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Paris offices take a hit but French market ‘resilient’

The French market has shown great resilience during the pandemic, delegates heard at Real Asset Media’s European Outlook 2021 – France investment briefing, which took place online yesterday.

Cyril Robert, head of research France, Savills

“2020 results are not as bad as feared, which is a positive surprise and shows the resilience of the French market,” said Cyril Robert, head of research France, Savills. “Investment volumes were down, but still +14% above the ten-year average which is remarkable, considering the situation.”

Total volume for the year was €28.5 billion, a 33% drop compared to 2019’s all-time high of €42.5 billion, but higher than expected. After the sudden halt in Q2 2020, the French market picked up again and showed real acceleration in Q4.

“The second lockdown had a less severe impact than the first one,” said Robert. “What is noticeable is that valuation differences have strengthened.”

The Paris region remained dominant, accounting for 66% of volumes, but 2020 saw the consolidation of a trend towards alternative locations. Volumes declined by 37% in Paris, but by only 27% in the regions. There was also a strong interest in national portfolios, with investments of €5.3 billion in 2020.

Part of the reason is lack of supply in Paris, but the main driver has been the increased presence of domestic investors.

“Local capital is well aware of the opportunities the regions can offer,” said Robert. “Domestic investors have regained their position in the French market, increasing their share from 56% to 68% in one year.”

Some international investors have also been active. German and North American investors actually increased their activity in 2020, to 13% and 11% of the total respectively. “We’ve seen an interesting dynamism from Canadian investors, while Asia-Pacific capital has virtually disappeared, but that was expected even before the pandemic hit.”

Paris offices, which traditionally dominate the market, had their worst performance in 20 years, with a 29% drop in investments to €18.5 billion. Take-up was just 1.3 million square metres. The vacancy rate jumped from 5% to 6.8% in one year.

“The well-located office assets are still perceived as a low risk investment, despite the deterioration of the rental market,” said Robert. “Prime yields have moved from 2.9% to 2.75%, which shows the interest of investors in core office assets. The problem is lack of opportunities.”