The French Investment Market - October 2018

DOWNLOAD 2017 CATELLA PROPERTY'S ANNUAL STUDY

* required fields
pdf-cover

Despite a slight Q3 slowdown y-o-y, 2018 investment has clearly increased after 9 months of sustained activity! Q4 should also prove active, as has been the case these past few years. The question is will we equal the volumes transacted last year, or will we exceed them to reach 2016 or even 2007 investment levels (€28.4 billion and €30.8 billion respectively)…

 

Money is available across all types of assets and risk categories. Sellers obligated to sell are almost non-existent, and institutional investors are not selling their assets due to the difficulty of reuse.

 

For now it is difficult to issue forecasts for 2019, but there are few potential arbitrage projects. It will therefore be necessary to carefully monitor macro-economic developments, particularly Fed interest rate changes, which could increase those of the ECB... It seems a yield rate increase is not for the immediate future...

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

SUBMARKETS MAP

Despite a slight Q3 slowdown y-o-y, 2018 investment has clearly increased after 9 months of sustained activity! Q4 should also prove active, as has been the case these past few years. The question is will we equal the volumes transacted last year, or will we exceed them to reach 2016 or even 2007 investment levels (€28.4 billion and €30.8 billion respectively) …

Arnaud de Sordi

Key figures October 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 

  • After a robust 9 months, non-residential real estate investments have increased by nearly +23%, with a total investment volume of €17.2 billion;
     
  • Total investment volume is still somewhat less than that of 2016 (€17.2 billion versus €18.5 billion);
     
  • Y-o-y, the decrease is noticeable as Q3 investments dropped by -12%.

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

  • In the first 9 months, transactions > €100 million increased slightly by +5.35%; transactions of €50 €100 million increased significantly by +37%, and transactions < €50 million fell by -17%;
     
  • The €100-€500 million segment increased by +27% compared with 2017, which substantially compensated for the -21% decrease in transactions > €500 million (only 3 transactions: Quadrans, Apple Champs Elysées and the Westin Hotel).

Amounts invested in non-residential real estate per product

Source : MBE Conseil

Amounts invested in non-residential real estate per product

  • Despite a Q3 slowdown yo-y, office investments continue to grow and have increased by +10% since January 2018;
     
  • Note that 12 transactions represented 36% of total office investments; each of these transactions exceed €200 million!
     
  • Investment in all other asset categories has increased (business, retail, healthcare, hotel/leisure), except for logistics. Logistics investments decreased in the first 9 months by -34%, which confirms the exceptional nature of the 2017 Logicor transaction.

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

  • Investments by listed property companies, private property companies and individual investors (natural persons) remain stable overall. Overall investment remains low, and represents €2.1 billion, i.e., 12.2.% of the total at 9 months;
     
  • Savings collectors (SCPI, OPCI and insurance companies) represent €5.1 billion, i.e., 29.7% of total investments, a decrease of 19.4% y-o-y, primarily due to a significant decrease in OPCI /SCPI investments;
     
  • Strong increase in CORE and CORE+ funds, which represent 41.3% of the total volume at 9 months, i.e., an increase of nearly +30.8%!
     
  • If we add opportunistic funds, which represent 16.8% of total investments and a spectacular 92.1% increase, then investment funds represent a total of slightly more than 58%!

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 accounts for 41.3% of investments, i.e., a +70.8% increase, including an increase of +309.1% in the CBD!
     
  • Paris CBD and Western Paris investments, as well as business hubs, have increased by 19.3%, and represent 38.4% of 2018 investment volume;
     
  • Investment in the 2 rims remains stable, and recorded only a slight decrease of 4.8% (even if we must note the +33.5% increase in the Inner Rim) and a volume representing 20.1% of the total at 9 months;
     
  • Investment in outer regions has decreased slightly (5.5%) representing 20.3% of investments. Portfolio investment has increased slightly (+13.8%), despite a share that remains low due to the lack of opportunities (7.6% of 2018 investments).

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 real estate risk premium remains consistently high; real estate continues to appeal, especially in relation to other financial assets, and specifically bonds.
     
  • Despite the slowdown in the influx of savings, which are still invested at a consistent pace, we do not currently see any signs that would inverse the balance of power in favour of buyers.

Office yield rate

Office yields - Octobre 2018
201220132014201520162017 Q3 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

 

  • Rates are finally stabilising. However, this requires a closer look as it's increasingly a niche, and even micro-niche, market...
     
  • Rates seem to have hit a threshold, whereas rents are increasing, particularly in Paris, which are affecting market values which continue to increase...