Main trends

The French economy has remained in an overall “state of convalescence” in 2014. The country is yet to experience even the moderate growth now underway in other major economies such as Britain, Germany or the USA . Instead, annual GDP growth has been only 0.4%, compared to the 0.8% forecast in early 2014.

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  •  Domestic consumption, long the primary engine of French economic growth, has been too low to provide enough impetus for any real upturn. Investment activity has still been generally subdued, reflecting a hesitant mentality on the part of most businesses due to the very fragile recovery. (A lack of confidence which, moreover, has only worsened during the year.) When combined with overall weak demand from emerging markets - or indeed, weak demand on a global level the year has provided few positives for the French economy.

 

  • Fortunately, indicators for 2015 look more auspicious. The positive effects of the Tax Credit for Competitiveness and Employment (CICE) and the French government’s Responsibility Pact should become more evident and, when combined with lower oil prices, should grant French companies -most of which have endured razor-thin margins of late - some hope of recovery in terms of business investment. Furthermore, some “relaxation” of monetary policy by means of quantitative easing (QE) by the ECB could more thoroughly mitigate the effects of the ongoing crisis. The expected fall in interest rates and a weaker Euro should also restore some competitiveness to French companies and could cause a slight growth in inflation, thereby reducing the French economy’s present debt burden. Economists are predicting stronger growth in 2015 of around 1%: a rate which would be constrained by a still very restrictive fiscal policy. It looks likely that it will only be in 2016 at the earliest that one can hope for a moredynamic economy to boost job creation.

 

  • The Ile-de-France region has fared better than the national average. Employment increased by 0.2%: a 1.6% rise from its 2009 low-point according to CROCIS. This has allowed for a slight rebound in office market take-up, particularly from the private sector.

 

  •  The Ile de France rental market has seen take-up rise by 15%, with 2.15 million square meters being commercialized. While this may be considered satisfactory, these volumes are still below the historical average over the previous ten years. Nevertheless, the fundamentals regarding take-up are more encouraging than in 2011 and 2012. Large-surface commercialization activity has returned both to growth and to its historical role as the primary driver for the overall Ile-de-France office market. This has been mainly due to a sharp recovery in take-up from the private sector. Moreover, take-up in the smalland medium-surface markets has been more robust than had been widely predicted, given economic conditions in general, especially in the fourth quarter of 2014. This would suggest a more positive outlook overall on the part of business leaders, reflected in their willingness to take more risks regarding their relocation choices.

 

  •  Despite satisfactory performance levels regarding take-up, the vacancy rate rose slightly in 2014. This has been especially evident in most of the outlying suburbs, but not in the East District or in the Paris Secondary Business Districts. However, this trend should be short-lived, with levels of supply deliverable or vacatable within one year being on a downward trend (-12%).
  • While supply available within one year in the form of new and refurbished surfaces remains high, future levels will continue to decline. The intense degree o pre-letting seen in the past three years, combined with low levels of both investment and speculative financing, has led to a gradual drying up of future supply. This could well result in a severe shortage of new buildings in some areas, especially between 2016 and 2017, depending on the extent of the ongoing economic recovery.

 

  • The evolution of average headline rents is again disconnected from the general economic conditions. Headline rents for new buildings have fluctuated very little throughout the region since 2008, with the exception of the Paris CBD: the only submarket to have seen major adjustments in recent years. These adjustments have again been seen for economic
    rents, with owner-offered incentives becoming more common, especially in oversupplied submarkets and with asking values gradually returning, most notably in La Défense, to a closer level to values currently being agreed.

 

  • The investment market has been exceptionally dynamic. Investment volumes have risen by 41% over 2013, to €25 billion. As a result, 2014 has been the third-best year for the investment market since 1987.

 

  • The most noteworthy development has been the remarkable number of transactions valued at over €200 million. These have been exceptional for both portfolio and single-asset sales, together accounting for over 40% of overall investment volume for nonresidential real estate in France.

 

 

  • Offices and commercial properties have benefited most from investment growth, accounting for 87% of investment volume in 2014.

 

 

  • Geographically, investment focus has changed little from 2013. Paris - especially the Paris CBD - and regional French cities have gathered 60% of total investment influx.

 

 

  • Despite a still-dominant position on the part of investment funds and growth in their investment volumes, listed property companies, (SIIC or otherwise), along with SCPIs and private investors have regenerated the investment market in 2014 by greatly increasing their activity.

 

  • Prime yields in the office market have trended downwards throughout 2014, mainly due to a steady drop in bond yields, which intensified in late 2014due to the quantitative easing policies adopted by the European Central Bank. Despite lower prime yields, risk premiums have begun growing again, allowing theproperty market as a whole to maintain a competitive advantage over the bond market. The continuation of this easing of monetary policy in 2015 for at leastanother year should result in prime yields maintaining their downward trend