Compared with markets across the channel, the downturn in Paris offices has lagged behind, which created a flattering impression in the early months of the property downturn last year but has meant steeper falls more recently.

Values of offices fell for the first six months of 2009 by 8.4 per cent, according to the IPD French property indicator, which measures more than 1,400 commercial properties worth around €31.5bn ($46bn).

The two dominant segments of the Paris market, the central business district (CBD) and La Défense, fell particularly hard, by 9.4 per cent and 8.1 per cent respectively, as sentiment shifted away from areas most affected by financial troubles.

This drop in investment values reflects the underlying sharp fall in occupancy rates. Overall, almost a tenth of office space is now empty in the city, with clear signs that rents have deteriorated.

Christian de Kerangal, managing director of IPD France, says: “In the course of the first half-year, the decrease of capital values has accelerated across all sectors. At the same time, and as expected, rental levels have weakened over the period under review, while vacancy rates have increased indiscriminately.”

Within these results, local agents report that some areas, and some buildings, have fared better than others.

Savills, the property consultancy, says re-pricing has occurred but not to the same extent as in the UK, with prime yields at about 6 per cent. Prime property in Paris, it says, is benefiting at the expense of secondary.

Tony McGough, director of economic forecasting at DTZ, the global real estate adviser, says rents in the CBD have fallen sharply, while La Défense rents have not yet recorded declines. He takes this as a positive sign for the CBD, particularly as supply remains tight.

“Headline rents in the CBD have now fallen by around 20 per cent from their peak, suggesting the market is in quite an advanced stage of the correction, with limited scope for further falls,” says Mr McGough. “A further positive for the CBD market going forward is the low availability ratio in the prime core, reflecting inelastic supply.”

The La Défense occupier market, he says, has been supported by low levels of vacancy, and better than expected take-up in the first half of the year. This, however, could mean that there are risks of further falls to come in a still weak business climate.

Mr Mcgough also points to a number of lease expiries coming up in the middle of 2010 in the Coeur Défense tower. “If the current tenants are to be retained then rents are likely to be cut and this could trigger a fall in office rents throughout La Défense,” he says.

The tower could have particular issues owing to its securitised debt structure. It is owned by Lehman Brothers and France’s Atemi, which recently won an extension until 2014 in protection from their bondholders.

The differences between the two business areas mean that agents see the Paris CBD office market as nearing a fair investment value. The yield correction has lagged that in London, but even so the trough in values appears close given the rapid adjustment of rents, according to DTZ.

As the La Défense office market has been behind the curve, with rents yet to adjust, DTZ predicts that investors are likely to hold off until they see evidence that the worst of the occupier market correction has passed.

David Bourla, head of research in Paris for Cushman & Wakefield, says data indicate that France should see a less severe downturn in 2009 than the majority of its European peers.

But, pointing to an annual GDP fall estimated at 3 per cent and further deterioration of the labour market, he predicts a further weakening of occupier demand.

“With 862,618 sq m of office space let or sold to occupiers in the Paris region during the first half of 2009, take-up is down 27 per cent compared to the same period one year before,” says Mr Bourla.

“This fall in demand partly reflected the wait-and-see policy of firms in the banking and insurance sector: main players in 2008, this sector accounted for only 7 per cent of total take-up during the first half of 2009 compared with 25 per cent one year ago.”

He says other areas that saw a construction boom, notably in the inner suburbs, are suffering from an overhang of space.

Prime rents are under pressure, according to Cushman & Wakefield, falling to €660 per sq m in Paris’ CBD as tenants negotiate better lease terms with more attractive incentives.

A predicted lack of supply next year might help correct this, however. Indeed, many hope that the market might not have much further to fall, given signs that France is less severely affected than many of its European neighbours.

Cushman & Wakefield concludes that the Paris market is more protected from a potential sectoral crisis, unlike London for example, where the financial crisis has had a more substantive impact.

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