International investors are itching to return to the French market as soon as possible, experts agreed at Real Asset Media’s France Investment Briefing, which took place online yesterday.
“Investors’ inability to travel has really stymied the market,” said David Rendall, managing director, La Française Real Estate Managers. “It has been difficult to deploy capital and the absence of Korean investors, who have been very active in the Paris market, has reduced volumes. But now the worst is behind us.”
Real estate is a market of tangible assets that investors need to see and visit, he said, so the end of travel restrictions will make an immediate difference.
“The French market has seen many challenges, from the gilets jeunes to Covid-19, but despite this we see increased appetite on the part of international investors, especially from South Korea, North America and the Middle East,” said Guillaume Unglik, managing director France, L’Etoile Properties.
The reason, he said, is that “the Parisian market remains one of the largest, most liquid and most resilient in the world and it continues to be attractive to international capital”.
The French capital is also well placed to benefit from the Brexit effect, said Randall: “There is strong demand for Eurozone assets and Paris is a fantastic market for international investors.”
When investors are able to return they will find the old problems persist: shortage of available stock and a deeply polarised market.
Lack of product has led to yield compression
“There are tremendous amounts of capital ready to be invested but they are focused on super-core assets, where yields have compressed to below 3% in Central Paris because of lack of product,” said Rendall.
In the CBD and prime markets the limited offer means strong competition.
“In prime locations there is a fierce battle to grab the few opportunities in the market, and you have to pay extra for not-so-great rewards,” said Guillaume Turcas, managing partner, Faro Capital Partners. “But value-add is at a critical stage and there are many layers of risk.”
Investors find a lot less competition in the Parisian suburbs or in the regions, he said, but they must deal with a less reliable leasing market and uncertainty over the exit.
“That’s the choice: you face competition or you face risks,” said Turcas.
The difficulties with value-add assets are compounded by banks’ unwillingness to finance what they see as risky products, so investors must find alternative lenders.
“The availability of debt is just not there,” said Randall. “Banks are not keen to lend for marginal assets.”
The shift to core in difficult times applies to banks as well.
“We have a strong appetite for making new loans, but we must focus on quality,” said Benjamin Cartier-Bresson, head of Paris office, Berlin Hyp. “We must finance properties with good cashflow and that hasn’t been easy in the last few months.”