French commercial real estate has emerged from a two-year slump to record a six-month 1.6% capital appreciation, according to the IPD French Bi-Annual Property Index.
In the first six months of this year, the dominant influence on capital growth yields reversed with French real estate seeing the return of yield compression to deliver the first rise values for two years. Initial yields compressed by 40 basis points on average to 6.1% at the end of Q2, while market rents remained stable over the same period.
Income return over the six months to June decreased by 10 basis point to 3.0% which, together with the capital growth, helped deliver a six-month total return of 4.7%. The 12-month change in capital values now stands at -0.4%.
The Bi-Annual Index which measures 1,480 commercial properties worth around 33.9bn reveals the strongest capital appreciation in the Paris Central Business District (CBD) and the West CBD/La Défense district, which respectively grew by 2.8% and 2.7%. In the third Parisian office district, Paris 'other areas', values rose by 1.5%. Logistics properties saw a -1.4% capital decline over the first half of 2010, while shopping centers, last year the most resilient segment, rose by 1.3%.
Yield compression returned over the first half of the year in all segments, while market rental remained stable or rose slightly in all but two segments, logistics and other retail were it fell by -1.2% and -0.4%, respectively.
Christian de Kerangal, Managing Director of IPD Southern Europe, said: "French property has finally turned the corner after a steep yield-driven capital repricing cycle which has seen real estate shed a fifth off their values.
"Since mid 2009 we have seen quite a lot of cash rich investors seeking to buy prime stock; properties in prime locations, with financially strong tenants on longer leases. With demand outstripping supply in this part of the market, yields have reduced rapidly, re-emphasizing the yield spread between prime and secondary properties. Indeed, while the repricing has run its course across the broad market, there could be some downward pressure on values among lower quality properties still to come."