The French Investment Market - July 2017

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During the 1st semester, investment volume decreased by 18% compared with the same period in 2016 (€8,530 Billion vs. €10,055 Billion). This is fairly significant, and although there are several properties on the market, high prices are beginning to rein in investors' enthusiasm. Despite what we may think, not everything is being sold!

 

The market seems to indicate a slight period of consolidation. The "prime" rate remains fixed at 3.10% for 2017 (even if 3Q should record a new decrease of 10 bps). Except for peripheral markets outside of the Western business districts which have experienced spectacular investment decreases (for example in Saint Denis), overall yield rates have shown the same stagnation. The imbalance between available money and the few available assets remains colossal. The real estate risk premium has increased: in spite of everything, the market remains favourable to sellers.

 

There are currently close to 14 billion euros in deals of more than €200 Million to sell on the market. The market is clearly oriented towards core "mega-deals", with the confirmed presence of French savings collectors (insurers, REITs or real estate investment trusts, and OPCIs or open ended property funds), some foreign long-term funds, and some new entrants from Asia (notably Korea), via local operating partners.

 

France has experienced renewed interest from foreign investors since the election of Emmanuel Macron. Nevertheless, we are heading towards a slight overall decline for the year: deals take time to sign, the slightest spanner in the works is cause for renegotiation, or even the cancellation of the deal, there are few properties in the €20-200 Million range, and even fewer available for value-add strategies. Will consolidation take pride of place over action and a significant rebound? The 2nd semester will in any case be interesting to watch…

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

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During the 1st semester, investment volume decreased by 18% compared with the same period in 2016 (€8,530 Billion vs. €10,055 Billion). This is fairly significant, and although there are several properties on the market, high prices are beginning to rein in investors' enthusiasm. Despite what we may think, not everything is being sold!

Arnaud de Sordi

Key figures July 2017

Investment volume in the French non-residential market

Source : MBE Conseil

Investment volume in the French non-residential market

  • Significant decrease in transactions during the 2nd quarter (-30%), engendering a decrease of -15% in take-up volume during the 1st semester, compared with the same period in 2016.
  • We nevertheless anticipate dynamic 3rd and 4th quarters.

Non-residential investment volumes by size - portfolios and single assets

Source : MBE Conseil

Non-residential investment volumes by size - portfolios and single assets

  • Transactions of more than €300 Million have jumped by +110% in the 1st semester, clear evidence that the market is heavily oriented towards large "Core" deals.
  • Transactions of less than €300 Million have however decreased, which shows that operators are prioritising large volumes, and that there are few products of a smaller size on the market.

 

Non-residential investment volumes by product type

Source : MBE Conseil

Non-residential investment volumes by product type

  • Office space share has decreased slightly, although it still accounts for most 1st semester investments, especially if we correct for the LOGICOR effect.
  • Logistics transactions outside of LOGICOR have remained constant.
  • Retail transactions have also slowed, which should prove only temporary as several large transactions should be signed during the course of the 2nd semester.

 

Non-residential investment volumes by investor type

Source : MBE Conseil

Non-residential investment volumes by investor type

  • "Core" and "Core +" funds have increased activity by +67%!
  • Strikingly, savings collectors (insurance companies and REIT/OPCI) have shown a -102.5% decrease in investment activity! This should stabilise over the course of the 2nd semester...
  • Property companies have not been very active in direct real estate investment, but that's without counting the acquisition of Eurosic by Gecina, and Icade's investment in ANF... 

Non-residential investment volumes by location

Source : MBE Conseil

Non-residential investment volumes by location

  • Paris has experienced a decrease of more than 100%, but several large transactions are currently in process and should reverse this trend during the 2nd semester.
  • The Western CBD has also experienced a decrease of more than 50% due to lack of properties.
  • The same applies to regional areas, with few large properties available, but a number of large transactions are currently in process in Lyon and Marseille.

Office market prime yields vs. government bond yields

Source : MBE Conseil

Office market prime yields vs. government bond yields

  • Treasury bonds have again decreased slightly, which has increased the real estate risk premium, given the office prime rate has remained stable.
  • This should become more balanced over the course of the 2nd semester. 

 

OFFICE MARKET YIELDS

Office yields - Juillet 2017
20122013201420152016Q2 2017
Paris CBD4,5 – 5,0%4,25 - 5,0%4,0 - 5,0%3,5 - 4,25%3,10 - 3,80%3,10 - 3,80%
Paris secondary BD5,5 - 6,0%5,2 - 5,75%4,8 - 5,75%4,25 - 4,75%3,5* - 4,75%3,40 - 4,75%
La Défense5,5 – 6,5%6,6 - 7,5%5,6 - 7,5%5,0 - 5,5%5,0 - 5,5%4,25 - 5,5%
Other West CBD5,5 – 6,0%5,5 - 6,5%5,5 - 6,5%3,65 - 6,0%3,65 - 6,0%3,65 - 6,0%
Other Suburbs6,25 - 7,0%6,25 - 8,0%5,25 - 8,0%4,5 - 7,0%4,25 - 7,0%4,00 - 7,0%
Provinces5,8 - 8,0%5,70 - 8,0%5,40 - 8,0%5,0 - 8,0%4,80 - 7,25%4,0 - 7,00%
Source : MBE Conseil / * : theoretical rate

OFFICE MARKET YIELDS

  • For the moment, overall yield rates remain stable except in "Other Suburbs", where they have decreased slightly (transactions in St. Denis in particular).
  • Yield rates should still decrease slightly between now and the end of 2017, but this decrease will not be dramatic.