The French Investment Market - April 2019

DOWNLOAD 2017 CATELLA PROPERTY'S ANNUAL STUDY

* required fields
pdf-cover

Despite a new year, investment trends persist.
 

Fundamentals remain largely unchanged for Q1 2019. The market should quickly gain momentum in Q2 and Q3, mainly as a result of mega-deals currently underway in La Défense.
 

For the better part of a year, yields have been decreasing, although the risk premium is more attractive than ever which could allow some leeway for slightly lower yields...
 

We have observed that rates outside of Paris city are coalescing around 4%, although this symbolic threshold was broken in the Western CBD and those Inner Rim markets with good depth and a "Grand Paris" development prospect in the short or medium term.
 

Accessibility, rent stability, rent growth perspective for micro-locations, i.e., "storytelling", remain key arguments for investment decisions.
 

For the time being, investment haven't suffered from a "yellow vest" effect: the social upheaval and media reporting of this movement has not visibly shaken either French investors (notably SCPIs which continue to raise significant capital) or foreign investors (among others, Korean investors are exceptionally active this year).
 

In short, France remains a prized real estate investment target, and for now 2019 looks as though it will be an excellent year!

Our vision of the office Market
The view of Arnaud de Sordi

SUBMARKETS MAP

Despite a new year, investment trends persist. Fundamentals remain largely unchanged for Q1 2019. The market should quickly gain momentum in Q2 and Q3, mainly as a result of mega-deals currently underway in La Défense.

Arnaud de Sordi

Key figures April 2019

Amounts invested in the non-residential real estate market in France 

Source: MBE Conseil

Amounts invested in the non-residential real estate market in France 

  • Q1 2019 transaction volume decreased slightly by -8%, primarily due to the fact that few new properties were put on the market in Q4 2018;

  • And yet proportionally investments remain almost equivalent to those of last year, proving the market's resilience.

Amounts invested in non-residential real estate by size portfolios and single assets

Source: MBE Conseil

Amounts invested in non-residential real estate by size portfolios and single assets

  • Deals < €50 million remain stable, totalling a relatively weak volume of less than one billion euros;

  • €0-€100 million transactions represent only 35% of amounts invested, i.e., a decrease of nearly -40%. This is unsurprising, given the -72% decrease in €50-€100 million transactions!

  • No +€500 million deals were signed in Q1 (although this will occur in Q2), and €100 and €300 million deals increased by +40%, proof that this really is the heart of the current market, representing nearly 54% of all amounts invested!

Amounts invested in non-residential real estate per product

Source: MBE Conseil

Amounts invested in non-residential real estate per product

  • Offices account for a significant majority of transactions (62% of total investment), despite a Q1 decrease of -23%;

  • Light industrial real estate has sky-rocketed in Q1, with nearly €300 million invested (including €200 million for the Mosaic portfolio) and there has been renewed interest in logistics investments (+61%, primarily thanks to the Corbas deal worth approximately €100 million);

  • The Casino portfolio has also grown by +21% on retail assets.

Amounts invested in non-residential real estate  per type of investor

Source: MBE Conseil

Amounts invested in non-residential real estate per type of investor

  • Core - Core+ assets represented almost 79% of the Q1 2019 investment market: Core / Core+ funds represented 41.1% of amounts invested, and savings collectors 37.6%;

  • The share of opportunistic fund investments dropped from 17% in Q1 2018 to 11%, which confirms the scarcity of acquisition opportunities with true value creation potential;

  • Note that public property companies are almost entirely absent from the field, as are life insurers and private investors: together these investors represent barely 15.3% of all investments!

Amounts invested in the Île-de-France region  by geographic area

Source: MBE Conseil

Amounts invested in the Île-de-France region  by geographic area

  • Investments in Paris have decreased significantly, representing only 22.5% of Q1 investments, i.e., a decrease of -51.8% due to a scarcity of major investment opportunities;

  • Investment in the Western CBD was also sluggish (only 6.1% of investments). When added to the Parisian CBD and other Parisian business districts, investments in the most secure areas of the greater Paris market represent only 16.6%; this is highly surprising given the current investor interest in market resilience;

  • Finally it seems that there is an emphasis on higher yields as the Inner Rim, Outer Rim, Regional locations and portfolios together represent 71.4%, an overall increase of +24.7%!

Comparative evolution of "prime" yield rates for offices and long-term bond yields

Source: MBE Conseil

Comparative evolution of "prime" yield rates for offices and long-term bond yields

  • Yields continue to seem low for investors, despite the "prime" yield risk premium having reached a record high...

  • This is even greater when the OAT (treasury bond rate) is corrected for inflation: there is a difference of almost 400 points with the "prime" yield, which is colossal!

Office yield rate

Office yields - Avril 2019
20132014201520162017 2018T1 2019
Paris CBD4,25 – 5,00%4,00 – 5,00%3,50 – 4,25%3,10 – 3,80%3,10 – 3,80%3,00 – 3,80%3,10 – 3,80%
Paris secondary BD5,20 – 5,75%4,80 – 5,75%4,25 – 4,75%3,50* – 4,75%3,40 – 4,30%3,40 – 4,30%3,40 – 4,30%
La Défense6,60 – 7,50%5,60 – 7,50%5,00 – 5,50%5,00 – 5,50%4,10 – 5,75%4,00 – 5,50%4,00 – 5,50%
Other West CBD5,50 – 6,50%5,50 – 6,50%3,65 – 6,00%3,65 – 6,00%3,25 – 5,00%3,50 – 5,30%3,50 – 5,30%
Other Suburbs6,25 – 8,00%5,25 – 8,00%4,50 – 7,00%4,25 – 7,00%4,00 – 7,00%3,80 – 7,50%3,80 – 7,50%
Provinces5,70 – 8,00%5,40 – 8,00%5,00 – 8,00%4,80 – 7,25%4,00 – 7,00%4,00 – 7,35%4,00 – 7,35%
Source: MBE Conseil / * : theoretical rate

Office yield rate

  • For the time being, yields are stable. We seem to have entered a period of consistent low yields correlated to low interest rates; the massive imbalance between available funds and scarcity of space continues;

  • It is interesting to note the extent to which "prime" yield has tightened regardless of location: it hovers around 4% in all areas, except in Paris city where it is nearing 3%.