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Incentives and rent reductions are becoming more popular in France as property owners seek to secure their tenants amid worsening economic conditions and a weakening occupier market. France, which has long been considered as Europe's most resilient property market, saw property investment and letting activity slow down considerably in the fourth quarter of last year, with all the indicators currently pointing to a weaker outlook for 2009.

'The French property market was resilient until early October when, all of a sudden, the sector saw an increase in yields of 75 basis points,' said Stéphane Peybernes, head of Savills' valuation team in France. 'It was like the French suddenly realised the situation in Europe and in France in particular was not different from the US.' As a result, prime yields for Paris office properties increased from 3.8% to 5.2-5.4% over the month of October and reached 5.75-6.25% at the beginning of 2009, he said.

As the country is likely to enter recession this year, Peybernes said that landlords are increasingly concerned over tenants' capacity to continue to pay headline rents agreed before the onset of the credit crunch. 'Incentives are essential at the moment to retain tenants, and things such as allowances for refurbishment costs and longer rent-free periods are growing more popular,' he said.

In the retail sector, index-linked rents continued to grow over the first three quarters of 2008 despite worsening economic conditions. 'This is because the INSEE construction cost index (ICC) - which is reviewed every quarter - increased significantly over the first three quarters, by 8% during Q1, by 8.85% in Q2 and by 10.46% in Q3,' he pointed out. He added: 'But today tenants have more power and are not willing to pay high rents. So landlords are knocking at their retailers' door to offer to renew their lease and link it to a new index, which is related to consumption rather then to construction materials'.

Recently, Savills has been contacted by several property companies to look at their leases and convince tenants to switch to the new ILC (Index of retail rents) index, which was introduced in November 2008 to moderate rent reviews. Last week, the broker said that it was expanding its valuation team in Paris with the recruitment of Isabelle Sanchez Turon. 'With significant changes in property values and changes in bank terms we are finding this a busy time and therefore welcome well qualified and experienced new members to our team,' Peybernes commented.

He added that the company is also being asked to compare the rent tenants are paying with the current rental value in the market. 'If the rent exceeds market value by over 25%, then tenants are offered to lower rents,' he said.

Klémurs, among others, is one of the landlords which is offering tenants to switch to the new index. The group said in its full year results that around 18% of its tenants having already opted for an ILC index adjustment.