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Inside the Market / Market Trends

Is French commercial real estate in a bubble?

La Defense

Government experts worry that the commercial real estate market is experiencing a high price bubble that may pop at any moment. Vacancy rates and significant supply must be monitored with increased “vigilance.”

France’s High Council for Financial Stability (HCSF) fears a “significant correction” of the commercial real estate market, calculating that prices may currently be overvalued by 15 to 20%, reaching up to 30% for certain segments of the market, such as Parisian office space.

The Council, which is attached to the French Finance Ministry, warns about the risk of explosion of what it perceives to be a commercial real estate bubble in France, due to inflated prices, declining yields, an fat too abundant supply and high vacancy rates.

This is despite most real estate professionals currently considering commercial real estate to be an attractive asset. Formerly known as the Council for Financial Regulation and Systemic Risk (COREFRIS), the HCSF is not usually known for conducting vocal attacks on the practices of the financial sector.

Nonetheless, it is calling for “vigilance,” especially towards actors in the sector who could “feed an overvaluation of prices” that would then lead to a significant price correction in the near future.

According to La Tribune, the French commercial real estate market does indeed present characteristics of “overheating.” Firstly, high prices mean that rental yields are deteriorating: of the five largest economies of the euro zone (Germany, Belgium, Spain and Italy), France’s commercial property market was the most profitable in 2005, but became the least profitable less than a decade later in 2014.

The vacancy rate in this sector is also significant. In Île-de-France for instance, this rate reaches 7.5% with 4 million square meters of commercial real estate lying vacant. According to the HCSF, there is a risk tied to developing an oversupply of commercial property.

The construction sector’s recovery, which began in 2015, has allowed for the overall offer to drop slightly, leading the HCSF to admit that while “at present, the supply and vacancy data do not support the emergence of an episode of oversupply in the domestic market,” the evolution of supply and vacancy rates in the sector must “remain subject to great vigilance.”

Enhanced vigilance is all the more necessary due to the abundant number of office construction projects emerging with the Grand Paris development.

Photo credit: Wikimedia / David Monniaux


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