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| Investors set Paris firmly in their sights International investors are set to target Paris as the search for good quality well let stock continues, according to Savills. The international real estate advisor reports a growth in investment activity in the French commercial market of 90% when comparing Q109 with Q209, and an increase in international investor activity from 34% to 48% (of total investment deals) across these quarters. In terms of buyers, Savills has seen an increase in German investor share from 14% of the market in 2008 to 20% of the market in H109 and predicts that there will be further demand from a wider international base. Giles Wilcox, Head of Savills European Cross Border Investment, says: "Nine out of ten investors we meet cite France as a top three target country, alongside UK and Germany. So far activity has been largely focused on the UK this year, and investors will remain active there but as competition hots up we expect increased activity in France." "Whilst we have not seen distressed sales to the extent that was anticipated, there is strong demand from clients with substantial equity asking us to identify opportunities where owners are under pressure from banks or specialist asset management is required by the banks. In addition to offices there is strong interest for the retail sector which has been far more resilient than the UK." Demand is such in Paris for office stock that Savills notes yields have moved in and this it puts down to supply and demand fundamentals. The sheer lack of stock in the market has seen investors who, at the beginning of the year, capped offers at 6%-6.5% for a single-let long-lease in a top location only six months later revise offers to 6%, or in exceptional cases below, and expand demand to acquire multi let properties in good locations with a longer income profile. Tristam Larder, Associate Director of Savills Investment in Paris, adds: "The highest prices are being achieved from investors who are prioritising their search for stock which is not over-rented - it's the newly regeared leases that are scarce but sought after. Vendors who have this product will reap the benefits in the last quarter as investors acquiring for the long term will take the view that securing the stock is worth more over time than buying at rock bottom." Savills Research notes that despite rental falls the French office market, due to a lesser weighting on financial tenants, is less volatile than some other European destinations. The office market saw a 25% decline in prime rents for Paris CBD from €761 per sq m (€70 per sq ft) in 2008 to €606 sq m (€56 sq ft) in 2009. During the same period, the average rent in the Ile-de-France had a much smaller decrease of only 2.2% from €315 sq m (€29 sq ft) to €308 sq m (€28 sq ft). Rents have remained relatively stable quarter on quarter in the retail and industrial markets although there has been downward pressure on values. The firm finds that rents for prime retail parks and prime shopping centres have stayed constant over the past 12 months from Q3 08. Lydia Brissy, Head of Savills Research in France, comments: "The Ille-de-France office vacancy rate is anticipated to continue to move upwards from 6.4% to around 7.5% into next year and alongside this we anticipate rental decreases but to a lesser extent than in the past year. We are however positive that Paris, due to its historic lack of volatility and lesser levels of over-geared investment deals, will make a strong recovery, remain the gateway to Europe and a focus for investors." The issue for landlords, warns Savills, is leases that are not newly regeared and therefore could incur significant rental falls if the French cost of construction index (ICC) regains positive territory quickly, as has occurred in the past. The implication of this is such that investors will be impacted by the '25% rule', which states that if a rent rises by 25% or more from the date of signature then the tenant has an automatic right to renegotiate the rent to market rent. Therefore investors who signed leases at the top of the market and profited well from the strong indexation in the first few years could be in danger of being required to renegotiate rents by 25% overnight if their property rental value has fallen dramatically. This emphasises investors strong demand for a property with a recently regeared lease or one that is not significantly over rented. write your comments about the article :: © 2009 Construction News :: home page |