The French Investment Market - July 2018

DOWNLOAD 2017 CATELLA PROPERTY'S ANNUAL STUDY

* required fields
pdf-cover

Given its excellent start, 2018 could be a record year for real estate investment.

 

The risk premium is attractive, vacancy rates are decreasing, rents are increasing and France is once again enticing: these combined factors make for a highly favourable investment context.

 

H2 should continue the momentum, ensuring a favourable environment for sellers, especially given the availability of international equity.

 

However some markets are starting to right themselves, in particular those that experienced difficult lease market moves, or that do not stand to benefit from the "Grand Paris" project. For now this phenomenon is still somewhat lost in the crowd and the hype, but it still makes people wary.

 

The ECB's end of quantitative easing will certainly impact interest rates, but initial effects should be felt in 2019. Until then, the momentum is excellent!

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

SUBMARKETS MAP

Given its excellent start, 2018 could be a record year for real estate investment.

Arnaud de Sordi

Key figures July 2018

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 

  • As expected, Q2 has recorded an impressive transaction volume of €7.3 billion, almost comparable to 2016!
  • This means transactions have increased by +33% between Q2 2018 and Q2 2017!
  • €11 billion were transacted in H1, i.e., an increase of slightly more than 18% compared with the same period in 2017.

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

  • €100-300 million transactions nearly doubled in volume YoY (+71%)!
  • €100 million and higher transactions represent 66% of investments. This again proves the money is there, and that investors prefer easy to manage assets versus multiple smaller assets...
  • The 32% decrease in transactions -€50m corroborates this observation;
  • Note the astonishing increase in €300-500 million transactions (+121%) with three key transactions: Kosmo, Portfolio Oxford, and Cœur Marais.

     

     

Amounts invested in non-residential real estate per product

Source : MBE Conseil

Amounts invested in non-residential real estate per product

  • Offices represent nearly 3/4 of investments, to the detriment of logistics which has suffered a 53% decrease;
  • Office investment increased by 46% compared with H1 2017 to reach nearly €8 billion, with multiple very large transactions (e.g.,: Quadrans, Kosmo, Cœur Marais, Oxford portfolio, Marché St Honoré, Meudon Campus, Metropolitan, etc.);
  • Logistics and retail account for almost all other investments, totalling slightly more than €2.4 billion;
  • Note: excellent real estate diversification, including healthcare and hotel-leisure sectors, although these only amount to €450 million (due to lack of available properties).

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

  • Significant breakthrough for core / core+ assets, which increased by +37%;
  • The same is true for opportunistic investments, which increased by +25%, although value creation transactions remain limited;
  • Property companies' (public or private) investments remain lean: slightly less than 9% of investments, due to the difficulty of finding top locations as well as more affordable opportunities;
  • Savings collectors, excluding insurers, (SCPI / OCPI), have a weak share with only 14% of investments; they recorded a decrease of nearly 29% compared with H1 2017, a reflection of a general decrease;
  • Insurers however have maintained a strong momentum, increasing investments by nearly +265%, which confirms that life insurance policies are once again popular...

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

  • Paris alone attracts 43% of all investments, and CBD investment increased by nearly +268%!
  • Overall, large business districts (Paris CBD, business districts, Western CBD) represent 40% of all investments, reflecting investors' interest in market security during a period of high prices... These districts have recorded an impressive increase in investments: +55% compared with H1 2017!
  • Investors seem to prefer Parisian or Inner Rim neighbourhoods (+216%) to the Outer Rim and Regional locations (32%).

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

  • As the "prime" yield remains stable, the real estate risk premium continues to vary depending on OAT fluctuations (French treasury bonds), which currently range between 0.50% and 0.70%;
  • Real estate therefore remains an attractive investment compared with securities, despite low yields in several markets.

Office yield rate

Office yields - Juillet 2018
201220132014201520162017 Q2 2018
Paris CBD4,50 – 5,00%4,25 – 5,00%4,00 – 5,00%3,50 – 4,25%3,10 – 3,80%3,10 – 3,80%3,10 – 3,80%
Paris secondary BD5,50 – 6,00%5,20 – 5,75%4,80 – 5,75%4,25 – 4,75%3,50* – 4,75%3,40 – 4,30%3,40 – 4,30%
La Défense5,50 – 6,50%6,60 – 7,50%5,60 – 7,50%5,00 – 5,50%5,00 – 5,50%4,10 – 5,75%4,10 – 5,50%
Other West CBD5,50 – 6,00%5,50 – 6,50%5,50 – 6,50%3,65 – 6,00%3,65 – 6,00%3,25 – 5,00%3,50 – 5,00%
Other Suburbs6,25 – 7,00%6,25 – 8,00%5,25 – 8,00%4,50 – 7,00%4,25 – 7,00%4,00 – 7,00%3,80 – 7,00%
Provinces5,80 – 8,00%5,70 – 8,00%5,40 – 8,00%5,00 – 8,00%4,80 – 7,25%4,00 – 7,00%4,00 – 7,00%
Source : MBE Conseil / * : theoretical rate

Office yield rate

  • Generally speaking, reference rates remain stable;
  • The "prime" rate continues to hover around 3%, not quite reaching or dropping below this threshold; however that could change in the second half of the year...
  • A few slight increases have occurred; however these have primarily been concentrated in peripheral business markets, excluding CBD, and in certain cities transactions have a hard time getting out (demand is 50 to 100 bps out compared with supply).