Limited debt slows French investment

The combination of the lack of available debt and the dislocation of expectations between buyers and sellers has resulted in first-half real estate investment volumes falling by more than half to EUR 10.2 bn in France.

International broker Savills said in a new report that many potential deals have been deadlocked as the parties have failed to agree on price. The situation has resulted in a substantial decrease in the number of large deals over EUR 100 mln.

'The French investment market saw a marked deceleration over the first nine months of 2008, with a particular dip in the Paris region, where the market has taken longer to adjust to re-pricing. This trend has however now begun to ease and we expect the gap in pricing expectations to reduce with the gradual recovery of investor's sales,' said Lydia Brissy, from Savills' European research team.

The report notes that French investors have reclaimed their dominant position within their market accounting for 52% of transactions, while German funds are also still active representing 14% of total investments. Norwegian investors have made a noted introduction into the French market, although there has been a distinct lack of activity from British and American investors.

Looking forward, the research predicts that higher risk premiums will cause further upward pressure on yields and the continued price instability will slow down negotiations with total investment turnover at the end of 2008 thought unlikely to exceed EUR 12 bn.

'We expect market activity to slowly recover during 2009, due to some investors being under the pressure of forced sales. But prices will remain under pressure and the stand-off in pricing expectations between buyers and sellers is likely to continue. Therefore, we anticipate the volume of investments in 2009 to range between EUR 12 bn and EUR 15 bn, remaining in the same scale as the levels achieved in 2004 and 2005,' Brissy added.