The existence of a real estate bubble in France is undeniable and it is likely to explode soon. Faced with overvaluations of properties, declining rental yields, oversupply of offers not to mention the staggering vacancy rate… All the signs are there: the real estate bubble is about to “sell out”. Update on the commercial real estate situation in France…
Real estate bubble in France: what is the risk?
Although commercial real estate is still considered an attractive asset, there is indeed a bubble in this sector and it is likely to burst. Even the HCSF or High Council for Financial Stability is sounding the alarm. This Bercy-based authority has issued a note to this effect.
In any case, it must be said that there are signs not to be overlooked: overpricing, increasingly unattractive rental yields, too many offers and too many vacancies… Faced with all this, the risk of explosion is high..
Commercial real estate is on the verge of an explosion
Today, we can say that the commercial real estate market is saturated. First, there are the prices that are definitely too high. Since 2010, they have gradually increased to a higher level than those observed before the 2007 crisis. This price increase is inevitably accompanied by a decrease in rental yields. Eleven years ago (in 2005), commercial real estate was a successful sector in France and the country was even the best in this sector. In 2014, the French commercial real estate market posted the lowest profitability. The paradoxical situation in this sector suggests the worst.
Investors with a different perception of reality
There is another alarming fact not to be overlooked in relation to commercial real estate in France: the misperception of investors who continue to think that this is a reliable sector. Many people consider this branch of French real estate as a real “safe haven”. As a result, they have a perception that is very different from reality. Despite the decline in profitability, investors are not responsive, used to the fact that real estate in France is a trustworthy sector. This phenomenon is rather worrying given the risk it involves. At the same time, the housing market is in great need of investors, yet offers more attractive rental yields and long-term capital gains. And this is compounded by the speculation of some investors who acquire, renovate and dispose of commercial real estate on a short notice.
A worrying vacancy rate
Finally, a last point not to be overlooked in the commercial real estate sector in France: the vacancy rate is rather worrying, approaching 7.5%. This percentage is likely to increase further given the growing interest of investors. The long-term risk is the amplification of oversupply. Measures should be taken by the competent authorities to prevent any crisis…