The French Investment Market - October 2021

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Despite the economic recovery that is emerging thanks to improved control over the health crisis, the investment market has contracted by 19% over the first three quarters of the year. The market remains stable, and is even growing, for investments of less than €100 million. The contraction in office investments continues. It is proportional to the investment market’s overall contraction, and contrasts with the gradual yet persistent growth of the logistics market.
The significant capital invested has maintained values across all asset classes.

Our vision of the French Investment Market
The view of Delphine Mutterer

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Despite the economic recovery that is emerging thanks to improved control over the health crisis, the investment market has contracted by 19% over the first three quarters of the year.

Delphine Mutterer

Key figures October 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 

  • The investment market has contracted by 19% over the first three quarters compared with 2020.
     
  • Yet these figures mask the encouraging signs of an economic rebound against the backdrop of an improving health crisis.

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

  • Investors have substantially repositioned themselves on smaller assets that are deemed more liquid and feasible to finance under the best conditions.
     
  • The collapse of transactions for more than €300 million has been confirmed, particularly for offices.
     
  • The heart of the market is shifting to the €50-150 million segment.

Amounts invested in non-residential real estate – per product

Source: MBE Conseil

Amounts invested in non-residential real estate – per product

  • Office investment continues to slowly erode in terms of total investment. It represented 61% over the first 3 quarters of 2021 versus 65% over the same period in 2020.
     
  • On the other hand, logistics continues to gain ground every quarter. It still only represents one third of the amounts invested in office space, but its growth is based on solid and sustainable fundamentals.

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

  • The first 3 months of the year were dominated by investments by North American and German funds, both in logistics and offices. Major transactions include HINES’ acquisition of 11 logistics platforms from AUCHAN RETAIL LOGISTIQUE (€286 million), the purchase of 59 HAUSSMANN, the CREDIT DU NORD’s historic head office, by UNION INVESTMENT (€237 million).
     
  • French investors’ retreat can be explained by the substantial decrease to date of investments made by insurance companies and SCPIs. Collections nevertheless remain strong. A number of major transactions already signed in Q4 signal a recovery by the end of the year.
     
  • SCPIs represented 19% of total investment over the first 3 quarters 2021, versus the 10-year average of 15%.

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

  • Regional investment is exploding under the weight of shopping centre and logistics portfolios.
     
  • In the Paris region, the quarter was marked by a number of large Outer Rim transactions, including LES PORTES D’ARCUEIL (€297 million) acquired by PERIAL, SENSE in Puteaux (€190 million) acquired by AGC, and UP GARDENS (€83.5 million) in Gennevilliers recently acquired by PRIMONIAL.
     
  • Investment in Paris city centre continued over the first 9 months of the year, although the figures show that amounts are not increasing.
     
  • It is nevertheless interesting to note that Parisian consultations remain highly competitive given the significant influx of capital. There are few properties for sale on the market; it could have performed better if assets had been available for acquisition.

Office yield rate

Office yields - October 2021
2014201520162017201820192020End of Q3 2021
Paris CBD4,00%3,50%3,10%3,10%3,10%3,00%2,80%2,75%
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%-4,30%
Other West CBD5,50%3,65%3,65%3,25%3,50%3,60%3,25%3,50%
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%3,36%
Source: MBE Conseil / * : theoretical rate

Office yield rate

  • Yields remain low and stable in Paris. They continue to compress in regional locations thanks to recent transactions in Lyon.
     
  • Yield rises in suburban locations are more the result of the quality of assets and locations sold than a structural trend. This trend should be reversed in Q4 in some sectors, such as La Défense.

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 is stabilising at around 370 bps this quarter, which remains highly consistent compared with riskfree rates.
     
  • However, specialists are worried about inflation as the world economy restarts.