The French commercial real estate market is in a strong position thanks to domestic factors but international issues are a concern, delegates heard at Real Asset Media’s France Investment Briefing, which took place online on the REALX.Global platform yesterday.
“The situation is favourable, with positive growth forecasts, lower unemployment, strong business sentiment and political uncertainty gone after the recent presidential election”, said Rory Sheard, International Director, Paris Office Investment, BNP Paribas Real Estate.
But now there are questions marks over imported inflation as well as geopolitical concerns.
“New uncertainties have crept into the market over the last few months”, said Simon Wallace, Head of Research, Alternatives, Europe, DWS. “There’s inflation, higher construction costs, rising interest rates and general investor uneasiness. But these are global issues, not French problems so we’ll absolutely continue to invest in France”.
Investments in CRE in France were €27.4 billion last year, slightly down from €29 billion in 2020. This year is seeing an improving trend, with €5.3 billion invested in Q1, a 2% increase on the same quarter of 2021.
The traditionally dominant Ile-de-France region accounted for €3.1 billion or 59%, while the regions performed better than in past years, attracting €2.1 billion or 41% of the total in Q1.
Offices, accounting for 48% of investments, continue to be the main magnet for capital but there has been a slowdown this year compared to the 58% figure for 2021. Retail comes second with 26% (it was 12% in 2021) and Logistics & Industrial follows with 18% (it was 20% in 2021).
“Retail really punched above its weight in Q1 this year because of a very large shopping centre transaction”, said Sheard, so Logistics is likely to regain second place later this year.
Bond yields are being watched carefully as the spread is reducing fast, but offices continue to be attractive because of rental growth fuelled by low supply.
“We expect rental growth to be around 2.4%, which means there is a healthy buffer of 1.5% before total returns would be affected”, said Sheard. “Rents are indexed in France, so real estate does provide protection from inflation”.
Asian investments fell from 12% of the total in 2019 to zero in 2020 and last year crept back to 5%, while the combined share of UK and US investments has steadily increased from 17% in 2019 to 25% last year. French domestic capital accounted for 59% of investments in 2021, but in Q1 this year its share has increased to 74%.
“French players remain dominant in the market, but they are being increasingly challenged by German investors, who are very active, and AngloSaxon capital, which tends to be higher on the risk curve”, said Sheard. “Korean investors, who had been very present before the pandemic, have been replaced by Singaporean capital, with GIC taking up big positions in La Defense.