BRIEFING: French real estate is back in vogue

French real estate has come back on to both domestic and foreign investors’ radar screens.

Strong demand is fuelling a dynamic market in different sectors, market experts agreed at PropertyEU’s France Investment Briefing, which was held in London on Tuesday at the City offices of law firm Paul Hastings.

‘France strikes back: it has become an interesting market again,’ said David Lacaze, partner at Paul Hastings. ‘There have been large transactions in the office, hospitality and retail sector. I can certainly say we are very busy this year, much busier than last year.’

Forecasts put the total investment market at between €20 bn and €23 bn this year. ‘The recovery is slow compared to London, but 2015 will probably be the best year ever in terms of inward investment,’ said Nathalie Charles, regional head, asset management & transactions, Southern Europe real assets at AXA Investment Managers.

Capital destination
As a large, transparent and well-known market, Paris is the obvious place to go to after London for foreign investors keen to enter Europe, and American money this year has been flowing in, along with Middle Eastern and Asian capital. ‘London and Paris are the natural entry points for foreign investors, easier to understand than the German market, and core continues to be the dominant investment style,’ said Marcus Cieleback, head of research at Patrizia Immobilien.

Domestic investors have been even more active, however, as both French institutions and retail investors have bet on the strengthening economic fundamentals boosting the market going forward. ‘The weight of capital is influencing the pricing, and prices are being driven by French buyers,’ said Karim Habra, head of France at LaSalle Investment Management.

‘Do not overestimate the influence of overseas investors in France,’ said Michael Walton, CEO of Rynda Property Investors. ‘French institutions continue to dominate the market.’

Rent
Both foreign and domestic investors with a long-term horizon will benefit from rental growth, which has been a long time coming, but is now expected to come through later in the cycle. Against the background of the positive impact of the European Central Bank’s QE programme, rents will be boosted by below average pipelines, as the crisis froze activity.

‘When rents came down it limited the amount of development going on, so supply will become limited and rents will increase,’ said Paul Raingold, president of Générale Continentale Investissements. ‘There will be rental growth, especially in areas with good infrastructure and transport links.’

In the all-important Paris office sector, prospects in some areas are so positive that investors are increasingly willing to take on development risk, Reingold said: ‘Financing is getting easier and loan to values have increased. There continues to be strong demand for central Paris but areas like Saint Denis and La Défense, which went through a weak phase, are now coming back strongly.’