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Supply shortage ups Parisian prices

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A shortage in supply is pushing up prices for both residential and commercial property in Paris and the seemingly relentless trend is not showing any signs of slowing any time soon, according to new research.

The simple supply/demand imbalance has been growing over the last few years, reports F&C Asset Management and the thirst for space in some of the biggest cities in Europe is causing prices to spiral.

The investment specialist group also claims that this phenomenon is driving rental growth as people cannot afford to purchase properties outright, not only in Paris, but also in London's West End, Madrid and Manhattan.

Such a climate is ideal for buy-to-let investors, who, historically, are known for large financial outlays in the hope of making long-term returns in steady, fast-growing markets around the world.

Research by F&C concludes that the reason for a supply side deficit has its roots in the economic downturn around the millennium. Many major companies were forced to make cutbacks, the firm argues, laying off staff and cutting down on office space.

However, since the West's economy has picked up and is currently achieving high levels growth supported by the rapidly emerging markets of China and India, company profits have also taken a firm step into the black. Demand for both commercial and residential property in Europe and the US' major cities has outpaced the supply, as developments usually take two to three years to complete.

Dirk Molenaar, senior portfolio manager for Indirect Real Estate investments at F&C, said: "French property companies are now enjoying some of the fastest growing rental income in Europe, with both new market rents and existing rents growing by over five per cent a year, as the construction cost index, to which they are often linked, has recently hit seven per cent."

Reported by easier.com, according to Chesterton International, property prices in Paris have increased by 7.6 per cent over the last twelve months and this figure is set to increase as the French economy continues to perform well.

The International Monetary Fund recently revised its five-year gross domestic product growth prediction (GDP) for France up to 2.2 per cent. This year its GDP is expected to increase by 2.5 per cent and it should only drop back by 0.2 percentage points next year in spite of slowing global growth brought on by a weakening US economy.

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