Abstract
The effects of the global financial crisis have been delayed in the French
real estate markets, but this
quarter, some downward trends are
materialising.
The average house price across France has begun to drop.
BMI figures, drawn from national statistical
agencies and independent
researchers, show a 5.7% year-on-year drop in Q309, compared with a 2.8%
year-on-year increase reported last quarter. Old apartments in Paris continue
to rise though, with a y-o-y
increase of 4% this quarter, compared with 5%
reported in Q209. With unemployment in France up to
7.8% and over 178,000
jobs lost in Q109 according to INSEE, and tight lending conditions
continuing,
we can expect depressed demand for housing.
Indications
from Q109 are that take up in the Paris office market will fall from almost
2,500,000sq m in
2008 to less than 500,000 this year, according to DTZ
Research. A downward correction in office rental
prices is expected in the
coming months. Although prime office rents in the Paris CBD were stable at
EUR820sq m/yr in Q109, according to DTZ, falls of over EUR100sq m/yr are
expected by mid-2010,
when pricing should bottom out. Incentives and
flexible lease options are being offered and demanded, as
landlords
attempt to retain tenants in an increasingly competitive environment.
Demand for industrial real estate is also down, but a key factor is emerging
in the market for large
warehouse space. Suppliers have recently begun to
focus on restructuring their logistics as a way of
cutting costs and
improving service. Mergers and acquisitions also necessitate integration
and
restructuring of logistic operations. King Sturge predict increased
consolidation in the third party
logistics sector, as companies outsource
their logistics.
Transaction volumes in the European real estate market
fell by 30% from Q408 to Q109, according to
DTZ. This level is down 80%
from the peak of Q207. Total investment volume in Europe has fallen
70%
y-o-y in Q109, with a 30% drop since the previous quarter. Investment in
France fell by 70% during
Q109 alone. According to Immostat, investment
levels for 2008 in Paris are down 59% from their peak
in 2007, with
EUR8.4bn invested, mainly by French institutional investors and German
funds.
Real estate investment activity is expected to remain subdued
across Europe in the coming months. The
sharp decline in values and rental
demand has left the pricing picture unclear, creating a stand-off
between
buyers and sellers. Liquidity can be expected to improve once yields stabilise
and once again
provide a sound basis for pricing. Knight Frank believe
that investors "are waiting to ascertain the
timing of the bottom of the
market before making any significant investments in Paris."
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