The French Investment Market - July 2020

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Weakened by an unexpected health crisis, Q2 2020 was marked by a market adjustment that could lead to a new scale of rates that are more in line with the current business district hierarchy.
 

Parisian prime projects have proven resilient.
 

The evolution of the economic, social and health situation in September 2020 will be decisive in terms of the continuation or cessation of the real estate market adjustment.

Our vision of the French Investment Market
The view of Vanessa Guyot-Sionnest

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Weakened by an unexpected health crisis, Q2 2020 was marked by a market adjustment that could lead to a new scale of rates that are more in line with the current business district hierarchy.

Vanessa Guyot-Sionnest

Key figures July 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 

  • Lockdown has caused a -56% decrease in investment volume for Q2 2020, and a total decrease of -20% since the start of the year;
     
  • Given the uncertainty of the leasing market and asset "repricing", investors are waiting before making any decisions.

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

  • Overall, large investments have been more resilient despite an overall decrease. This is particularly true for the €100-300 million segment whose investment volumes have remained almost stable compared with 2019;
     
  • €300-500 million segment investment has decreased slightly by 8%;
     
  • Overall, 66% of investments were for projects of more than €100 million.

Amounts invested in non-residential real estate per product

Source: MBE Conseil

Amounts invested in non-residential real estate per product

  • Although offices represented 65% of investment volume, offices have experienced a take-up free fall of almost -70% in Q2;
     
  • Logistics investment has also suffered, with very few transactions;
     
  • Retail has been resilient, with a 28% increase in investment thanks to the sale by Unibail-Rodamco-Westfield of 54.2% of a 5 shopping centre portfolio for €1.1 billion.

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

  • Insurance companies have increased investment, with the purchase of the URW 5 shopping centres portfolio which accounted for 34% of investment volumes for H1 2020;
     
  • SCPIs continue to perform well, with investment declining by only 10%;
     
  • Other investor categories have decreased their acquisitions.

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

  • Investment surged by 82% in the CBD as a result of 4 transactions of more than €100 million;
     
  • Investment also intensified in the Western CBD, with a 119% increase;
     
  • A 38% increase was also observed in the Inner Rim North;
     
  • However, investment in the Outer Rim and regional locations fell by -29% and -9% respectively.

Office yield rate

Office yields - Juillet 2020
201420152016201720182019Q2 2020
Paris CBD4,00%3,50%3,10%3,10%3,10%3,00%2,80%
Paris secondary BD4,80%4,25%3,50%3,40%3,40%3,40%3,40%
La Défense5,60%5,00%5,00%4,10%4,00%4,00%4,00%
Other West CBD5,50%3,65%3,65%3,25%3,50%3,60%3,70%
Other Suburbs5,25%4,50%4,25%4,00%3,80%3,90%3,95%
Provinces5,40%5,00%4,80%4,00%4,00%3,70%3,60%
Source: MBE Conseil / * : theoretical rate

Office yield rate

  • Yield decreases, particularly in Paris CBD, will not be sustainable given the rise in leasing risks and the rising cost of credit;
     
  • Paris CBD could prove more resilient with an increase of only 20-30 bps;
     
  • A higher increase is expected in other locations, particularly in "other suburbs" such as the Inner Rim, and in regional locations.

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

  • From the end of January 2020, the 10-year treasury bond (OAT) yield has again become negative;
     
  • Inflation remained low at 0.2% for H1 2020;
     
  • Prime yields in Paris CBD have remained low, and even decreased, due to the risk premium remaining high at nearly 320 bps.