Outlook 2023: ‘big winners and big losers’ in the Paris market

The French market is becoming ever more polarised, delegates heard at Real Asset Media’s European Outlook 2023 – Focus on France briefing that was held recently at Taylor Wessing’s Paris offices.

“It’s a market of big winners and big losers,” said Guillaume Turcas, managing partner, Faro Capital Partners. “In the CBD in Paris office values are going up and rents are rising, and the same goes for high-end retail, but at the other end of the scale suburban malls and offices are struggling.”

It is easy to find tenants for A-grade buildings in good locations that are refurbished and ESG-compliant, but tired assets in B locations are likely to remain empty.

“Cosmetic improvements are no longer enough: now if the asset is not perfect the banks won’t be on side and it won’t find a tenant,” said Turcas. “It is a scary situation because a lot of locations are being abandoned.”

Conversions from office to resi could be a solution but they are becoming increasingly difficult, he said, because “local authorities don’t have the funds to add transport connections and local services needed to turn assets into apartments or senior housing, so it’s a vicious circle”.

Core assets in the top locations will continue to do well because the demand is there, so that is where investors’ attention is likely to focus.

“It’s not a bad time to invest because there is clarity in the market, you know what you have to do,” said Benjamin Cartier-Bresson, head of Paris office, Berlin Hyp. “People want places that are central, good quality and well-connected.”

In France there is a geographic bifurcation as well, he said: “Regional cities like Toulouse or Bordeaux have established CBDs, but the markets are not deep. France remains a centralised country, and I think Paris will be the big winner.”

The top-end office sector in the French capital is certainly thriving, experts agreed, as demand is high and offer low, also because not many new developments have taken place.

“Office rents keep rising because of the lack of offer of the quality and in the locations people want,” said Alfred Fink, partner, TaylorWessing. “The hospitality industry has also bounced back strongly, it’s the only industry making a V rather than an L shape, so there’ll be a lot of buying, selling and refurbishing hotels.”

Rents are rising in the logistics sector as well for the same reasons.

 “We’re just at the beginning of an era of rental growth, as rents have to reflect the increase in building costs,” said Jean-Marc Blanc, managing director, head of France & Belgium, Trammell Crow Company. “The market for logistics is strong, which is why we are confident and are buying assets as well as land to build on.”

Cash is king now in the French market and there are discounts available for buyers who can close the deal quickly, but that only applies to buildings.

“If you are a developer who wants to buy land, then there’s no crash or crisis,” Blanc said. “There’s no re-pricing and no discounts for industrial sites. They continue to be very expensive.”