Property investors fall in love with Paris

LONDON: Paris' commercial property market, home to the most office space after Tokyo, is emerging from its worst year for investment in at least a decade as falling prices revive demand from French insurers and German mutual funds.

An agreement to sell the 300 million-euro ($440 million) Triangle de l'Arche building in La Defense in July was the city's biggest deal in two years. Even before that, sales jumped 77 percent to 778 million euros in the second quarter from the first, the most in 21 months, according to Immostat, a venture formed by four of France's largest brokers.

Paris is attracting property investors, particularly cash buyers, after prices dropped as much as 40 percent in the past 20 months. Landlords in the prime central business districts near the Avenue des Champs-Elysees, the Opera house and La Defense can now expect rental income equal to 6 percent of building values or more, compared with about 4 percent at the end of 2007, Jones Lang LaSalle Inc estimates.

"The time has now come for us to re-enter the market," said Karl-Joseph Hermanns-Engel, a member of the management board at Hamburg-based Union Investment Real Estate AG, which has earmarked more than 300 million euros for purchases in France. "We made a conscious decision to refrain from investment during the phase of extremely high prices."

Hermanns-Engel declined to specify properties he's looking at in the Paris region, which has 50 million square meters of office space.

'Too low'

Union Investment is one of four German investors in talks to buy buildings in central Paris worth more than 100 million euros, according to brokers familiar with the situation. Spokesmen for Allianz Real Estate GmbH in Munich, and Deka Immobilien Investment GmbH and Commerz Real AG in Frankfurt also declined to comment on whether any acquisitions of that size are in the works.

Commerz Real said in August that it planned more Paris purchases after buying a building on Avenue Kleber for almost 33 million euros. The company said it paid 72 million euros to acquire a 16,400-square-meter office in Ivry-sur-Seine that is the headquarters of PPR SA's books and music retail unit, FNAC.

Allianz Real Estate Chief Executive Officer Olivier Piani said in an interview in June that he was in talks to buy a Paris office building for about 200 million euros. At a presentation in Paris last week, he said the insurer would invest 2 billion euros in French real estate during the next five years.

"The market began to open up at the beginning of the summer by investors who consider that values are too low," said Nicolas Verdillon, investment director for France at Los Angeles-based CB Richard Ellis Group Inc, the world's largest real estate broker.

The global recession sparked by the collapse in the market for US subprime mortgages brought an end to a boom that lifted average office values in Paris by about 40 percent since 2003, according to data compiled by London-based Investment Property Databank Ltd.

At the peak of the market in 2007, 20.4 billion euros of real estate was sold in France's capital. Lehman Brothers Holdings Inc., which declared bankruptcy last September, paid 2.11 billion euros in March 2007 for the Coeur Defense complex, Europe's biggest.

Prices started falling in early 2008 as tenant demand began to shrink and vacancies escalated. In the first half of 2009, transactions totaled 1.22 billion euros, or 11 percent of sales for the same period two years earlier, according to Immostat.

Values are now the lowest they've been for a decade, according to Stephan von Barczy, head of French capital markets at Jones Lang LaSalle.

Hammerson Plc, a UK real estate investment trust, agreed in June to sell its Trois Quartiers office and retail complex to a fund managed by MGPA for 210 million euros, or 23 percent less than its Dec 31 book value.

"Nine out of 10 investors we meet cite France as a top-three target country, alongside the UK and Germany," said Giles Wilcox, who heads the cross-border European investment team at Savills Plc, based in London.

The agreement by MACSF, a provider of doctors' insurance, to buy Triangle de l'Arche, its headquarters on the western edge of the city center, was also Europe's third-largest single building deal this year, according to data compiled by CB Richard Ellis.

Bloomberg News

(China Daily 09/28/2009 page11)