Investment volumes are down in Europe this year but France is proving to be the exception, delegates heard at Real Asset Media’s France Investment Briefing, which was held in London recently.
‘The first half of 2019 has been the slowest in five years in Europe, but France is bucking the trend and showing positive growth,’ said Tom Leahy, Director of Market Analysis EMEA, Real Capital Analytics. ‘The French investment market has had a strong start to the year after 2018 saw a record number of deals’.
The main reason behind France’s positive performance is that sentiment has improved because the economy is doing better. Eurostat data show that sentiment has declined in the Eurozone and in particular in Germany, as an export-oriented economy vulnerable to trade wars and geopolitical uncertainty.
France, on the other hand, ‘has an economy driven by domestic demand and sentiment has really picked up,’ Leahy said.
The Macron government’s reform drive and efforts to create a business-friendly environment, cutting corporate taxes and simplifying regulations, also seem to be paying off.
The ‘yellow vests’ protests made many headlines but had little impact on investor sentiment, he said: ‘The gilets jaunes are in no way comparable to Brexit as a negative force’.
Political reform and economic growth are a winning combination that is making France stand out from the rest in Europe and is attracting an increasing number of foreign investors, including many newcomers.
The depth and liquidity of the real estate market has also contributed to investors’ renewed interest.
‘Liquidity levels in Paris are almost double those of the regions and that’s largely because of the attractiveness of the city to foreign investors,’ Leahy said. ‘It is a virtuous circle, as liquidity attracts capital which in turn helps maintain high levels of liquidity. Another positive factor is that there has been no volatility, as over the years liquidity has never fallen back’.
The flip side of the coin is that all these positive factors are reflected n the pricing, he said: ‘Paris is expensive not only compared to the rest of France, but also compared to Central London or the main German cities’.
Faced with rising prices and more competition, investors are becoming more creative. RCA data show a marked pick-up in forward acquisitions.
‘Paris is the number 1 market in Europe for forward acquisitions, largely because investors are seeking to position themselves in advance of the major improvements that the Grand Paris infrastructure project will deliver,’ Leahy said.
What is surprising, he said, is that ‘forward purchases cost more than acquisition prices for new or refurbished buildings, which is a clear sign that investors are very positive and bullish about future rental growth’.