The French real estate market is experiencing a flight to quality, experts agreed at Real Asset Media’s European Outlook: France Investment Briefing, which took place online recently.
‘In terms of valuations core assets are proving to be a safe haven and they are not being affected by Covid-19’, said Tania Concejo-Bontemps, President, Union Investment Real Estate France. ‘From an investor perspective, I can say that the flight to quality really works.’
In these uncertain times, the market is getting increasingly polarised both in terms of location and assets.
‘If I buy in the CBD I know that I’ll never have an issue letting or selling the asset, but in the suburbs demand, values and rents are more volatile and we’ve already seen some adjustment of values,’ she said.
There is also an issue of supply. In central Paris there is a very restricted construction pipeline and no risk of oversupply at the top end, while in La Défense there is a 300,000 m2 pipeline and a risk of higher vacancies and lower rents.
According to Savills data, in the Paris CBD the vacancy rate is below 2% but it rises above 10% in some Western areas.
‘There is a widening gap between core and non-core, and between tenants in sectors that are suffering like automotive or aeronautics and sectors that are doing well despite the crisis like pharma or tech,’ Concejo-Bontemps said.
This divide applies to financing as well. ‘We continue to provide loans but we look to finance properties with the best cashflow guarantees, long leases and strong covenants,’ said Benjamin Cartier-Bresson, Head of Paris office, Berlin Hyp. ‘Until the situation returns to normal there will be a flight to quality’.
The emphasis on quality applies to the type of buildings. In the office sector only 21% of available supply is less than 5 years old and there is a real problem with obsolescence. Modern, high-quality assets with green credentials are in demand. They are harder to find but easier to finance and easier to let.
‘During lockdown we received higher offers for an office building in Paris than we had before, which really shows that this is a very different crisis from the GFC,’ said Nicola Ciavarella, Director of Investment France, Savills. ‘Some types of assets are still very liquid and there is a lot of capital available. It is not all doom and gloom like in 2008.’
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