Outlook 2023: resilient France weathering the crisis better

France is weathering the crisis much better than other European countries, experts agreed at Real Asset Media’s European Outlook 2023 – Focus on France briefing that was held this week at Taylor Wessing’s Paris offices.

Benjamin Cartier-Bresson, Head of Paris Office, Berlin Hyp

“The market has changed a lot in the last twelve months but France is very stable compared to other regions in the world”, said Benjamin Cartier-Bresson, Head of Paris office, Berlin Hyp. “Things will have to change and assets will be re-priced, but the process will be smoother in France than elsewhere”.

The resilience of the French market is due to several factors: the depth and liquidity of the market, the strong presence of domestic investors, who account for 60-65% of transactions and the constant inflow of new capital from abroad, especially from the US and the Middle East.

“There’s a drop in activity because of the uncertainty and all the reasons we know, but the combination of active French investors and international capital makes it a very stable market”, said Guillaume Turcas, Managing Partner, Faro Capital Partners. “Paris in particular is in a very strong position compared to Spain or Italy or even Germany, where there is more distress”.

The market is resilient also because it is flexible and functions in a slightly different way, but it requires a deep knowledge of its workings.

“You have to know the French market well to get a good deal”, said Alfred Fink, Partner, TaylorWessing. “The big funds in France are doing their math and looking at off market sales to avoid a big crash. If there’s distress it’s kept in check and not brought out into the open. There’s a flexibility and a willingness to have a smooth transition. That’s why in France we don’t have the big crashes you see in the UK or elsewhere”.

Alfred Fink, Partner, TaylorWessing

Investors who don’t need financing and have equity on their side can do the deal quickly and typically get a 5-10% discount as well.

“Debt funds set up by big US insurance companies have found their way to France via London or Luxembourg because development finance is not easy to get here because of the rise in construction risks and costs”, said Fink. “But private equity is prepared to take that risk, at a price”.

Another recent development is increasing activity by High Net Worth Individuals, that are driven by high inflation to invest in real estate.

“We’re seeing more HNWIs coming in and they are prepared to put €200-300 million in”, said Fink. “They’re happy to park their money for a few years to stabilise their revenues and get some uplift later. These are the two important capital providers that are now disproportionately present on my desk”.

The topic of the re-evaluation of assets is much discussed in France, especially by big funds that have huge portfolios and are going to take a big hit. However, the transition is likely to be smooth and not disruptive, experts agreed.

“We’re seeing a market where prices go down, which is natural after a long period of prices going up”, said Cartier-Bresson. “But that’s very different from seeing distress”.