French real estate sees 3rd best investment year ever

French real estate enjoyed its third best annual investment performance on record last year with volume estimates ranging from €24 bn to €26 bn, based on calculations by Cushman & Wakefield and BNP Paribas Real Estate.

Cushman & Wakefield said the French market 'remembered its pre-crisis performances' last year. 'With €23.8 bn invested in 2014, the French commercial property market concluded the third best performance in history,' said Olivier Gérard, CEO of Cushman & Wakefield France.

The property adviser's 2014 Overview and 2015 Forecasts reports that last year's volume was up 57% on 2013 due to an increase in the number of very large deals; there were 23 transactions last year of €200 mln or above, totalling €11.9 bn, compared with only 10 such deals in 2013 which generated an aggregate volume of €3.5 bn. Three of the transactions exceeded €1 bn: Lone Star acquiring the Cœur Défense office tower in Paris; Carrefour's Carmila property arm taking control of a portfolio of the supermarket group's key assets and the sale of the Risanamento portfolio of Paris offices by the Saudi Olayan Group and Chelsfield Partners based in the UK.

The Paris region saw €17 bn of deals, accounting for 71% of the entire French volume. The volume for the French capital was up 53% on 2013 and office trades accounted for 77% of the 2014 volume for the city.

The retail sector also witnessed a record investment year: the 2014 volume of €7.7 bn was the best annual result in history, and represented a 60% increase on the previous record in 2007. Again, as with the office sector, this was due to a number of very large shopping centre and retail gallery portfolio deals involving Klepierre, Unibail-Rodamco and Carmila.

LACKLUSTRE BUT SOUGHT AFTER
BNP Paribas Real Estate recorded €26 bn of French real estate investment activity for 2014, up 38% on the adviser's 2013 figure.

France, according to its analysis, remains highly sought after despite 'lacklustre' economic growth. This is partly explained by the fact that commercial property in Europe is being seen as a 'safe haven'. The UK and Germany, the other two members along with France of the Big Three European real estate markets, continue to do better economically and are being rewarded with increasing property dealing. Investment in the UK grew from €65 bn in 2013 to €70 bn last year. Germany saw 30% volume growth to €40 bn.

Paris remains the dominant market in France, with offices as the most popular asset type. The report notes that major French and international institutions are increasingly focusing on large-scale developments. Twenty six developments of over €100 mln traded last year for a total of €9.5 bn. However, return on investment (ROI) levels decreased during the year under pressure from the combined effects of additional liquidity and a 'significant drop in finance rates'.

Laurent Boucher, executive chairman of BNP Paribas Real Estate Advisory, commented: 'French investors are taking up more opportunistic positions by acquiring campuses on the outskirts of cities and leasing these to major tenants, thereby generating more attractive returns of above 6% on average.'

The market for ‘off-plan’ deals is showing some buoyancy. The risk premium between rental property and non-rental property is coming down but remains high at around 150 to 180 basis points in the immediate outer Paris rim and 100 basis points in Paris itself.

Looking at the sub-€15 mln office transaction market, BNP Paribas Real Estate said there were 80 office deals in the greater Paris area (Ile de France) for a total of €500 mln. These developments were predominantly Parisian building complexes; fully-owned buildings in the North West corner and new high profile assets on the outskirts offering secure leases. Office investment in the regions amounted to €1.3 bn. Out of the 14 office developments of over €25 mln seen in the regions, half were located in Lyon.

LOGISTICS
Logistics accounted for 11% of total European commercial property investment in 2014, a volume of around €20 bn. In France, some €500 mln was invested in industrial premises and €1.1 bn in logistics. Institutional investors with a pan-European approach are interested in logistics assets. BNP Paribas Real Estate, for example, advised Blackstone's European logistics platform Logicor on the acquisition of the Loren portfolio for €473 mln.

See our Top Investors ranking publication in March for more on the top dealmakers in French real estate and an analysis of the Paris market.