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France Real Estate Report Q2 2011
Business Monitor International, March 2011, Pages: 55
France Real Estate Report Q2 2011 - In theory, a country where there has been over-supply of commercial real estate across all three subsectors, where commercial rents have been falling, where public sector expenditure is likely to be curtailed and where consumers are disinclined (and, in many cases, unable) to spend is one where the present and future is likely to be bleak.
However, our interviews with in-country sources in France over the last two years have consistently provided us with a much more encouraging picture than might reasonably have been expected. Following the latest round of interviews, which took place at the end of 2010, we remain cautiously optimistic. For a start, it is clear that rents have started to rise once more, after a period of softness in early to mid-2010. In most sub-sectors that we cover, rents have not yet recovered to the levels that were prevailing in 2009. However, the momentum is clearly upwards. Our in-country sources are looking for rents to move sideways or upwards through 2011 and 2012.
This tells us that the various protagonists in France's commercial real estate sector have worked adroitly to ensure that, broadly speaking, supply of new real estate has not run ahead of demand. In 2009, some of our in-country sources alluded to major new projects and developments as being a potential source of weakness for rents. By the end of 2010, the only sub-sectors where our sources identified over-supply of property were in Marseille: however, and as noted above, rising rents implied that demand for space had been picking up.
Yields have remained remarkably stable. For the most part, our in-country sources expect them to remain so. Capital values and rents must, by definition, be moving in parallel. We believe that this points to a strength of the French commercial real estate sector, which is its close integration with (global) financial markets. In part because of investment through pooled vehicles such as listed Real Estate Investment Trusts (which may well be domiciled outside France) and unlisted property funds, and in part because of the large pools of organised savings within the country (such as the enormous French life insurance companies), the market is relatively liquid and efficient. Over the forecast period, we anticipate that yields will continue to stay at or around the current levels.
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