Despite continuing economic uncertainties, investment in the French real estate market during first nine months 2011 was surprisingly high. BNP Paribas reports a 32% increase in the French property market as compared with same period last year while Cushman & Wakefield reports a 43% surge to €9.9 bn.
Office investment activity remained high and the office investment volumes are expected to comfortably surpass the final figure for 2010. Domestic investors dominate the market, contributing significantly more capital and the focus remains on quality space in prime locations which are in low supply.
According to Cushman & Wakefield, with limited speculative development, the amount of Grade A office supply is likely to fall. This has helped to sustain demand and reduce supply levels; indeed, overall vacancy has been steadily declining since 2010 due to the continuous absorption of good-quality office space.
A few major deals have been completed during third quarter which helped to push the overall yearly performance ahead of 2010 levels. “Take up in 2011 really outperformed, and should be at 2008’s level, which was a remarkably good year” says Laurent Lehmann, deputy general manager, at CBRE France.
Accounting for nearly 20% of the French population and 30% of national GDP, Paris and the Ile de France account for more than two thirds of total property investment and keep providing most of the largest schemes. According to Cushman & Wakefield, out of the 297 transactions listed during the first three quarters of 2011 in France, 20 exceeded €100m of which 17 were located in the Paris region. Cushman & Wakefield’s European Cities Monitor still maintains Paris as the second most attractive city for investors to locate their European headquarters just behind London. In 2011, the level of take up in the Paris Region reached 2.35 million sq.
The only other French city to be listed in the 36 most attractive cities in the European Cities Monitor – Lyon – ranks 19th, with an improved perception of the quality of its infrastructure and of its supply of office space.
Still running second to the office sector, retail real estate sector is widely sought after by investors but total volume invested slowed during first nine months of 2011. The main reason is the slowdown in large-scale development in 2011. During that period the rhythm of openings remained low. However, 530,000 sq m of new or renovated retail space is planned for 2012 and CNCC lists more than 193 retail schemes proposed for France by 2016, representing 3.3 million additional sq m.
“Investor and retailer demand is increasingly focusing on quality schemes and there tends to be a lack in prime sites, mainly in Paris” says Chris Igwe, head of retail at CBRE. Hence, the attractiveness of prime locations in the provinces.
However, outlook for 2012 looks relatively calm. Tightened access to credit will lead investors toward prime risk-free opportunities. “More pitches, fewer deals” should summarize the 2012 forecast for France.