7 minute read
INVESTING IN FRANCE
Race to the finish
Paris is undergoing a powerful transformation as it prepares to host the Olympic Games in 2024
Scores of developments and cities in evolution, underline that the French markets offer diverse opportunities, if investors can only keep up. Ben Cooper reports
Anyone who has been to MIPIM over the past decade can’t fail to have noticed the domineering Paris pavilion, in prime position at the Palais des Festivals. Step inside and the sheer scale of the exhibitions on display tell a story in themselves: Paris and the Grand Paris region are undergoing a phenomenal rate of development and change, the largest for 50 years. Once the long-term masterplan is complete, in the 2030s, the Paris region will have gained so much new infrastructure, transport, logistics, retail and residential space, both within the centre itself but, chiefly, in its outer rings, that it is fair to say that it won’t be the same city as it is today. “It’s going to change the face of Paris,” says Andy Watson, partner and fund manager at Europa Capital. “There is a gigantic amount of infrastructure that is coming out now. “Even within Paris there are some massive building sites like Port Maillot near the Arc de Triomphe, which will be a spectacular hub with lots of lines going in and out of it. Each rail project will be an opportunity for residential, offices and retail.”
And that is without citing one of the crown jewels of France’s current development ambitions: the vast array of new space being built across the whole Ile-deFrance region, and beyond, for the 2024 Olympics. With most of the work due for completion in December next year, including an extension of the Paris Metro to serve the Olympic Village, things are hotting up. Not least for the canny investors and developers who can turn this global event into a unique opportunity. The grand visions being realised in Paris tell one side of the French story. The other side is about the immediate opportunities, and challenges, within the more traditional aspects of real estate investment. The pandemic has affected the dynamics of French property investment across all sectors to varying degrees. Perhaps none more so than logistics; the “winner of the pandemic”, according to Raphael Brault, head of France at AEW. He says: “The pandemic has played a catalyst role in terms of increasing emerging trends and the winners of this pandemic period are clearly first and foremost the logistics asset class. The increase of ecommerce has required a big increase in logistics.” Add to this the pressures on the office sector by the radical, almost overnight revolution to work patterns, and inevitably the balance between the four key property sectors in France is shifting. Virginie Houzé, head of research at JLL France, says that the firm’s research shows offices have fallen from around 70-75% of the total investment volumes to 60-65%, with a drop for retail from 20% to between 10-15%. This fall has been made up for by gains by the logistics and industrial sector from 10% of the overall investment pie four years ago to as much as 25% today. For logistics, in real terms, says Houzé, investment volumes have increased from an average of €1.4bn per annum between 2010-2017 to an average of €4.2bn per annum between 2018 and 2021.
changing times, and in particular the catalyst of the past two years, that vacancy rates in the logistics sector are at an “all time low”, says Brault. Which means a major opportunity for logistics-specialist developers and investors operating in France. CBRE head of Investment Properties in France, Nicolas Verdillon, says: “In logistics development, the pressure of demand is bigger than supply. The consequence of this has been yield compression. There is a convergence between logistic and office yield.” Looking at the big picture, France is witnessing less of a radical shift, and rather a levelling up of the ratios between the asset classes. Verdillon says: “The French market is evolving in a way that there is a bigger balance between various asset classes. We can see also that, like everywhere in Europe, residential is increasing tremendously in France. “The demand is even higher [for residential] but there is a shortage of supply, as in logistics, while retail is oversupplied.” The office sector may be showing slightly decreased investment volumes than over the past five years, but it is still the dominant asset class for investors in the French market. And with so much faith in the French office sector, particularly in the global magnet of knowledge-based talent that is Paris, Verdillon says that a temporary slowdown shouldn’t be mistaken for a long-term trend. “There is still great interest in the office element, but with some questions. In this risk-focused environment people are focusing on core markets. They are more risk averse. “We mustn’t say that because of the decrease in office volume there is a crash.”
Looking beyond the capital, asset class diversity is also striking in the French regions. One such example is the city of Strasbourg, on the French-German border, the capital of the European Parliament. City leaders says they will be proudly exhibiting a slate of real estate projects at this year’s MIPIM that will “go much further in terms of ecological transformation and social and democratic inclusion”. These include the Deux-Rives projects, in the cross-border zone between France and Germany, the Archipel 2 business district masterplan, and the Strasbourg Ortenau Eurodistrict, proving that Paris is by no means the only city pushing things forward in French real estate. Dijon meanwhile is preparing to unveil its Cité Internationale de la Gastronomie et du Vin in May of this year, a vast regeneration project combining renovated historical buildings with a new eco-neighbourhood focused on food culture, situated on the Burgundy vineyard route.
With the dust settling, hopefully for good, it’s clear that the pandemic has left France in an accelerated mode of change, but essentially, Brault says, a very healthy place overall.
“We think interest rates will remain low for some time,” he says. “That makes the real returns of real estate very attractive. We see investor appetites remaining or increasing, and a significant appetite from investors looking to increase their exposure to real estate in France.”
CONFERENCES & EVENTS AT MIPIM 2022
INVESTING IN FRANCE
TUESDAY, MARCH 15, 16.15 - 17.00 – Agora Room
FRANCE:TOWARDS A NEW GEOGRAPHICAL DISTRIBUTION?
Experts explore how the dynamic French regions are evolving to offer still more to curious investors.
Virginie Houzé, head of research at JLL France Nicolas Verdillon, head of investment properties France, CBRE
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