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Knight Frank: strong foreign capital investment set to continue into H2

Korean investors favoured core, large office complexes in Paris and the western Greater Paris Region – such as the Lumière in Paris, the CBX and Europe towers in La Défense, Cristalia in Rueil-Malmaison). Korean investment rose from 6% in H1 2018 to more than double to 13% in H1 2019.

Vincent Bollaert, Head of Investment at Knight Frank France, explains:

“The influx of international capital is one of the main trends at the beginning of the year, reflecting the greater depth of the French market. Other players remain very present. The British and North Americans have a cumulative share of 16%, even though the amounts they invested in France in the first half of 2019 fell by 30% year-on-year. Present on all asset types, but particularly fond of industrial and office space, they are particularly focused on higher-risk transactions and those that need to be redeveloped, encouraged by the dynamism of occupier demand and the expected increase in rents.

“The French no longer represent the majority of investment volumes in France, with a 48% share at the end of the first half of 2019 compared to 52% at the same time last year. They targeted the entire country and all asset classes, and have particularly made their mark in the office sector. As such, large savings collectors are at the origin of some of the largest transactions of the semester, such as the sale of Smart Up in Châtillon to lL Française.

“Having decreased in 2018, OPCI/SCPI fund collection has returned to high levels since the beginning of 2019. The share of OPCI/SCPIs in the real estate market is itself on an upward trend, accounting for 29% of investment in France in the first half of the year compared to 21% in the first half of 2018.”

Knight Frank predicts that H1’s bumper period for foreign capital investment is set to continue through to the rest of the year, with annual investment expected to deliver another very strong year.

Vincent Bollaert, Head of Investment at Knight Frank France, explains:

“All the conditions seem to be in place to approach, or even repeat, the very strong performance seen in 2018, despite an international context marked by strong geopolitical and commercial tensions, the still real possibility of a hard Brexit and the slowdown in the global economy. This uncertainty, combined with the ECB’s accommodating policy, specifically benefits the real estate market, which offers both stability and better returns than equities and bond products, with a spread of almost 300 basis points between the 10-year OAT bond rate and the Paris CBD office yield.

“Foreign players are well aware of this: they now have a more positive image of France and are positioning themselves on a growing number of major transactions, as seen with the Korean funds,” says Vincent Bollaert. The French real estate market is all the more attractive as the national economy is showing resilience.

“The improvement in the business climate should benefit letting activity, which is already well-positioned in the office sector. This cyclical improvement provides further proof of the strength of the French market, and a new argument to reassure investors in their allocation strategies in favour of France.”

james.wallace@realassetmedia.com