French real estate investment returns continue to slow - IPD

Since its most recent peak in 2010, French investment property performance has continued to decline, reaching 5.1% in 2013 versus 6.3% in 2012, according to the IPD France annual real estate index.

In 2013 the deceleration stemmed from negative capital growth of -0.4% for all property, compared to an average of 1.0% per annum for the last three years. The office, logistics and industrial sectors all continued to see falling property values. Income return, however, stayed constant.

Real estate investment performance remained above that of bonds (JP Morgan GBI Global, FR 7-10 years) at 0.1%. In contrast, its return trailed those of equities (MSCI FR) and real estate shares (MSCI FR/ Real Estate) at 22.1% and 8.7% respectively. It also stood below the return of 5.6% on French unlisted property funds as measured by the IPD OPCI (former RFA) index, produced in association with ASPIM.

Retail assets bucked the trend of a slowing market, posting a total return of 7.2% based on an increase in capital values of 1.4%. This reflected a continuation of rising market rental values and falling yields in the sector.

Offices meanwhile matched residential with a total return of 4.4%, thanks mainly to a strong income return, while capital values fell at an increasing rate, by -1.3% (compared to -0.3% in 2012).

'Underlying this negative office capital growth, disparities remained between Paris and the rest of France. Demand for Paris assets remained strong, causing initial yields to be compressed somewhat through the year to reach 4.8% for Paris CBD. So property values there have risen by 2.0% in 2013 while declines have accelerated outside Paris,' said Stéphanie Galiègue, executive director, IPD France and Southern Europe. Income return for the office sector as a whole remained steady, despite a slight decrease in passing rents and rental values.

Residential capital values continued to rise in 2013, producing capital growth of 1.5%, though this marked a fall compared to previous years and resulted in a total return of 4.4%.

Meanwhile the logistics and industrial sectors registered slightly improved returns in 2013 at 4.3% and 4.1% respectively. Income returns for both these segments remained high at 7.4% and 7.7%, compensating for falling values, a trend which has now continued for the last six years.