French or Italian Commercial Real Estate? What Is more Promising?
November 18th, 2013 by Diane Moore
In this article we are going to discuss one of the top notch commercial real estate destinations that attract people from all over the world with its wide range of opportunities. We are talking about the France and Italy this time. So, what makes these two countries so special? Do they really worth the efforts? Let’s analyze it and figure it out.
Commercial Real Estate Investment in France
For many years France has been the most important market for commercial real estate investments in the whole of continental Europe, with the overall investment volume touching 8-10 billion pounds each year. The reason behind this is the diverse economic fabric of the country which provides sustainable and robust occupational markets.
The balance between the important business sectors, which includes public sector, large industry, financial service and other major service providers maintain the take up levels at approximately 2 million square meters per year.
With the overall office stock in the country touching 50 million square meters, the region also boasts of having the largest office market in entire Europe.
Why should you invest in the commercial real estate market in France?
Investing in the commercial real estate sector in France, particularly Paris is a lucrative investment with the reasons being as follows:
- The election of Nicolas Hollande has led to some uncertainty in the market and has resulted in the enhancement of property prices in the last three years. You can expect some great negotiations for properties that are priced right on top of the list.
- The euro seems to be weak at present, making properties in Paris a bit inexpensive for purchasers from non-euro currencies.
- Commercial properties in cities based in “Old Europe” are a very safe investment in the long run. It’s a great asset that hardly depreciates in terms of value and Paris is regarded as one of the best real estate markets in the world.
- The real estate sector in Paris also offers unchanging and undeviating growth. The place has yielded an average price gain of approximately 10% annually in the course of the last four decades.
- Paris also heads the list in terms of being the number one tourist hub in the world. This indicates that if you purchase a property in Paris to counterbalance your running costs, the suitable property with the proper rental management will earn you a total return of 8% on your investment annually.
- English has lately emerged as an important language in Paris. As a result, non-French speakers are not encountering much difficulty to move into the city, which eventually is encouraging a greater number of potential buyers from other nations.
- Major institutional investors are scooping up commercial properties in Paris, indicating that the market continues to remain vibrant. It also signifiesthat any kind of price lull will be short-lived.
- Benefits of investing in France
- Developed Markets
- France boasts of having the largest economies in the world with a highly developed securities market. Quite different to some frontier and emerging markets, this normally indicates less volatility and geopolitical risks.
- Large Companies
France is a home to many of the major companies across the globe, which normally adds to the decreased volatility. Generally speaking, large companies have decreased volatility and a high predictability of long term earnings.
Risks of investing in France
- EU Structure
France is also the European Union’s second largest member, which indicates that it might be accountable for funding huge portions of bailouts. This liability was very much apparent during the debt crisis in Europe.
- Socialist tendencies
The country of France has various socialist tendencies that may prevent certain businesses from competing. For example, the nation has a total of 35 working hours per week and a retirement age of 62, which are both lower than many other developed nations.
Some important commercial properties in France
- Tour First
Tour First is an office skyscraper of height 225 meters and is situated in La Defense, Courbevoie. The property was constructed in 1974 and stood at a height of 159 meters at that time. It underwent massive renovation in 2007 and by 2011, the exterior of the building was totally transformed, with extra height being added to the structure. The total floor space of Tour First is 86,707 meter square and at present is the tallest skyscraper in France.
- Tour Granite
Tour Granite is the fifth tallest office skyscraper in France. The property, which stands at a height of 183 meters, was launched in December 2008, and is located west of Paris. It was constructed as an augmentation of the Societe Generale Twin Towers, since the office space here was insufficient for the requirements of the group.
- Boulevard Haussmann
Boulevard Haussmann, which stretches around 2.53 kilometers, is a huge shopping mall, where Printemps and Galeries Lafayette outlets are located. In addition, there are lots of stores and apartment blocks in the region.
Department store chain from the UK, Marks & Spencer, opened an outlet on Boulevard Haussmann in the year 1975. Some prominent hotels located here are Quality Hotel Axel Opera and Clarion Collection Hotel Opera Pavilion.
- La Vallee Village
La Vallee Village is a prime shopping destination only 35 minutes from Central Paris. It offers collections from the previous seasons from important French as well as international luxury brands. Shoppers can enjoy a wonderful shopping experience here in an alluringly designed village setting.
Commercial Real Estate Investment in Italy
The continued international crisis hit the economy of Italy very hard. However, the real estate sector in the country performed relatively better compared to others like servicing and manufacturing. Stability and very little depreciation in property values were an important affair for the real estate sector, despite the fact that the number of transactions went down by 50% when compared to the pre-crisis levels.
At present, the demand in the office segment has greatly increased, with the maximum concentration being in cities like Rome and Milan.
Italy is also strongly emerging as a prime destination among foreign investors, which includes US private-equity companies, such as Cerebrus Capital Management LP, Oaktree Capital Management and KKR & Co.
The new government recently announced some great steps for the real estate sector which includes the following:
- Abolishment or postponement of property taxes.
- Postponement of interest payments on loan facilities for upcoming households.
- Reduced personal income tax as well as reduced VAT.
The number of institutional investors in Italy has greatly increased, particularly with respect to the Italian Real Estate Investment Funds, which has witnessed a significant growth since 2000. This is mainly due to the absence of credit bubbles and subprimes, besides positive impacts on efficiency and transparency in the real estate sector.
Why should you invest in the commercial real estate market in Italy?
Here are some excellent reasons for investing in Italian properties:
- Absence of finance regulations
The government of Italy has established new finance laws with respect to buying and selling of properties. The purchaser has to pay the actual price of the property in the deed of the sale and furnish tax payments only on the difference of the newly valued ratable worth. This helps to bring about greater transparency in the market and also assists purchasers not to get involved with illegal activities like laundering of money.
- Rental market in Italy is booming
Investors will be happy to know that the huge number of tourists visiting the country has helped in the enhancement of the rental market. Visitors are not only interested in holidaying in the important cities but also in the rural areas.
Cost-effective airline firms who have begun operating flights in the country have changed the way tourists book vacations and have been using the web exhaustively for the purpose. Also, the demand for commercial properties have greatly increased. In addition to foreigners, Italians too love travelling in their own nation and carry out internet booking for domestic holidays.
Making a real estate investment around the lakes of the country or in the north can double your rental income. Opening up hotels in these regions would be a great investment as you’d be deriving profits not only from ski tourists during the winters but also from those vacationing in the summer months. However, remember that the prices of properties are more favorable if you wish to go further south.
- Italian tax legislation in favor of foreigners
Italy has recently reformed its tax legislation. There is neither wealth tax nor Capital Gains Tax (CGT). As a result you can save lots of money on property costs.
Benefits of investing in Italy
- The country is a major tourist destination.
- There is an excellent potential for rental income deriving from both the tourist market as well as the local market.
- Italy features in the heart of the expansion plan of cost-effective airline firms.
- The property market is constantly growing by up to 20%.
- An investor can certainly find some great real estate deals in some regions of the country.
- There are neither capital gains nor wealth tax.
Drawbacks of investing in Italy
- Complicated legislation
- Costly highways
- Deficiency of parking places in major cities
- Undeveloped internet (worst in the whole of Europe)
- Inefficient public administration
Some important commercial properties in Italy
- Torre Eurosky
Torre Eurosky is a skyscraper of height 120 meters in Rome and is the tallest building in the city besides being the tallest residential tower in the country. The building was designed by Franco Purini and is adjacent to the EUR.
- Torre Europarco
Torre Europarco, also referred to as Europarco Tower, is of the same height as Torre Eurosky, located in Rome. The property, which has 30 floors, was launched in 2012.
Euroma2 is the largest shopping hub in Europe and is located in the south of Rome. The property, which was launched in the year 2009, has around 200 outlets and 20 restaurants. The place has a huge parking space and can accommodate 4000 cars. The owner of the property is LSGI.
French commercial real estate looks brighter in terms of cross border transactions
Despite the great number of advantages offered by the commercial real estate sector in Italy, France still seems to look brighter since it’s pulling a relatively more number of investors from abroad.
The volume of cross border transactions in Italy from January to October 2013 touched € 2.75 billion compared to the figures for France during the same period, which stood at € 6.1 billion. However, this was a 22% fall for France as the transaction volume in 2012 for the same period was € 7.8 billion.
Even though France beats Italy in terms of investment volumes, the interest of investors in French commercial property is waning at the moment. Investments in office property, which is the leading sector for commercial real estate market in France, went down by 19% during the first half of 2013 compared to the same period last year.
Based on the latest survey by Royal Institution of Chartered Surveyors, the commercial property sector in France is deteriorating at a rapid rate compared to Italy, Spain or Greece. Even though investor risk appetite seems to improve in some European nations, most of the commercial property market in Europe, including France recorded decreasing occupier activity and also negative anticipations for capital values and rents during Q4, 2012, according to Global Commercial Property Survey.
Simon Rubinshohn, Chief Economist of RICS said that Asia was the best location for commercial real estate investments with the sentiments in the region being highly positive. RICS cautions by saying that 2014 will remain pretty challenging even though there is an improvement in financial market conditions in the region.
There is a silver lining, however, as the market share in France remains powerful, accounting for approximately 68% of the entire commercial market by July 2013 compared to 65% in 2012. Boris Cappelle, director investment Savalis, says that despite disappointing volumes of investment in the first half of 2013, there is a strong demand among investors. He expects the market to recuperate in the second half on account of the signing of multiple mega deals.
It’s difficult to decide on which one is more promising-French commercial real estate or Italian. Foreign investors are showing keen interest in the commercial real estate sector in both France and Italy, with new constructions slated to come up within a few years. However, with investment volumes expected to touch € 15 billion in 2013 in France, the country is still way ahead of Italy despite diminishing investor interest.
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