Rising interest rates had a negative impact on the development of the real estate market
The rise in inflation in 2022 hit the global economy hard. To slow it down, many countries have resorted to the most obvious solution – raising key rates. However, this containment measure has a downside – pressure on almost all markets, and first and foremost on consumers. Rising interest rates have affected all sectors of the economy – and real estate is no exception. For example, in the last quarter of 2022 in France, investment in commercial real estate fell by 52%.
According to Immostat, transaction volumes in the sector, including office, retail, and warehouse space, amounted to 5.4 billion euros. Paris and its environs recorded an even bigger drop – at 62%, to $2.5 billion. Here, the average price per square meter of office space decreased by 1% to 7980 euros. This figure was the lowest value since Q3 2020.
Overall, investment in commercial real estate in France fell by 2% to €25.5 billion in 2022. As for Paris and its region, investments here were at 15 billion euros, 3% less than the previous year.
According to experts, the commercial real estate market, not only in France but also throughout Europe, is increasingly unstable. The reason is the increase in interest rates, as a result of which the repayment of loans is becoming more expensive. Buyers are in no hurry to buy real estate, preferring to wait until the rise in interest rates stops.
Regarding the residential real estate market in France, it is also slowing growth after a stable development for 5 years. The reason is the same as for the commercial sector – rising interest rates. In addition, banking institutions have tightened the requirements for obtaining credit, which has significantly affected demand.
The French housing market boomed during the pandemic when the price index rose to record highs in just one year. Since then, housing prices have been on the rise until Q3 2022, when demand began to fall. According to Knight Frank analysts, the trend will continue into 2023 as market activity declines. In the sector for 2022 the number of transactions decreased by 5%, and in 2023 it is projected to decrease by 9%. Market growth will also slow down because of the falling dynamics in the construction segment.
Experts say that the demand for housing in France is quite weak, with a decrease in activity observed even in those regions that previously were very popular. It is worth noting that to acquire real estate in no hurry the French themselves, as well as foreign buyers.