16 luglio 2008

«The Paris Region rental market held up well … Despite turbulent financial markets and the economic uncertainty, the office market in Paris Region held up well, with take-up of 1.1 million sq. m over the past six months. Absorption contracted by 19% compared with the record high in the first half of 2007, mainly due to a steep fall in sales to users, accounting for only 7% of all transactions, compared with 15% in 2007. The rental market shows no sign of slowing, and office rental values are continuing to increase. Premium rents rose across almost all competitive markets excluding West Central Paris, which has no significant benchmark. Premium rents came close to €570 per sq. m in La Défense, €500 per sq. m in Boulogne-Billancourt and €325 per sq. m in Saint-Denis. Rental values for older buildings remained correlated to still-low vacancy rates. The K01 index of second hand rentals showed a general rise of 5.6% in the past six months (up by 3.8% in the first quarter and 1.8% in the second), with varying growth by market: the index rose by 4.6% for Paris and by 8% for the inner suburbs but fell by 0.7% for the outer suburbs. Take-up fell by two thirds for Paris and the central business district due to the economic
crisis. The shortage of major offers is at its most pronounced in this area. In contrast, marketed volumes virtually doubled in the outer suburbs, rising by 37% in Seine-Saint-Denis and Val-de-Marne.
The general ageing of property in Ile-de-France points to major development areas for the coming years: 60% of existing buildings date from before 1990 and have never been renovated. This proportion reaches 83% for office property in Paris. This is probably one of the reasons for the growing share of new and renovated buildings in transactions of more than 3,000 sq. m, accounting for 71% of the total in the past six months, versus 61% in the first half of 2007. As things stand, the supply is under control. At 4.7%, the vacancy rate remains below breakeven. Although immediate stock has moved up slightly, by around 6% since the start of the year, it still shows a sell-off period of only 11 months. The risk of overproduction looks well under control in the longer term: with several transactions having been put off, the supply of new property deliverable in 2009 should barely reach one million sq. m, a level perfectly in line with the market’s absorption capacity. But these figures disguise large geographic disparities: transactions such as the Tour T1, the B Building, the Pyramidion and City Défense have helped to reduce less-than-one-year stock in La Défense by half. In contrast, less-than-one-year stock in Seine-Saint-Denis has risen by 30% in six months, with an immediate vacancy rate currently close to 8%. Paris Region property has structural strong points:

Considerable diversity in its economic fabric;

A competitive office supply, with rents still lower than London’s;

Relatively short leases, making for a fluid market.

… and the French investment market fell sharply. However, this healthy rental market is not enough to sustain an investment market that has been hard hit by tightening credit. Commitments total €8.9bn, down by 41% in mainland France. Logically enough, assets with the lowest returns have recorded the steepest falls in volume. With total investment of €6bn, the Paris Region market is almost 50% lower than in
the first half of 2007. Inner Paris is down by almost 70% and Hauts-de-Seine by 40%. Conversely, regions with better-yielding assets show total investment of almost €3bn, fuelled by large-scale off-plan office transactions. These trends highlight investors’ tendency to opt for high returns, accepting the higher risk involved in a still reassuringly solid rental market. With the supply rising considerably, returns increased from 50 to 100 basis points since the start of the year.

Volumes of commitments in the second half year will depend on two factors: the ability of sellers to adapt to the market’s new values, and improved access to credit. Tight credit has so far heavily restricted the number of potential buyers. As targeted interest rates look set to level off, players flush with cash could return to a more attractive risk premium. It is possible to acquire property assets today at rates higher than 5% in Paris and 6% in the inner suburbs, and between 7% and 8% in the outer suburbs and the rest of France.

ABOUT KEOPS

KEOPS is a real-estate brokerage and consultancy company with an end-to-end, personalised, efficient and innovative offer of services to both users and owners seeking to rent, invest, sell, value or optimise property assets: offices – industrial premises - warehouses – logistical facilities - shops - hotels – building plots in Paris, Ile-de-France or the rest of the country. KEOPS has been a Nexity subsidiary since July 2007» (CS della Società).