The French Investment Market - January 2020

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Rate compression should continue in 2020.
 

What is the outlook for 2020 after an explosive 2019 where more than €36 billion were invested in commercial real estate?
 

Prices should increase given the abundant equity and shortage of available assets.
 

This was already the case in Q4 2019 with yields under 3% in the CBD and a compression of around 25 basis points in the Western Crescent.
 

Given the persistently low interest rates, this phenomenon should continue, barring any unforeseen geopolitical upheavals.

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Rate compression should continue in 2020.

Vanessa Guyot-Sionnest

Key figures January 2020

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 

  • Investment dropped slightly in Q4;
     
  • However, 2019 was an "explosive" year, with investments totalling €36bn HD and a 14% y-o-y increase in volumes sold.

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

  • A record for transactions in excess of €500 million, which increased by 124%;
     
  • €100-€500 million transactions caught up in Q2 after a mediocre Q1;
     
  • A 17% decrease in €50-€100 million transactions;
     
  • Transactions of less than €50 million increased by 9%.

Amounts invested in non-residential real estate per product

Source: MBE Conseil

Amounts invested in non-residential real estate per product

  • 65% of investment was for office space. Offices remain the most soughtafter property type and investment increased by 8%;
     
  • Retail remained resilient and recorded a 15% increase, despite the economic difficulties faced by this sector;
     
  • Logistics is experiencing strong growth with a 64% y-o-y increase in investment;
     
  • Special use property (Health/Hospitality) represents only 6.4% of all investment. Healthcare investment decreased by 9% while Hospitality investment increased by 50%!

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 and Core + funds led the market with 39% of the volumes invested, thanks in particular to Korean funds;
     
  • SCPIs invested significantly with 16% of total investment, as did opportunistic funds;
     
  • Insurance company investments decreased despite a few major transactions at the end of the year;
     
  • Although SIICs increased investment, volumes remained low;
     
  • Investments by private investors remained stable.

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

  • Western CBD investment increased by a significant 55%;
     
  • Investment in Paris dropped, primarily as result of a 19% decrease in volumes invested in the Paris CBD;
     
  • Inner Rim investment increased by 55% with 10 transactions of more than €100 million in the North and South sectors;
     
  • Outer Rim investment increased by 4%;
     
  • 9% decrease in Regional investment.

Office yield rate

Office yields - Janvier 2020
20132014201520162017 20182019
Paris CBD4,25 – 5,00%4,00 – 5,00%3,50 – 4,25%3,10 – 3,80%3,10 – 3,80%3,10 – 3,80%3,00 – 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%3,90 – 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%3,70 – 7,35%
Source: MBE Conseil / * : theoretical rate

Office yield rate

  • Prime yields were stable across all sectors except for Regional locations, particularly Lyon where the prime yield fell by 30 basis points;

  • In Paris, yields for transactions with lease reversion potential exceeded the 3% threshold.

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

  • The 10-year OAT yield recovered slightly in Q4 to 0.094 at the end of December 2019;

  • Inflation was low in 2019: 1.1%;

  • Although the risk premium dropped, it remained high at 406 basis points at the end of December 2019.