France Real Estate Report Q3 2012

The France Real Estate report examines the Commercial Office, Retail, Industrial and Construction segments throughout the country in the context of the hexagon’s new political direction.

Covering the entire country, with a data focus on the principal cities of Paris, Nice and Marseille, the report covers the rental market performance in terms of rates and yields over the past 18 months and examines how best to maximise returns in the commercial real estate market, while minimising investment risk and exploring the impact of the eurozone crisis on a market already characterised by relative stagnation.

In general, prevailing economic sentiment in France remains subdued as consumers cut spending in the face of slow growth, high unemployment and austerity measures. A US$25bn package of tax increases and spending cuts for 2012 and 2013 failed to defend France’s AAA credit rating, which was downgraded in January 2012 by Standard & Poor’s. As a result, despite certain bright spots such as high-end retail, we maintain a bearish outlook for France’s commercial real estate sector.

Key Points

Speculation that Hollande's victory will mark the beginning of a widespread rejection and reversal of austerity measures across the eurozone is exaggerated in our opinion. While we expect to see greater dialogue and debate over the role of growth-supportive measures, we believe that fiscal targets are likely to be respected for the time being.

Preparation for France's hosting of the UEFA Euro 2016 Football Championship will create new contracts and jobs in the construction sector, albeit not at a level comparable to that seen in Poland and Ukraine, where the 2012 games are being held. Overall, the sector should continue to report growth over our forecast period until 2021.

Private investment in construction is likely to increase, as austerity measures reach the infrastructure segment, and French firms are likely to look to their overseas clients in order to secure new contracts. Nonetheless, business ties between France and other countries, particularly Russia, should benefit French firms looking to boost their presence overseas.

We believe that with the French Socialist Party securing a parliamentary majority in elections on June 17, giving President Francois Hollande control of the French legislature, attention will now focus on the prospect of Germany backing a proposed EUR120bn 'growth pact' for Europe.