Offices lose shine but more investors eye French resi

Although there are question marks over the French office market, the residential sector is set to fly, experts agreed at Real Asset Media’s Market Snapshot: Investing in France virtual briefing, which was held online on REALX.Global.

Offices remain the backbone of the French market and the favourite destination for investors’ capital. In Paris the sector still accounted for 74% of all investments in Q1-Q3 2020, the same percentage as in 2019. In France as a whole the proportion has declined only slightly, from 59% to 56%, according to Colliers International figures.

But demand for space has declined significantly this year because of Covid-19. “Corporates are downsizing and their first move is reducing their office footprint,” said Thomas Brault, senior director capital markets, Colliers International

There are huge disparities in the office market, as some areas are over-supplied. The vacancy rate is 2.9% in Central Paris and expected to stay at low levels, while in areas like the Western Crescent it is as high as 10.9%.

In La Défense, Paris’s new CBD, a sharp increase in vacancies is expected from the current 5.5% level because of the delivery of many new buildings at a time of dwindling demand.

“Rental pricing is a function of supply and demand, and La Défense is the epicentre of the problem,” said Andy Watson, partner, Europa Capital. “Next year we expect downward pressure on the market.”

Where some see a problem, others see an opportunity.

La Défense ‘a great long-term opportunity’

“There is a lot of La Défense-bashing going on now, but I believe it’s a great long-term opportunity, because one day there will be a vaccine and this epidemic will be over,” said Brault.

While things struggle to return to normal, though, investors are betting more on residential, which is seen as a defensive play.

“The residential sector has seen a noticeable breakthrough and strong growth this year,” said Laurence Bouard, directrice etudes et recherche, Colliers International France. “It is seen by investors as a strong diversification play. We have seen more transactions and a lot of diversity, from student housing to senior living.”

Residential has increased its share of total investments in France to 14% in Q1-Q3 2020, up from 8% in 2019. In Paris the percentage has risen from 7% to 8%.

“We see residential as a key area of growth in Paris,” said Renaud Jézéquel, general manager Paris branch, Helaba. “Of our €3 billion loans, only 1% is for resi in Paris, but we want to increase our exposure to residential to 10%, as we do in Germany.”