PARIS-Investment in French retail property grew strongly in thefirst half of the year and the expansion is likely to continue inthe second half, according to international realtor Savills. Theinvestment climbed to $2.8 billion from $700 million in the firsthalf of 2009, largely as a result of the completion of prime retaildeals such as Unibail-Rodamco's acquisition of Simon Ivanhoe andthe purchase of the prime Cap 3000 shopping centre by AltareaCogedim and its shareholders Predica and ABP.

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“We believe this upward trend in investment is set tocontinue throughout the second half of 2010 as some major assetsare currently under negotiation, including St-Martial in Limogesfor $132 million and l’Heure tranquille in Tours for $106 million,”said Savills’ Christophe Gouny.

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Yields have come under pressure as a result of competitionbetween investors and scarcity of prime investments. Prime yieldsfor large regional shopping centers fell to 5.5% from 6% in 1H09,and for major retail parks eased to 6.75% from 7%. However,secondary properties held steady at around 6.75% for shoppingcentres and 8% for retail warehouses.

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While rents for the most established malls and retail parksremain stable, a significant downward correction is expected insecondary locations. Since end-2008 rents in secondary locationshave fallen 11.5% for units of less than 538 square feet and 14.3%for retail warehouse units of around 10,760 square feet, andSavills expects this downward trend to continue. “For the bestlocated premises, retailers are choosing to stay in existing unitsat their current rents even if this implies an increase of theiraffordability rate rather than face the cost of moving,” said LydiaBrissy of Savills European research department.

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While investment in existing real estate is increasing, newretail developments have dipped as a result of decline in consumerspending. Between January and May 2010, some 498 retail projectstotaling 14 million square feetwere submitted to the CDAC planningauthority against 511 projects or 17.2 million square feet duringthe same period of 2009. However, discount retailers and valuefashion retailers have accelerated their development activity,Savills said.

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AllanSaunderson is a managing editor of Property InvestorEurope and a contributor to GlobeSt.com.

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