No-one would argue that France is still at the upper end of investors’ wish lists. So far this year, the signs are that the country’s real estate is back on track, even though, during the downturn, it never entirely came off the rails.
Investment volumes are up, bolstered by big-ticket deals involving institutional investors. Retail has so far led the way, and investment activity in the Paris office sector has been picking up.
“We are not at the end of the crisis, but we are more confident,” says Olivier Wigniolle, head of France at Allianz Real Estate. “France is a key market for us.”
Wigniolle says that Allianz Real Estate will spend around a third of the €2.5bn it has to spend globally this year on French real estate. Investors with less equity than the main buyers in the market can go to the banks, which are lending (see page 21). Leverage levels are now around 70%, and larger deals are more possible than they were 12 months ago.
But caution remains and lenders want as clear a picture as possible before coming to the table. WestImmo’s recruitment of a “property man”, former DTZ investment director Cyril Blanchet, implies vigilance on the part of the banks.
The outlook for French employment is mixed. Unemployment is expected to rise to around 10% by the end of this year and manufacturing and construction expected to feel the worst pain. Crucially, around 30,000 jobs are expected to be lost in the Île-de-France region this year, compared to 80,000 last year, according to data compiled by labour statistics bodies, Assedic-Unistatis and Pôle Emploi.
French retail has proved popular. Shopping centres have been changing hands and investors are clearly unconcerned by the threat of any further macro-economic wobbles. La Banque de France recently predicted GDP growth of 0.5% for the second quarter of this year.
For Paris offices, overall net absorption is unlikely. But there is large-scale tenant movement in the Paris region (see page 18), and this trend will force owners to be more competitive on rents.
Consolidation is a big factor behind the tenant movement, as companies opt for one address rather than four offices dotted around the Paris map. But consolidation is not affecting the super-safe central business district, where movement is largely internal.
Like all areas, rents there have fallen from their peak in 2008. Across the rest of the city and its surrounding sub-markets, new schemes with higher-quality space at attractive rents are enticing tenants. The financial district of La Défense is in a rut; its many tower redevelopment schemes are not due for completion until next year.
“There is demand from the telecommunications, energy and public sectors,” says Stephen Levine, a senior asset manager at Yxime. But the finance sector, an important tenant, is still far from showing any signs of expansion. Recovery is on the way, but it is taking its time.
