on 2007, with a
total of 597,000 sq. m. This trend was accentuated in Paris Centre
West where take-up was 40% lower than in 2007.
Immediate supply increasing
Trends in immediate supply in Ile-de-France
In a market where demand has been slowing down, immediate
supply saw a significant 9% rise in 3 months and 13% in a year.
(at period end - in million sq. m)
5
At 1st January 2009 supply of office space stood at
2.7 million sq. m. The vacancy rate in the Paris region stood at
4
5.4%. But this is still far from being a situation of over supply. Indeed
in some markets that are still under pressure, the increase offers
some respite.
3
2.75
2.42
The share of new and redeveloped space is 25% of immediate
supply, an increase on preceding quarters thanks to the completion
2
of a few developments including some in Paris on the Left Bank of
the Seine and in sub-markets around La Défense. However this rise
1
will not compensate for the lack of good value, quality properties.
Vacated space also contributed to supply increases. These units are
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
in second-hand condition and come on to the market progressively.
They do not always meet occupiers’ selection criteria. In general
Vacancy rate and breakdown of immediate supply at 1st January 2009
the range of offices available is fairly limited.
The vacancy rate in Paris has increased by 1 point, to 3.8% and
in Paris Centre West it exceeds 4.1%. Despite the rise, the market
is still relatively under pressure. The immediate supply in the
Western Crescent, where the vacancy rate is 8.2%, also increased,
notably due to new schemes in the vicinity of La Défense where the
vacancy rate is now 9.4%, and the Northern Bend of the Seine
where it is 12.7%. By contrast, the vacancy rate in La Défense is still
as low at 3.6% and 6 units of more than 5,000 immediately
available (including one new and one redeveloped scheme).
Future definite supply down and shifted to probable
supply
Vacancy rate*
Geographic
breakdown of
immediate supply
Share of new
or redeveloped
supply
Paris Centre West
4.1% 13%
34%
Southern Paris (5th ,6th ,7th , 12th , 13th ,
14th and 15th arrondissements)
3.1% 5%
25%
North Eastern Paris (3rd, 4th , 10th , 11th ,
18th , 19th and 20th arrondissements)
4% 4%
41%
Total Paris
3.8% 22%
33%
La Défense
3.6% 4%
30%
Western Crescent
8.2% 20%
19%
Norther Inner Rim
7.9% 6%
33%
Eastern Inner Rim
4.3% =
2%
32%
Southern Inner Rim
11.6% 8%
36%
Outer Rim
5.4% 38%
20%
Supply in the pipeline due on the market within a year totalled
Total Ile-de-France
5.4% 100%
25%
4.3 million sq. m at 1st January 2009. This is equal to a 3% fall in
* Trends compared to 1st January 2008
the last quarter but a 12% rise over the year. The quarterly
adjustment is due to the consumption of future office space in the 4th
quarter as well as the withdrawal from the market of some premises
for renovation or redevelopment.
At
1.6
million,
future
definite
Quarterly trends in future supply > 5,000 sq. m
(new, redeveloped and vacated - in million sq. m)
Definite
Probable
5
supply
in
units
above
5,000 sq. m fell by 15% on the preceding quarter’s results and by
4
4% year-on-year. This adjustment can be explained by the
completion of some schemes that fed immediate supply and due to
3
probable schemes that have been interrupted because finance was
4th Quarter 2008
impossible to find or the developers were being particularly cautious.
2
By contrast, probable schemes of more than 5,000 sq. m rose by
more than 6% on last quarter’s results and compared to 1st January
1
2008. They total 2.7 million sq. m. This rise is linked to
redevelopment and renovation projects (at the end of leases units
are refurbished before being put back on the market) in Paris and
new developments, in particular in the Western Crescent and in the
6
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
05 06 06 06 06 07 07 07 07 08 08 08 08
Outer Rim. We also believe more space will be vacated. Note that
(at period end, current € net / sq. m pa)
some new projects have more than ever a high chance of being put
back until a later date or of being abandoned altogether. Virtually
Average Prime*
Paris Centre West
Average Prime*
La Défense
Average Prime*
Western Crescent
Average Ile-de-France
(new, redeveloped and renovated)
all projects are on hold. They will be financed if and when the market
and financial context improve.
800
€716
Turnaround in average rental values
500
€478
400
€445
Rents held out for a few months with the average peaking in July
at €331 but the fall has since hit the entire Paris region. The
average rent for new, redeveloped or renovated premises stood at
€322 at 1st January 2009, or a 2% fall in 3 months and a 1.3%
fall over the year. In the second-hand market, the fall has been
gentler, and the average rent was virtually stable at €242 (a 0.3%
fall in 3 months and a 1.3% rise in the year).
700
600
€322
300
Trends in headline average rents
In Paris, rents had reached such high levels that the capital was
hit immediately. At €456 the average rent in Paris slid by 4.5% in
3 months and in the CBD it fell by 5% to €580.
200
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
* N.B. Since 2001, average prime rents correspond to the weighted average of the 10 highest
transactions in terms of rental values observed over the last six months involving floor areas of
500 sq. m or more.
Breakdown of transactions by rental bracket
2001
2002
2003
2004
2005
2006
2007
2008
50%
Other sub-markets adjoining Paris where rents had risen rapidly
have followed the same trend. For example in Neuilly-Levallois
average rents now stand at €425 compared to €443 a quarter
ago. This is due to the lack of premium products to rent and to
occupiers being more reticent to pay high values.
For the moment, some peripheral sectors are stable as they still
have good quality buildings at rents sufficiently below central
market rents to attract occupiers looking to cut overheads. In
addition, some landlords protect headline rental values even if it
means granting substantial rent-free periods.
40%
Premium buildings hardest hit by the drop
30%
La Défense and the Western Crescent saw their average prime values
fall. They dropped to €478 and €445 at 1st January 2009, which is
a fall of 12% and 2% in a quarter and 2% in a year. This evolution is
due to the lack of prime buildings available in the market and rent
adjustments on the few that are.
20%
10%
< €150
€150 - 300
€300 - 450
€450 - 600
> €600
Average weighted rents at 1st January 2009
Second-hand
€526 €422 Southern Paris
€422 €341 North Eastern Paris
€310 €262 La Défense
€480 €390 =
Western Crescent
€350 €248 Inner Rim
€257 €165 Outer Rim
€172 €115 Average Ile-de-France
€322 €243 Trends compared to 1st January 2008
Commercial incentives on the rise
There is clearly a trend for these incentives to rise, especially as
some landlords are very concerned about protecting headline
rents. The average rent-free period is now close to 2 months free
rent for each year of commitment to the lease, but this varies from
one sector to another.
7
4th Quarter 2008
New / redeveloped / renovated
Paris Centre West
At €716 the average rent for prime space in Paris Centre West
resisted well in the 2nd half of 2008 (up 3% on the preceding quarter)
but it was still 5% lower than at 1st January 2008. A few transactions
(mainly on small offices) at rents exceeding €800 pulled the average
upwards. This type of transaction (mainly on small offices) may be
seen from time to time on prime properties but will be the exception
to the rule. These values do, however, obscure commercial incentives
that are getting steadily bigger.
Outlook bleak for 2009
Future supply > 5,000 sq. m at 1st January 2009
The financial crisis and the slowdown in the economy will have the
(in million sq. m)
Definite
New/
Vacated in used
redeveloped
state/renovated
final say in the real estate market. The market was resilient in 2007
and even in 2008, but the signs of a downturn got progressively
stronger, especially in the 4th quarter, so a suspension in market
Probable
New/
Vacated in used
redeveloped
state/renovated
1.5
activity is probable for 2009.
Businesses will be more cautious than ever and very attentive to any
1.2
changes in the economy that justify a change in their strategy. The
payroll and real estate are the two biggest costs for most businesses
0.9
and are directly correlated to each other. Thus a freeze on hiring and
even redundancies will alter how much business space is needed,
0.6
generating moves but leading to negative absorption of space.
Companies will probably prefer to reorganise their use of existing
premises to avoid the expense of moving which could increase the
0.3
amount of sub-letting. The effect of the cost of construction index on
indexed rents may fuel demand but will also stimulate the
renegotiation of on-going leases. In general, occupiers that can
2009
2010
2011
2012 and +
afford to wait will probably opt to do so before going through with
Forecast activity in services
real estate projects.
(balances of responses from business leaders, rise minus fall, in %)
Businesses that have to move, for instance if they are regrouping or
reorganising, will want to optimise their sites. This is particularly true
for large groups which, despite the generally depressed environment,
20
15
will have serious requirements. The outcome of this trend will benefit
inner suburbs on the outskirts of Paris, where good quality products
are still available at reasonable rents. Simultaneously, the Parisian
10
5
market will be the first to be hit by the downturn in activity because
rents there are still too high. Businesses currently in the capital could
choose to quit their Paris address.
0
-5
We believe that total take-up in the Paris region for 2009 will be in a
range from 1.6 to 1.9 million sq. m.
-10
The slowdown in demand combined with negative absorption will
-15
2001
affect the immediate supply of space; this will continue to rise.
Speculative schemes started in the last few quarters will feed supply
2002
2003
2004
2005
2006
2007
2008
Source: INSEE, December 2008
in the short term after which supply will not be renewed because
virtually all developers have put a halt on starting new developments
French medium term economic outlook
4th Quarter 2008
because they don’t have the funds to do so and because the market
2007
2008
2009 (f)
is weak. Some vacated space may be redeveloped, however, before
World growth
+ 4.9%
+ 3.7%
+ 2.2%
being put back on the market, in anticipation of an improvement in the
GDP France
+ 2.2%
+ 0.8%
- 0.7%
market and as a way of increasing the value of assets. But this option
Household consumption
+ 2.5%
+ 0.9%
+ 0.4%
will depend, in particular, on financing conditions and on the extent
Investment by companies
+ 7.3%
+ 1.5%
- 3.1%
of letting risk. In the short and medium term, a situation of over-supply
Exports
+ 3.1%
+ 2.4%
-1.2%
is not on the agenda.
3-month interest rate
4.8%
3.8%
2.11%
10-year public bond rate
4.4%
3.7%
3.45%
Inflation (annual average)
+ 1.5%
+ 2.7%
+ 1.5%
enough to capture opportunist demand. Simultaneously commercial
Balance of trade
(in billion euros)
- 38.4
- 50.7
- 52.5
incentives will continue rising to facilitate transactions.
Sources: FMI, INSEE, Crédit Agricole (December 2008), Consensus Centre de Prévisions de l’Expansion (January 2009)
Headline values will continue falling in all geographic sectors. The
gap between rents in Paris and outlying markets should remain wide
8
(in thousand sq. m)
Light industrial space
Warehouses (< 10,000 sq. m)
1,500
In this section, the light industrial and small to medium (<10,000 sq. m)
warehouse markets in Ile-de-France are analysed together.
1,200
Transactions decline
Demand became more fragile as the year progressed. The level of
take-up for the year stood at 1,124,000 sq. m, equivalent to levels
seen prior to 2007.
This downward trend, resulting in a market-wide fall of 16%, was
particularly significant in the warehouse segment, which dropped by
32%. The 1,000 to 3,000 sq. m bracket was the most affected, falling
by 19%. The slowdown in the economy was responsible for the
change. In 2007 industrial firms took advantage of their expansion to
modernise their real estate. In 2008, firms entered a phase of
hesitancy and rationalisation so cutting costs became the main
motivation behind moves.
Breakdown of immediate supply in Ile-de-France
More than half of take-up took place between the A86 and the orbital
motorway, the “Francilienne”. This zone has a better selection of
good value properties than the area between Paris and the A86.
900
600
300
2003
2004
2005
2006
2007
Beyond the "Francilienne"
24%
2008
Intra A86
28%
THE LIGHT INDUSTRIAL AND WAREHOUSE
MARKET IN ILE-DE-FRANCE
Trends in take-up for light industrial and warehouse premises
In addition, one key feature of the market is the high proportion of
firms wishing to buy their premises, but the recent clamp down on
credit has forced these firms to rent space. In 2008 then, 72% of
transactions were leasing transactions compared to 68% in 2007.
Supply reacts well
Between A86
and the "Francilienne"
48%
Rents of light industrial space in Ile-de-France at 1st January 2009
(in € net/sq. m pa)
Geographic
area
North
West
South
New
Second-hand
Industrial space for SMEs
€70 / 110
€60 / 100
Service activities
N.S.
€85 / 120
€55 / 85
€40 / 65
€85 / 125
€60 / 90
Service activities
€135 / 160
€90 / 150
€70 / 95
€50 / 70
€65 / 110
€50 / 65
Service activities
€75 / 110
€60 / 75
€54 / 75
€38 / 50
€72 / 90
€55 / 72
Service activities
€80 / 105
€65 / 85
N.S.
€45 / 52
Future supply has thus dropped and the volume of speculative
projects totals 167,300 sq. m. These schemes are mainly in the
north of the Paris region where demand is the highest. Semispeculative developments have also dropped to stand at 365,100
sq. m at 1st January 2009.
Rents stable
Rental values were identical to those seen in recent quarters. There
are large disparities in different sub-markets depending on the local
supply of space, its quality and exact situation. However landlords
have been granting generous commercial incentives in new leases in
the form of rent-free periods or landlord-paid fit out works.
9
4th Quarter 2008
East
Product
Immediate supply remained stable throughout 2008; it stood at
2.4 million sq. m at 1st January 2009.
One of the reasons behind this trend is that uncertainty in the
economy is making businesses put off their real estate decisions
until a later date. Also the rate of new developments actually being
built slowed down considerably during 2008 (through lack of
finance or risk of letting voids). Thus the market responded
positively to the slowdown and no over-supply situation in the
medium term is likely. The vacancy rate will be close to theoretical
rates of good fluidity.
THE LOGISTICS MARKET IN FRANCE
Trends in national take-up
2008 was a turning point for the logistics market in France. Total
sales and lettings were good but were lower than in 2007 and
immediate supply rose significantly.
Ile-de-France
Regions
3,000
Demand active...
2008 closed with nationwide lettings and sales totalling 2.4 million
sq. m. This may be a fall of 8% on 2007’s level, but it is still a
substantial volume and is greater than volumes in 2005 and
2006.
The underlying concern behind all these transactions was a need
to optimise the flow of goods and modernise sites. This goal is the
result of industries outsourcing the distribution process to a greater
or lesser extent. The current economic climate is pushing
companies towards the outsourcing option as it lets them
concentrate on their core business and any fluctuations in their
markets.
The average transaction size fell again in 2008 to stand at 22,900
sq. m, compared to 24,000 sq. m in 2007. The bulk of take-up
was concentrated in the bracket of transactions from 20,000 to
50,000 sq. m. Transactions exceeding 50,000 sq. m totalled
425,000 sq. m.
It is no surprise that the north-south backbone still attracts the
majority of take-up in France with 1.8 million sq. m. For the
second year running, take-up in the Paris region fell compared to
the provinces to account for 15% of national take-up. The north
and the Rhône corridor were again home to many transactions,
totalling 548,000 sq. m and 556,000 sq. m respectively. This result
in the north can partially be explained by the signature of a
transaction of 110,000 sq. m in the Somme valley for the
consignor JJA. In the region of Marseille, the construction of a
135,000-sq. m logistics platform (own-account scheme) for Ikea in
Fos-sur-Mer meant the region’s take-up for the year outstripped
normal levels, totalling 262,000 sq. m or 58% more than in
2007. Take-up was also high in the Centre region with more than
200,000 sq. m of space changing hands.
Logisticians accounted for 47% of transactions in 2008, a slight
rise in share compared to preceding years. But this did not make
any real change to their market share parity with consignors.
Immediate supply rose significantly between end 2007 and end
2008. It stood at 2.3 million sq. m at 1st January 2009. The
increase was due to two factors. First the market was fuelled by
several speculative schemes that were completed at the end of
2007 and in 2008. The second factor is that the reorganisation
of some companies led to buildings being put back on the market.
Net absorption during such reorganisations is generally negative,
2,000
1,000
2000 2001 2002 2003 2004 2005 2006 2007 2008
Breakdown of transactions by size bracket
10,000 sq. m - 20,000 sq. m
10
20,000 sq. m - 50,000 sq. m
> 50,000 sq. m
60%
50%
40%
30%
20%
10%
2007
2008
Geographic breakdown of take-up in 2008
Ile-de-France
15%
Bourgogne
3%
…but supply rises
4th Quarter 2008
(in thousand sq. m)
Rhône corridor
23%
Greater South
11%
Greater East
23%
Greater North
9%
West
9%
Centre
6%
South West
6%
as newly let premises are usually more efficient and lead to a
reduction in the total occupied floor area.
(in sq. m, at period end)
Ile-de-France
Regions
The completion of several very large logistics platforms, such as
in Brie-Compte-Robert, where more than 100,000 sq. m were
completed in 2008, has made the Paris region the market with
the highest amount of available space. Immediately available
space in the region now totals slightly above a million sq. m.
Approximately 40% of this volume, however, is composed of outdated premises that cannot obtain operational licences and are
therefore difficult to let for modern logistics activities.
The available supply of space in the Rhône corridor stabilised at
517,700 sq. m at 1st January 2009.
2,500,000
2,000,000
1,500,000
1,000,000
500,000
2005
2006
2007
2008
Geographic breakdown of future supply in France
(in thousand sq. m)
Semi-spectulative schemes
Spectulative schemes
Finally, after a long period of under-supply, the north of France
saw immediate supply rise owing to the arrival of several new
schemes on the market. It now stands at 144,000 sq. m.
Faced with all the market’s incertitude, developers have cut back
on new building projects. Consequently 949,000 sq. m are
currently in the pipeline nationwide, whereas there were more
than 1.6 million sq. m in July.
As a result potential developments, ready to be developped, have
risen sharply. At 1st January 2009, 3.1 million sq. m of semispeculative schemes were identified in France compared to
2.1 million in July and 1.6 million end 2007. These potential
projects could become turnkey schemes or own-account schemes
depending on demand, but the majority will not be started
speculatively.
Greater
East
Greater
North
West
Centre
South
West
Greater
South
Rhône
corridor
Rental values widely stable
Bourgogne
Ile-deFrance
200
400
600
800
1,000
Headline rental values in France
(net/sq. m pa)
Lille
€40 / 45
Orléans
€40 / 48
Alsace
€45 / 54
Lyon / Marseille
€37 / 49
Take-up is expected to fall in 2009. There is still room for
improvement and for reducing costs in logistics chains, but
restructuring such networks is very costly and decisions may be put
back until a later date. Entry/exist points in France will no doubt
be key markets for logistics operators and local distribution is
likely to expand strongly. Local distributors tend to need smaller
warehouses – from 5,000 to 10,000 sq. m – near large
conurbations to make the final kilometres to the consumer.
Although immediate supply will probably continue to follow an
upward trend, it should stabilise at the end of 1st half of 2009 with
transactions taking place on existing buildings.
11
4th Quarter 2008
Aquitaine
€38 / 43
Generally speaking, rents remained at levels observed at the start of
2008. In some regions where supply is high, for example in Ile-deFrance, headline values have fallen or there has been a lot of pressure
on final rents after incentives. This relative stability of headline
values obscures the real rent once commercial incentives have
been integrated, as these are getting bigger, especially for projects
still to be constructed.
2009, a slowdown
Ile-de-France
€47 / 52
Reste France
€35 / 42
Trends in immediate supply in France
THE RETAIL MARKET IN FRANCE
Results for 2008 / Outlook 2009
In 2008, peaking inflation followed by the economic and financial crisis considerably
curbed consumption, with consumers cutting their spending in many areas in particular
clothing, household goods and dining out. In 2009, France may turn out to be one of the
major economies the least affected by the worldwide economic crisis: families in France
are less exposed to over-extended credit and have a clear preference for secure savings
products. In addition, job losses in the country have not been as brutal as elsewhere. In
a context where consumption has virtually stagnated one of the best ways a retailer group
can increase its turnover is to expand the number of its outlets, a strategy that will
adversely affect small retailers. Several sectors can still support an increase in the density
of retail networks and will be helped by a more lenient legal framework. Nevertheless
many retailers will have to grant bigger discounts if they are to attract more thrifty
shoppers. This will affect their profit margin and thus their capacity to pay high rents.
Indeed this theory seems to be validated by a significant deterioration in the cash flow
situation of retailers that was recently revealed by business surveys. While the recession
is flattening business in certain areas, such as luxury goods, the profit margins of some
major retailers are still satisfactory. Given the level of demand for good pitches in town
centres and shopping centres and the scarcity of such sites, a drop in rents for prime
locations is unlikely for the present. By contrast, in more fluid markets in peripheral
shopping zones (1a, n°2 sites), rents may fall.
RESEARCH
CONTACTS
Aurélie LEMOINE
Head of Resarch
Tel.: 33 (0) 1 53 64 36 35
[email protected]
Christelle BASTARD
Investments
Tel.: 33 (0) 1 53 64 37 30
[email protected]
Forecasts in consumption trends in 2009
1.0%
0.5%
Sabine ECHALIER
Offices Ile-de-France
Tel.: 33 (0) 1 53 64 37 04
[email protected]
0.0%
- 0.5%
- 1.0%
- 1.5%
- 2.0%
- 2.5%
- 3.0%
- 3.5%
France
Italy
Germany
Japan
UK
USA
Spain
Source: Crédit Agricole (December 2008)
4th Quarter 2008
Are reforms underway for urban planning in retail?
The LME law raised the threshold for requiring approval before opening a shop from 300
to 1,000 sq. m. In early January, a report was submitted to the French president, by the
MP Jean-Paul Charié, recommending an overhaul of regulations governing the opening
of new shops, including the removal of the floor area criterion altogether. The objective
is to put town planning in the centre of the retail siting procedure, to guarantee a better
retail balance between urban centres and give retail a key, structural role in the town. The
regional and national commissions CDAC and CNAC will be abolished. “Each
department will have an overseeing commission composed of local councillors, business
leaders, consumer groups, town planners and architects that will propose possible sites
for new shops” explained the MP. The law could be voted through parliament in 2009
and brought into force in early 2010. The government would like to move this project
forward quickly to avoid being sanctioned by the European Commission. To be continued.
Information herein has been obtained from sources believed reliable. While we do not doubt its accuracy, we make no guarantee, warranty of representation about
it. It is your responsibility to independently confirm its accuaracy and completeness. Any projections, opinions, assumptions or estimates used are for example only
and do not represent the future performance of the market. The reproduction of the whole or any part of this report is only authorised if its source is credited.
CB Richard Ellis Ressources - Groupement d'Intérêt Economique
Siège social : 145-151, rue de Courcelles 75017 PARIS - Siren : 412 352 817 - RCS Paris
Alexandre DASSONVILLE
Logistics, Light industrial
Tel.: 33 (0) 1 53 64 34 02
[email protected]
Edouard de LABOULAYE
Retails
Tel.: 33 (0) 1 53 64 33 45
[email protected]
Fax: 33 (0) 1 53 64 40 00

Market View Real Estate Markets

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