‘Rental growth driving the office market’
The prospect of rental growth is leading domestic and foreign institutions to focus on the office market, but other asset classes offer good opportunities in France, delegates heard at Real Asset Media’s France Investment Briefing, which was held in London recently.
The office sector still attracts most of the investment into French real estate, especially in Paris where it accounts for some 70% of the market, according to RCA data.
‘There are zero vacancies in grade A offices in Paris, which is the recipe for rent increases,’ said Andrew Angeli Head of European Strategy & Research, CBRE Global Investors. ‘The rental story is nuanced and there are variations between areas. But it is the certainty of letting the buildings at higher rents that is driving confidence and forward purchases’.
Because office rents are moving up ‘there are a lot of big names chasing product, which leads to more competition for small and medium players and potential long queues for assets,’ said Guillaume Turcas, Managing Partner, Faro Capital Partners.
An alternative strategy is cherry-picking opportunities in the retail sector, he said: ‘Some shopping centres are suffering, but the retail park sector and the high street are looking good’.
Logistics assets are still in great demand and give investors the chance to deploy capital outside Paris, while alternatives like build to rent, student housing or healthcare are promising but still relatively undeveloped.
‘The alternative sector in France is still pretty weak,’ said Turcas. ‘It’s complicated because you need people on the ground for healthcare or senior housing. A lot of people would be interested in doing residential, but it’s risky and regulation is crazy, so they find that CRE is a lot easier’.
There are opportunities to be found, but there are reasons why residential is still undeveloped as an institutional asset class.
‘It remains a niche market, which becomes a limiting factor because it makes it more difficult for banks to finance projects,’ said Serge Bacconnier, Deputy Head, Paris office, Berlin Hyp.
The problem is that ‘in order to attract capital you need to have big platforms, because without size you cannot face the risks of the current regime, which is not favourable to landlords and which is unlikely to change in the near future,’ said Hugues Moreau, Partner, Real Estate/M&A, Gide Loyrette Nouel. ‘Alternatives are time-consuming asset classes that need dedicated operators and for the time being the French market is not well structured enough’.