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PARIS-Prime office rents in central Paris are expected to decline around 7.5% next year against a background of growing supply and stagnating demand, according to a new survey by the London-based Investment Property Databank and the Paris-Ile de France regional development agency.

Prime CBD office rents are forecast to fall to an average of €620 per square meter at end-2010 from €673, currently. Some 15% of office leases have been renegotiated this year, leading to rental reductions of 14% on average, and this decline is not expected to accelerate in 2010. However, the vacancy rate in the Ile de France area is projected to rise to 8.3% at the end of 2010, from 6.5% at end-September and 5.4% at end-2008. Transactions are expected to be little changed at 1.6 million square meters compared with 1.7 million square meters in 2009. The level of transactions stood at 2.391 million square meters in 2008.

For shopping centers, vacancy rates are also expected to increase slightly, leading to a decline in rents of 5.25% on average in 2010. However, the survey expects a slight recovery in investment in 2010, forecasting that it will pick up to €10 billion next year from €6 billion in 2009, but this will still be well below the 2008 level of €12 billion and 2007′s €27 billion. Prime yields on central Paris office space currently average 5.8%, while yields for French retail malls average 5.7%. Most survey respondents expect yields to remain stable in 2010 in both categories.

The Agence Regionale de Developpement Paris Ile de France (IPD/ARD) survey was carried out on November 23 and is based on responses from a panel of around 20 key institutional investors. The group will be surveyed three times per year to track the market consensus on the outlook for the French property market. The next survey will be published in March to coincide with MIPIM.

Allan Saunderson is a managing editor of Property Finance Europe and a contributor to GlobeSt.com.

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