OUTLOOK FRANCE: Gallic market continues to lag rest of Europe

The French economy continues to lag the rest of Europe and remains fragile, according to Ken Baccam, director research & strategy AEW Europe, France.

Speaking at PropertyEU's Outlook Briefing at the Paris office of law firm Taylor Wessing, Baccam said France would recover at a slower pace than other key markets in Europe. 'The impact will be more evident on the demand side, in terms of employment, consumption and trade.’

The main risk is the occupier, he added. ‘There is still risk on the tenant side. The supply side is very high compared to new demand.’ Baccam did note, however, that the low level of new office development in Paris in recent years is having a positive impact on the market. ‘And,’ he added, ‘France, together with Germany and the UK, remains one of the largest core markets in Europe.’

BNP Paribas is forecasting that economic growth in France will level off slightly next year to 1.4% from 1.5% in 2015. But this is still significantly higher than the 0.2% growth recorded in 2014, Richard Malle, head of research France, BNP Paribas Real Estate, told the briefing. ‘Low interest rates, low oil prices and the ECB’s quantitative easing policy have all been positive drivers since 2015.’

Financial opportunity rules
Economic growth may still be slow in France, but every market in Europe is experiencing low growth, countered Stephen Miles, managing director, EMEA capital markets at CBRE. ‘Relatively speaking France remains attractive. If you look at the fundamentals of the property market, it remains a supply constrained market. Vacancy levels in good new buildings is low. That will also impact on the tenant side of things, there is still potential to invest.’

Recent geopolitical events such as the threat of a Grexit, the European immigration crisis and more recently the terrorist attacks in Paris may be affecting investor sentiment but should not be overestimated, Miles said. ‘Investors read the headlines and are driven a little bit by sentiment, but they are also driven by financial opportunity. I don’t see there being an about-turn in activity. We are seeing a slowdown in Chinese activity, but that is really about the slowdown in China which is a different story.’

AEW Europe’s Baccam agreed. ‘Global investors have a take on events like the Ukraine conflict, Scotland’s plans to secede and separatist movements in Spain. It’s normal that they react to these things. But if you invest in real estate, you’re normally in for the long term. The UK, Germany and France remain core countries, investors can’t avoid these markets.’

Real estate investment in Europe for the first nine months of 2015 totalled a healthy €138 bn, Johannes Callet, partner at Taylor Wessing’s Berlin office, pointed out. ‘There are some concerns about sentiment and the fundamentals of the investment market. But growth in investment is also being driven by other factors. With government bond rates so low, there is no alternative investment. Investors are still slightly forced to invest in real estate.’