Q1 2021 has undeniably confirmed the positive return of key elements for the French investment market: solid investment volumes, particularly for offices; foreign investors are back; strong interest in Core assets; new record yields and market values.

Caution still dominates where financing is concerned, which limits the scale of investments and restrains speculative projects. However, real estate remains a safe haven asset given its comfortable risk premium compared with the OAT (treasury bond).

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The view of Delphine Mutterer

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Q1 2021 has undeniably confirmed the positive return of key elements for the French investment market.

Delphine Mutterer

Key figures April 2021

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 

  • Although investment is lower than that recorded during the exceptional Q1 2020 just before the first lockdown, the market still performed well in Q1 2021 with €4.4 billion invested.
     
  • This is well above the Q1 10-year average of €3.8 billion.

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 line with 2020, in Q1 the market proved extremely resilient on the €100-300 million segment. Now more than ever, this segment is the heart of the French investment market.
     
  • Mega deals declined sharply in Q1 2021, which recorded only one transaction for more than €300 million the acquisition of SHIFT in Issy-les-Moulineaux by a club-deal of Core investors led by PRIMONIAL REIM.

Amounts invested in non-residential real estate per product

Source: MBE Conseil

Amounts invested in non-residential real estate per product

  • The office market share increased to 76% of total investment.
     
  • Logistics demand remains strong, despite falling in Q1 2021, most likely due to a lack of supply.
     
  • This was partly compensated by significant light industrial investments (+48% compared with Q1 2020), particularly for last mile urban logistics.

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

  • Funds were the dominant investors in Q1 2021. A number of major transactions were signed by German funds in the logistics market (DWS for the GOODMAN portfolio, €235 million / DEKA for the NORTH portfolio, €120 million) and the office market (DEKA for 9 avenue Percier in Paris, €143.5 million / RVK for 9 rue d'Argenson in Paris, €52 million / REAL IS for LE GRAND LARGE in Marseille, €65.5 million).
     
  • Property companies contributed significantly to Q1 activity in terms of sales: UNIBAIL sold SHIFT in Issy-les-Moulineaux and several buildings in LES VILLAGES in La Défense; SFL sold 9 Percier and 112 Wagram in Paris; COVIVIO sold EDO in Issy-les-Moulineaux and several buildings in regional locations. Finally, HAMMERSON completed the arbitrage of a share of its ESPACE SAINT QUENTIN and NICE ETOILE shopping centres.
     
  • Property companies were behind nearly 30% of all assets sold in Q1 2021. 

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

  • The CBD continues to prove a major appeal for investors. Its public transport connections and market depth ensure the protection of investors' capital over time.
     
  • The decline of investments in the "Other Paris" sector seems purely circumstantial, given the lack of available assets. We note that investors maintain a fervent interest in all assets located in Paris city centre.
     
  • After a year without investment in La Défense, PERIAL and LA FRANÇAISE have acquired for their SCPIs VILLAGES 3 & 4, and VILLAGES 6, respectively, from UNIBAIL.
     
  • Inner suburbs have proven resilient with 3 transactions of more than €100 million in Montreuil (ALTAIS and 26 rue de Valmy) and Pantin (MAGASINS GENERAUX).

Office yield rate

Office yields - April 2021
2014201520162017201820192020Q1 2011
Paris CBD4,00%3,50%3,10%3,10%3,10%3,00%2,80%2,70%
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%4,35%
Other West CBD5,50%3,65%3,65%3,25%3,50%3,60%3,25%3,75%
Other Suburbs5,25%4,50%4,25%4,00%3,80%3,90%3,67%4,00%
Provinces5,40%5,00%4,80%4,00%4,00%3,70%3,40%4,30%
Source: MBE Conseil / * : theoretical rate

Office yield rate

  • Growing competition in Paris city centre has led to a slight prime yield contraction in the CBD to 2.70%. This is despite very little rent correction for new space. As a result, average market values for new space follow an exponential curve, reaching €26,000/sqm.
     
  • La Défense VILLAGES transactions are for renovated secondhand buildings, which explains the slightly higher yields than La Défense's traditional prime yields.
     
  • The 3.75% yield in the Western CBD corresponds to the sale of SHIFT in Issy-les-Moulineaux, a large-scale investment volume (€620 million).

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

  • Although not yet positive, the OAT has been approaching 0 since the start of 2021.
     
  • Inflation rose slightly to 0.6%.
     
  • Real estate risk premium remains solid (332 bps).