It’s a familiar pattern. When financial markets are in trouble, real estate booms and 2014 was a record year for French commercial real estate, ever the bread and butter of institutional real estate investors.
Nearly €24 billion was invested last year in commercial real estate (office, retail, logistics and industrial premises) an increase of 57% in just one year, according to estimates by real estate consultancy Cushman & Wakefield. €17 billion of this was in the Ile-de-France (Greater Paris), an increase of 53% on its own.
Yet France was not the only country which saw such increases. €206 billion was invested across Europe in 2014 according to C&W estimates, making it the third best year historically after 2006 and 2007 record (€275 billion).
The major player in the commercial category was office sector, where in Ile-de-France a total of €14.4 billion invested in 2014, the second largest market in Europe after London. On this performance, it is expected that 2015 could be the second best year in history as industry experts report that the current demand goes far beyond that of recent years.
Yet why are investors flocking to commercial real estate in France, especially when rents are dropping? The reason is the cost effective natures of commercial property compared to other risk-free investments. Compared to the running and maintenance costs of residential investments, the outlays are much smaller and the portfolios are easier to manage. Only a rise in interest rates could calm the property market and an interest rate rise is not on the cards, at least for the short term.
There is also more flexibility in lending. Banks are much happier lend much easier to investors buying commercial property. Especially since last year, as commercial tenants sign longer leases, have better financial backing and are therefore trustworthier.
The fact that 2 million square meters of office space were leased last year, 15% more than in 2013 has reassured sector professionals about the state of the market. Leasing activity however isn’t back to its previous levels. It has finally stopped falling, but remains below the average of the last ten years (2.2 million square meters leased annually).
Vendors expect more money to come from the Far East this year, perhaps China. In 2014, 66% of French investors were supplemented by 14% Europeans, 12% Americans and if 6% from the Middle East, of which only 2% were from Asia and none of China.