For several months, the commercial property sector has been subjected to pressure from two directions. On the one hand, a scenario of lacklustre growth seems certain in the short term, with a negative employment growth trend and weak consumer spending as its corollary. On the other, the financial market situation remains turbulent with, in particular, a banking system convalescing amid major changes in regulatory constraints. Despite being avoided due to election timetables, the debt dilemma still constitutes a serious threat to the recovery outlook for the second half of 2012.
This dismal business climate is having an inevitable impact on the market for users of office space without, however, undermining the fundamentals. While the early trends in the Ile-de-France market indicate a weakening of demand in the small and mediumsized surface-area segment, major users have confirmed their property plans. The resilience of demand for large buildings is, moreover, not specific to Ile-de-France but involves the whole country. Regardless of the economic situation, companies are giving ever greater thought to their property needs, property being the number two item of expenditure after payroll. This momentum can only be supported by the emergence in the long term of a supply of quality-approved offices adapted to user requirements.
However, and it’s here that the “financial side” meets “reality”, financing for risky ventures has dried up and tremendous caution on the part of investors has translated into a slowdown in the process of renewing office stock. The supply of new buildings currently available and under development is therefore estimated to be 1.4 million sqm, whereas the annual take-up of new buildings is over 700,000 sqm. These conditions are therefore favourable for developing properties “on spec”, provided that the project meets user expectations in terms of location, quality and value. These ventures, involving limited risk-taking, constitute one way to create value in the 12 to 18 months to come. The question of financing is highly relevant and the solution that 2012 will bring to this problem remains hard to decipher at the end of this first quarter.
Source : Keops-Colliers International