Boston, MA -- (SBWIRE) -- 06/25/2012 -- France's business environment remains among the best in the world. This is underpinned by a welleducated and highly skilled workforce, strong institutions and advanced transport and communications infrastructure. The government continues to occupy a sizeable role in the economy, with public spending totalling around 55% of GDP, among the largest in Europe. While a problem for some, it is the government's infrastructure developments that have helped the country achieved a world-class construction industry. Despite this, economic growth is low and austerity measures could adversely impact the real estate sector. Consequently, the French commercial real estate sector is subdued.

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CB Richard Ellis (CBRE) reports that the residential construction market saw in increase in activity in H210 and H111 after a period of cuts over the previous two years, and that housing supply dropped by 6.9% in the year through to Q111, to 62,842 homes. The first half of 2011 saw take-up of industrial space increase by 3% year-on-year (y-o-y), particularly in the Lille region, according to Cushman & Wakefield. The nervousness in the markets showed through in retail space. Retailers have been more keenly focusing on prime locations for stores to reduce the risks of them failing.

In general, prevailing economic sentiment in France remains subdued as consumers cut spending in the face of slow growth, high unemployment and austerity measures. A US$25bn package of tax increases and spending cuts for 2012 and 2013 failed to defend France's AAA credit rating, which was downgraded in January 2012 by Standard & Poor's. As a result, despite certain bright spots such as high-end retail, we maintain a bearish outlook for France's commercial real estate sector.

Key Opportunities In The Real Estate Market

- The French government is known for developing high-quality infrastructure projects, and one launched in July 2011 will be undertaken by Eiffage, which signed a public-private partnership (PPP) for the future Brittany-Loire Valley high-speed rail line to connect the cities of Le Mans and Rennes, with rail infrastructure company Reseau Ferre de France. Construction Europe reports that the EUR3.3bn, 182km line is an extension of the line between Paris and Le Mans that was created in 1989. Construction is expected to take five years and Eiffage will maintain it for 25 years.
- The need for space continues, despite the slow industry. CBRE reports that there were a few speculative office space developments launched in the first half of 2011, which has added to current vacant space. However, the company sees this as not nearly enough to offset a shortage of new space in the near future. Developers are looking cautiously at the current environment and speculative developments have all but disappeared.

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