Frances 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 governments 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. CB Richard Ellis (CBRE) reports that the residential construction market saw in increase in activity in H210 and H111 after a period of cut-backs over the previous two years, and that housing supply dropped by 6.9% in the year ending Q111, to 62,842 homes. The first half of 2011 saw take-up of industrial space increase by 3% year-on-year, 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.

Key Opportunities In The Real Estate Market

- The French government is known for developing high-quality infrastructure projects, and one recently launched in July 2011 will be undertaken by Eiffage, who signed a public-private partnership for the future Brittany-Loire Valley high-speed rail line to connect the cities of Le Mans and Rennes, with rail infrastructure company Réseau Ferré 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.

Key Risks To The Real Estate Market

- Colliers reports that there was just one main real estate transaction in Q111 and investment of EUR1.9bn in commercial property. This is a slight rise on Q110 but a huge drop from the EUR5.3bn invested in Q410. CBRE reported that although the first half of 2011 total investment reached EUR4.4bn, almost all of the activity was in the last few weeks of June.

- The lacklustre industry has meant that some landlords have withdrawn space in order to renovate it, and this has reduced supply.