The French economy has shifted to a lower gear in 2018, with growth coming in at 1.5% y/y, compared to 2.3% y/y the year before. The cause of the slowdown is twofold. First, a contraction of industrial output and slower consumption – dampened by higher taxes and inflation – dragged economic activity down in H1 2018. Then the expected rebound in the second half of the year was cut short by the yellow vest protests. Domestic consumption will be key to growth in France in the years to come. The government’s new fiscal measures in response to the protests, including tax cuts for people on modest pensions, tax exemptions on overtime and a €100 boost to the minimum wage, will support healthy disposable income growth. Overall, economic growth is projected to continue in the coming years, at a pace of around 1.6% this year, and 1.4% in 2020.
Paris CBD remains one of the most expensive office markets in Europe and capital growth trends in recent years suggest that yields may experience an outward shift in the medium term. However, yield compression remains possible in the outskirts of Paris – particularly in those areas set to benefit from the ‘Grand Paris’ project. Indeed, rents here have been steady for many years, and there is potential for an uplift as we are still far from historic highs. It is this potential for future rental uplift which explains the city’s rise in recent rankings for best cities to invest in. Indeed, we can expect the investment going into the Grand Paris rail/metro expansion project and the 2024 Olympics to support development and rental growth in peripheral locations. According to Cushman & Wakefield, Stratford Office rents increased by 31% since the 2012 Olympic Games, above the City of London’s average of 23%. Can we expect similar levels of rental growth in Paris’ newly formed fringe locations in years to come? Only time will tell.
Source: CBRE Global Investors