Despite suffering the consequences of an unexpected pandemic, the 2020 investment market performed reasonably well. Commercial real estate investment totalled €23 billion excluding duty, i.e. a 39% y-o-y decrease.
Key events of the past year include: Paris CBD investment was equal to that in other sectors of Paris; Western CBD investment has clearly contracted, largely due to the absence of even a single transaction in La Défense; €100-300 million segment proved resilient; the market has shifted to domestic investors and those from neighbouring countries; finally, prime yields have again fallen in the country's most highly sought after sectors such as the Paris CBD, Western CBD (excluding La Défense) and Lyon.

What is in store for 2021?

The market should progressively rebound after Q1, which is likely to record a decline compared with Q1 2020.
A number of causal factors must be carefully monitored: changes in the leasing market, which may suffer a long-term impact from the pandemic; collections by SCPIs and Life Insurance Companies' unit linked account; foreign investor presence on the French market, given the numerous challenges (Brexit, border closures, etc.); and a potential yield inversion as low yields persist for Parisian assets whereas yields are increasing for some inner and outer rim sectors.

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Despite suffering the consequences of an unexpected pandemic, the 2020 investment market performed reasonably well.

Vanessa Guyot-Sionnest

Key figures January 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 

  • Despite a strong Q1 with a 48% increase in investment compared with Q1 2019, the 2020 investment market was torpedoed by the health crisis.
     
  • Investment totalled €23 billion. This represents a 39% y-o-y decline, primarily due to restricted financing and major investors' cautious approach given the widespread uncertainty.

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

  • Nearly 66% of investments were for transactions of more than €100 million, with a total of 69 transactions.
     
  • Transactions of more than €500 million contracted by 44%, with only 5 transactions (including CAMPUS ENGIE in Q4).
     
  • The €300-500 million segment suffered most: investment fell by 75%.
     
  • 43% of 2020 investment was in the €100-300 million segment. This segment has suffered least, with only a 10% contraction in investment volume.
     
  • Investment in transactions of less than €100 million has also fallen sharply.

Amounts invested in non-residential real estate per product

Source: MBE Conseil

Amounts invested in non-residential real estate per product

  • All real estate categories have suffered a more or less brutal decline in investment.
     
  • Office investment has fallen by 36%, although it remains dominant with nearly 68% of total investment.
     
  • Despite a dynamic Q1 and active Q4, the logistics segment recorded a 32% decline.
     
  • Retail also suffered a 32% decline. This would have been more significant without URW's sale of shares in a portfolio of 5 shopping centres.
     
  • Investment in hotels, which have been particularly hard hit by the crisis, has collapsed, falling by 84%.

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 are the only investors to have increased investment, thanks to the acquisition of the URW portfolio and of CITYLIGHTS 1 and 3.
     
  • Core and Core+ funds have fallen dramatically, as investment amounts dropped by 47%. This is primarily due to the absence of Asian funds.
     
  • SCPIs have proven more resilient than funds, with investment shrinking by only 23%.

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

  • All geographic areas have suffered a contraction in investment.
     
  • The Western CBD has been most impacted with a 66% decrease. This is primarily due to the absence of transactions in La Défense.
     
  • Outer Rim and regional investment have also deteriorated by an average of 55%.
     
  • The CBD has proven more resilient, as investment fell by only 27%.
     
  • Only portfolio investments have increased. This is mainly thanks to the URW portfolio and two logistics transactions of more than €300 million.

Office yield rate

Office yields - January 2021
2014201520162017201820192020
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%3,25%
Other Suburbs5,25%4,50%4,25%4,00%3,80%3,90%3,67%
Provinces5,40%5,00%4,80%4,00%4,00%3,70%3,40%
Source: MBE Conseil / * : theoretical rate

Office yield rate

  • Yields remain low in the Paris CBD, Western CBD (excluding La Défense) and other suburban areas.
     
  • In the CBD, rental yield fell below the symbolic 3% threshold.
     
  • In the Western CBD, yields have contracted in cities such as Boulogne-Billancourt and Malakoff.
     
  • In terms of regional locations, office yield has fallen in Lyon.

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 risk premium has grown. It remains high given inflation and the fact that the fungible Treasury bond yield has remained negative for most of the year.
     
  • The risk premium is 363 bps which is keeping prime yields low in the Paris CBD.