French regional cities are enjoying robust growth compared with some of their larger European neighbours, according to new research from BNP Paribas Real Estate.
Lyon, Lille, Nantes and Bordeaux are outperforming a number of European cities, with the French regional office market as a whole experiencing 24% growth in the last 12 months.
'Office vacancy rates in the French regions are expected to be relatively low in the short to medium term, compared to most other cities,' said Guillaume Delattre, vice president of BNP Paribas Real Estate France. 'The level of returns expected in the French regions are fairly respectable compared to the European benchmark. As such, the risk/return profiles of the main French cities will be comparable to certain German markets such as Berlin, Munich, Cologne or Hamburg,' he explained.
In a research note, Delattre suggested that in terms of size, Lyon is comparable to Barcelona or Cologne, while Lille is comparable to Dublin or Rome.
'Most European markets have seen increases in take-up over the last 12 months, but they are not necessarily growing at the same pace,' added Delattre. 'All said, take-up is even 20% above the average of the last eight years and back to the level it was before the 2009 crisis. Only the markets of Central London, Frankfurt, Vienna, Manchester and Essen came in below this average.
'Interestingly, markets that are less than 300,000 m² are recovering more quickly from the crisis than the biggest markets at +25% compared to the 8-year average,' Delattre noted. 'Over the last 12 months, French regional markets have risen by 24% while growth of comparable markets in Europe is just 10%. This performance is thanks in particular to the outstanding trend in Lyon, Lille, Nantes and Bordeaux, which had a positive impact on prime rents.'
French regional rents trending upwards
According to BNP Paribas RE data, French regional prime rents have risen by an average of €21 per m2 compared to pre-crisis levels, while the biggest European markets have risen by an average of €9 and foreign regional markets have lost an average of €13 since 2008.
The regions are also performing respectably in terms of investment volumes, partiularly when compared to Europe's capitals.
'In the big cities, investment has increased by an average of 150%, led by Berlin (+260%), Madrid (+240%) and Düsseldorf (+200%). Yet once again, markets with less than 300,000 m² have shown more marked progress,' noted Delattre. 'The highest prime yields are in the French regions. They are generally between 5% and 6.5% (4.8% in Lyon). As for all cities, the trend has been downward since 2008, but the French regional cities have maintained a spread of between 50 and 100 basis points versus their European counterparts.'
Overall, Delattre suggested, technology is playing its part. 'The digital revolution is transforming the way we live and work. This trend and the efforts to make our cities smarter is not the only reason for the strong performance of our cities, but it is a big help.
'The ability of cities and their economies to reinvent themselves will therefore be a key factor for their future development,' Delattre concluded.
