Great demand for French resi but hard to build critical mass

French resi is in great demand but building a portfolio is hard work, experts agreed at Real Asset Media’s European Outlook 2022: Focus on France briefing, which took place online recently.

“Resi today is the only asset class with upside in terms of capital gains, it has replaced offices,” said Daniel While, head of research, strategy & sustainable development, Primonial REIM. “Capital flows to the sector have increased: it used to be a €2 billion market, but last year it grew to €5 billion.”

Daniel While.

Growth will continue but the French market is unlikely to reach the dimensions of the €15 billion German market, he said.

“The beds sector is very granular and very competitive, it is difficult to deploy large amounts of capital,” said Edward Bates, president & CEO, Stam Europe. “It takes a lot of work to build up a portfolio. As a value-add player we’re taking on more risk, like ‘permitting’ risk, and by moving up the risk curve we’ll get the returns we need as long-term holders.”

Resi has always been a big part of investors’ portfolios as it provides risk-adjusted returns, but it has become more attractive during the health crisis.

“Offices have always been the backbone of our business, but now we are are looking at resi as well with great interest,” said Tania Concejo-Bontemps, President, Union Investment Real Estate France. “It is an extremely resilient asset class and it has proved to be one of the winners of the pandemic. But in France there are very few opportunities, volumes are low and there are strong established alliances between developers and institutions, so it’s not easy for a new player to enter the market.”

Critical mass necessary for institutional investors

Institutional investors need critical mass. They seek to buy hundreds of apartments in order to have an efficient structure that will allow operational platforms.

“We have 90 flats in our portfolio so far but we need hundreds more to have a competitive structure,” said Concejo-Bontemps.

The difficulties in creating a substantial portfolio are just one of the reasons why the build-to-rent sector is still on the starting-block.

“France is not culturally ready for BTR strategies, as people prefer to buy their home,” said While. “But operators are getting better and capital is ready to take on more risk. The future is quite bright for resi in France and indeed in Europe in general.”

In the next few years the sector in Paris will benefit not just from economic and demographic growth but also from the largest urban transport project in Europe – Grand Paris Express – which is set to deliver 200 km of metro lines and 68 new stations.

According to a research report just published by Primonial, “future creation of value in real estate will be largely dependent on the delivery of stations.”