Foreigners are clamouring for a place in the sun
Financial Times 3.10.07 by Ross Tieman
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Whether it be a pied-à-terre or a Paris office block, foreigners are buying France hand-over-fist.
Last year, foreign investors poured €12bn ($17bn) into the Paris office market, accounting for 63 per cent of turnover, by value.
Meanwhile, British, German and Dutch families have been buying up French holiday homes at a remarkable rate. No one knows quite how many homes in France are owned by foreigners - statistics are not collected.
But it is commonly estimated that 500,000 Britons alone own houses there.
Supposing the average price were €100,000, that would amount to a €50bn inflow into the French property market, spread over 20 or 30 years.
Many of these buyers settle permanently. Britons are now estimated to make up 1 per cent of the population in the Dordogne, for example. While 300,000 French citizens are estimated to live permanently in Britain, a similar number of Britons are believed to be resident in France, according to embassies in their respective capitals.
Though some settlers in France are retired, others launch businesses. David Sayers, a tax partner at Mazars, a leading French accountancy firm, says his clients include Britons running a hotel in Champagne, and a sportsman setting up a training centre for athletes.
Inward investment of this kind often turns conventional decision making on its head. Commercial and industrial investors seek market proximity or skills, and use climate as a final deciding factor in location decisions.
Lifestyle investors, by contrast, tend to acquire a property in a region where they want to live, then figure out how to make it pay. It is an entrepreneurial attitude that sometimes works out - and sometimes does not.
But the professional property investors who continue to pour large sums into the Paris market, and increasingly into provincial centres, do so for sound commercial reasons, says Olivier Gérard, head of investment at Cushman & Wakefield France.
Thanks to increasing transparency, market liquidity, and the adoption of professional tools by property professionals, investment in commercial, retail and distribution property has become far easier, and more certain. Property advisers, lawyers and banks have globalised, or formed networks, and the same firms can be used in markets globally.
"Before 1997, we had a market that was old-fashioned, where the investors were mainly individual institutions - banks, acquiring buildings, with a finger in the wind," says Mr Gérard. "Now, all the main global markets use Anglo-Saxon methods. Investors can measure the fundamentals of the market."
So individual investors, in France as elsewhere, have been supplemented by sophisticated property funds and professionals.
The Paris office market, benefiting from stability afforded by distribution of planning consents according to forecast demand, and a vast park of let properties, has become a top-three global investment destination, behind London, but possibly ahead of New York. With an estimated 50m sq metres of space, it is almost as big as the Tokyo market, but more liquid. Inflows of foreign investment have been gathering pace since the end of the 1990s.
In 2006, says Mr Gérard, total investment in the Paris office market was €19bn. Of that, less than half came from French investors. During the first half of 2007 the investment turnover in France was €15bn of which 37 per cent came from French institutions. North American companies and funds made up 28 per cent of the total, British investors 12 per cent and German investors were back, snapping up 11 per cent.
Spanish and Irish investors have become active over the past three years, each accounting for 3 per cent of the market in 2006. This year, attention in Paris property circles has focused upon the arrival of Australian investors, lead by two investment banks, Macquarie and Babcock & Brown, and Westfield Group, a leader in shopping malls.
Despite instability in credit markets, the Paris office market remains attractive. Prime rents have topped €800 per sq m, though the average is closer to half that. The vacancy rate is 5 per cent.
According to another firm of agents, Jones Lang Lasalle, yields during the first quarter this year were falling gently. In central Paris, they varied from 3.75 per cent to 4.25 per cent. In La Defense, a massive office complex west of the centre, the range was 4.25 per cent to 4.5 per cent, while on the slightly riskier periphery, they were typically 4.75 per cent to 5.25 per cent.
The pattern of rising yields, the further you are from Paris, may explain increasing activity by foreign property investors in the French regions.
A study in April this year by another firm of property agents, CB Richard Ellis, found that though total investment in regional business property during 2006 was only €3.2bn, yields were often attractive, averaging 6 per cent for prime properties, but occasionally exceeding 10 per cent. Recent office transactions offered yields of 8 to 8.75 per cent in Marseille, 6.9 to 7.3 per cent in Toulouse, and 8 to 9.5 per cent in Lille. Yields on regional distribution properties were typically higher. A regional break-down shows foreign investors are often remarkably active.
In Lille, 55 per cent of commercial property sales and 15 per cent of purchases were by Britons. In Lyon, Germans accounted for 11 per cent of purchases. In Nice, and its neighbouring high-tech town of Sofia Antipolis, German buyers accounted for 36 per cent of volume, whilst they also bought 26 per cent of the floor space traded in Toulouse, in the south-west.
Maybe the shrewdest move, for northern Europeans seeking a change in lifestyle and a place in the sun, would be to buy a provincial French office building and live in the caretaker's flat.
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