FRANCE - French commercial real estate values recovered in 2010, helping to deliver double-digit total returns for investors, according to Investment Property Databank (IPD).

The IPD France Annual Property index, which reported a cumulative decline in French capital values by 12.7% during 2008 and 2009, recorded a rise in values of 4% and a total return of 10% for 2010.

While the recovering returns in 2010 remain below the levels seen before the downturn in 2008, the annualised total return over the three-year period was positive at 2.4%.

Income return saw a decline in 2010 of 30 basis points, partly offset by capital growth, while rental values continued to decline by 0.3%, although this was a shallower rate than 2009's 0.8%.

Among the 12 European commercial real estate markets released by IPD, the French annual index ranked third, behind the UK and Sweden.

Stéphanie Galiègue, managing director at IPD France & Southern Europe, said: "After two years of negative movements, the real estate sector in France has posted a strong recovery in values for 2010, following the trends seen in other European countries.

"Results, as with the rest of Europe, are very much location and asset-specific. Investors are showing a preference for secure assets with good income, in a central and stable location.

"Thus we are starting to see the emergence of a two-tiered system, as demand for these assets increases their value, and the rest of the market lags behind."

The retail and office sectors delivered the highest returns for the year, at 11% and 9.9%, respectively.

This was driven largely by a significant turnaround in capital growth: retail increased by 4.7%, offices by 3.6%.

The industrial sector continued to underperform other sectors, with capital depreciation of 0.7%, though total return was still positive, at 6.8%.

Retail remained the strongest sector in the market over the long term, returning 3.8% over three years and 13.2% over 10.

In 2010, growth was driven by the performance of shopping centres, which saw capital appreciation of 5.1%, compared with other retail sub-sectors, which only saw an increase of 3.3%.

Offices, the largest sector in the market, saw a decline in capital values of 4.2% over three years, but returns varied by location and class of asset. Offices in the central business district of Paris saw total returns of 10.4% last year.

The residential sector recorded the highest capital growth at 6.3%, driven by large rental value growth of 1.8%.

Despite this, it only delivered a total return of 9.9%, due to a lower income return than the other sectors, at 3.4%.

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