French commercial property woes mount as investment plunges

THE decline in investments in French commercial real estate accelerated in the second quarter as concerns about the sector mount over the impact of soaring interest rates.

Total investor deals for properties including offices, retail space and warehouses dropped 61 per cent compared with a year earlier to 2.5 billion euros (S$3.67 billion), the lowest level in at least three years, according to a report from Immostat. 

This is the third quarterly decline in a row and compares with contractions of 35 per cent and 52 per cent in the previous two quarters. The data compiles transactions over 4 million euros from four brokers, including BNP Paribas Real Estate and Cushman & Wakefield.

Commercial property markets across Europe have seized as buyers and sellers struggle to agree on pricing. Rising interest rates have driven up borrowing costs, prompting potential property investors to demand higher yields. That results in lower offer prices, and owners are resisting granting steep discounts to book values on concerns that could cause debt ratios to surge. 

Investments in the Paris area also dropped 61 per cent to 1.8 billion euros, as prices continued to decline. The average office price in the region fell 9 per cent to 7,420 euros per square meter, its lowest level since the third quarter of 2019. 

In the region, the total floorspace of new sales or rentals of offices occupied by their buyers, also known as office take-up, fell 19 per cent to 421,000 square metres over the quarter. At the same time, the immediate supply of offices keeps growing, gaining 10 per cent from a year earlier to 4.5 million square metres. BLOOMBERG