More competition in France as investors go up the risk curve

The French market is becoming more competitive as institutional players go up the risk curve, delegates heard at Real Asset Media’s European Outlook 2022: Focus on France briefing, which took place online yesterday.

“Before the crisis we just focused on core but now we’re keen to take on additional development and operational risk”, said Tania Concejo-Bontemps, President, Union Investment Real Estate. “It’s been a big change for us, but everyone has to move, find new ways of doing business and diversify in terms of sectors as well as geographies”.

Everyone has been looking for resilient assets, especially in logistics and residential, but the big players have cast their net wider and that is changing the market.

“Before only opportunistic players took risks, but now everyone looks at any asset class that’s interesting and the buyer is the winner”, said Guillaume Turcas, Managing Partner, Faro Capital Partners. “It is difficult to get the product and to shape a proper business plan to get value out of an asset and long-term buyers are ruling the market”.

The next few quarters will be critical in showing how the market is going, but players may have to accept lower returns for a while yet, he said.

“The biggest question for us is if we can use leverage in today’s market and get some arbitrage”, said Edward Bates, President & CEO, Stam Europe. “It is hard for us to compete with the likes of Union Investment and that is the biggest challenge we face”.

In the current low-yield market the interest rate environment is crucial to allow companies to hedge.

“Historically low yields make it very hard for value-add or opportunistic strategies “, said Daniel While, Head of Research, Strategy & Sustainable Development, Primonial Reim. “A large proportion of the equity invested comes from French insurance companies, who are active in direct real estate investments as well as funds and they’re income-driven as they need regular revenue”.

Domestic players dominate the market but foreign investors have also remained active throughout the crisis.

“Asian capital has disappeared in the last year but European and US capital has kept investing in offices and logistics”, said Concejo-Bontemps. “France is a deep market that is not dependent on any one sector, so it’s very resilient. Our well-located assets in Paris have performed very well during the crisis and capital has continued to flow”.

France had very severe restrictions in place during the pandemic and suffered the deepest recession in Continental Europe, but it has come out of the crisis well, with strong GDP growth and lower unemployment.

“This has been a transition year from the lows of 2020 to the expected highs of 2022, but we still don’t know what we are transitioning to”, said While. “However, France has managed the health crisis very well and the rebound effect has been strong, with the lowest rate of company insolvencies ever in 2021”.