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The French Real Estate Market : Contrasting performance of the leasing and investment markets

Paris, January 7th 2014 -  Leasing market slumped in 2013 due to a penalising economic, tax and regulatory climate (down 25% in 12 months). With €11 billion invested in 2013, the investment market maintains its trend for dynamic growth

The figures published at the end of Q4 show that the same difference exists between leasing and investment market than for real economy and finance. On the one hand, we see a 0 growth for the French economy and a leasing market at its lowest, and on the other hand we see a rise of eighteen percent of the CAC fourty and a dynamic investment market.

The total take-up in the Paris region reaches one point eighty five million square meters at the end of twenty thirteen. It’s down by twenty five percent compared with twenty twelve.

This drop is mainly linked to the strong slow-down of the large-transaction-market and especially the turn-key transactions, where half-a-million square meters are missing compared with the previous year.
However, we can note for the first time since one year, the quarterly take-up has exceeded half-a-million square meter at Q4. This is a better sign for the market activity for the coming year.
In terms of supply, the overall vacancy rate reaches seven point five percent at the end of the year.
We still see very strong discrepancies between the various markets, especially between Paris under-supplied and the outskirts over-supplied for some of them. The rise of the vacancy is a direct result of existing buildings being vacated, while the ratio of available Grade A buildings remains low at 18% of the total.
Prime rents in the Paris CBD and La Défense remain stable at the end of the year. They respectively stand at seven hundred and ten Euros in the CBD and five hundred and thirty Euros in La Défense.
The figure for the take-up at Q4 can be perceived as an encouraging sign for twenty fourteen in a global context of recovery. Therefore, we anticipate a rise of the activity for the leasing market around 2 million square meters this year.”, explains Jacques Bagge Head of Agency in France.
At the end of twenty thirteen, the total investment volume for the Paris region reached eleven billion Euros, down by nine percent compared with the previous year. At such a level, the investment activity remains conform to its long term trend.
For the entire year a total of thirty large deals, above one hundred million Euros, were signed. The activity of this market segment is fairly the same than last year in number of transactions and in volume.
Overall, the investment market performance was solidly built on a perfectly balanced activity: the large transactions accounted for fifty one percent of the total investment volume versus fourty nine percent for the mid and small-size segment.
During the fourth quarter the cross-border activity rose with large deals signed by foreign players. 6 out of the 9 deals exceeding one hundred million euros were acquired by international investors, such as the biggest deal of the year: the sale of the Dock Lyonnais portfolio to Adia.
This demonstrates that the relatively lower ratio of foreign investment last year was more the result of a lack of products adapted to the foreign investors’ strategy than a disinterest for the Paris market”, explains Stephan von Barczy, Head of French Capital Markets Group.
We can also note that, given the strong appetite for the best products and the drop of the financing costs, the prime yields, for the best office locations have slightly dropped. The prime yield for Paris CBD is now at four point twenty five percent instead of four point fifty.
The anticipations for the investment market in two thousand fourteen are good given the large deals already under negotiation or identified. Consequently the total investment volume could exceed twelve billion Euros this year. On top of that, the appetite from international players for Paris remains strong, especially on those large deals under process.