Ile-De-France shows signs of recovery: Savills

Savills' latest French office report indicates the Ile-de-France investment market showed small signs of recovery in H1 2009 with EUR 2.2 bn invested and reduced upward pressure on yields. However, the leasing markets are still showing signs of rental pressure as demand reached a new low.

The international real estate advisor said that investment volumes are still down 70% compared to H108 but have nevertheless been steadily rising throughout the year. The first quarter saw EUR 751 mln invested, which doubled in the second quarter to EUR 2.2 bn and the firm predicts the third quarter figures will rise to around EUR 3.9 bn, resulting in an end-of-year total of EUR 6 bn compared to EUR 8.09 bn in 2008. The report finds that investors are exercising extreme caution with increasing interest in products with strong rental guarantees. This interest has led to reduced yield pressure on prime assets with Golden Triangle offices sold at between 5.75% an 6.25%.

Herve Blanchet, head of Savills Paris, said: 'The activity in both the tenant and investor markets remain very low compared to 2008. Some signs of recovery are however perceptible this quarter, notably the prime segment.'

In terms of take-up, the Ile-de-France leasing market has seen companies use property costs as a lever for cost cutting which has led to rental value adjustments, tight budgets for real estate and a new low level of demand. Less than 415,000 m² of offices were transacted between April and June 2009, indicating take-up deterioration for the third consecutive quarter and a 27% drop in leasing when comparing H108 to H109. On 30 June 2009, office availability amounted to 3.2 million m2, reflecting an 8% rise in three months and a 6.4% vacancy rate compared to 5.13% for the previous year. Savills forecasts Ile-de-France vacancy by year-end will be 7.5%.

The decline in rental values, according to the research, became widespread to all sub-markets in Ile-de-France, with more marked falls in the suburbs. The average rent fell 2% from EUR 313 m2/year to EUR 308 m2/year and owners agreed to lower headline rents, albeit the amount of incentives stabilised. In comparison the Parisian CBD rents fell 25% over 12 months to EUR 606 m2/year.