Investment France Q1 2021 - Trends and outlook for the investment market - Savills
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France – May 2021
Investment
France Q1 2021
SPOTLIGHT
Savills Research
Trends and outlook for the investment market
France - Investment - Q1 2021
IN BRIEF: ECONOMIC CLIMATE
WHAT’S BEEN HAPPENING IN THE MARKET? STAGGERED RECOVERY
On the pandemic front, The upswing should
€4.9 billions 32% multiple unknowns remain be apparent across
France investment volume The share of investments in – not least the threat the board, affecting
since January 1st the regions
posed by new variants. investment, consumption
This makes the immediate and international trade.
economic outlook far
trickier to read. That said,
most forecasters agree
that France can look
forward to a vigorous 9.5%
-37% 35% economic rebound
annual trend one year ago in 2021. Following
2020’s wincingly sharp Unemployment rate
contraction in GDP (forecast to end
(8.2%), France should 2021)
make speedier progress
than either the Eurozone
2,75% as a whole or the UK. The
59% Prime office yields in Bank of France would Some of the losses
French investors' share Ile-de-France appear to concur, having chalked up during the
upgraded its 2021 growth crisis will no doubt
forecast to 5.5% in mid- be recouped, but
March. not enough to fuel
significant job creation.
We can therefore expect
climbing unemployment,
peaking at some point
60% 2.75% 5.5% during 2021. However,
one year ago one year ago
the situation is likely to
be less alarming than
previously suggested
By the end of Q1 2021, France’s overall investment volume (affecting 9.5% of the
was on the cusp of reaching five billion euros. The market has active population, rather
than the 10.5% predicted
moved onto more solid ground and remains ahead of the ten- until now).
year average, despite a 37% slump. French GDP growth
estimated for 2021
The economy should
continue to rev up over
International investors continue to pile in; unlike previous 2022 (+4%) and 2023
crises, the pandemic has not triggered a flight and (+2%), albeit in fits and
consequent fallback on domestic demand. These projections, starts, bringing France
released just before back in line with the
the French government Eurozone average. If all
Activity is being hampered by a lack of supply, announced the latest of these predictions bear
particularly in core office property, logistics and serviced round of pandemic out, companies will be
restrictions at the end of in a renewed position to
accommodation. Opportunities harboured by France’s main March, strike a note of think about their future
regional cities are attracting growing interest. caution for Q1 2021 and workspace needs: good
distinct optimism for the news for the lettings
second half of the year. market.
Prime yields remain at record low levels. There’s even some So, there’s a lot hanging
patent yield compression going on in the logistics market. On on the ongoing fight
the flip side, risk is likely to be more generously rewarded, against COVID-19.
leading to a higher yield spread.
savills.com/research 2
France - Investment - Q1 2021
On solid ground
Investment volumes: Pep and prudence
Is the glass half empty or half full? At the close of Q1 2021, the French commercial real estate
investment market was certainly still underperforming by pre-pandemic and pre-lockdown
standards – we might recall that Q1 2020 saw investment volumes hit record heights.
Nonetheless, it still overshot the ten-year average, quite a feat in a climate of so much lingering
uncertainty. Its capacity to bounce back from this crisis cannot be in doubt.
Close to €4.9 billion was invested in real estate to assets of this scale. The quarter’s standout still-uncertain road ahead, France’s investment
in France during Q1 2021. Compared to the same transaction, the acquisition of the Shift building market still came out ahead of the ten-year
period of 2020, that’s a sharp drop of 37%. Bear at Issy-les-Moulineaux for over €600 million, average for Q1 (€4.7 billion).
in mind, however, that at €7.7 billion the Q1 2020 was in fact a club deal between Primonial, La
investment volume was the highest on record. Française and EDF Invest. The appetite for real estate assets remains strong,
and there’s plenty of liquidity flowing in. That
To a great extent, this year’s figure has been The contrast with the €100–200 million bracket kind of resilience bodes very well for the future,
dragged down by a lack of major deals. is stark: here, investment volume dipped just especially when we factor in deals already in the
While there were nine acquisitions with lot sizes 10%, while the number of transactions fell from pipeline.
exceeding €200 million in Q1 2020 – for a total of ten to eight. In light of current market and
€3.1 billion – just four were completed in the first financing conditions, it seems that investors are
three months of 2021, representing €1.3 billion of finding more modest transactions easier to get
investment. This amounts to a decline of 57%. over the line. Once again, this speaks to a certain
Evidently, those contemplating this kind of deal caution in the air.
have become a shade more demanding in terms of
security, making the lack of opportunities all the This very varied picture should not distract
more acute. from one crucial point: despite the French
What’s more, certain investors are treading economy’s unprecedented contraction in 2020, a
even more warily, reluctant to risk full exposure headlong tumble in office lettings activity and a
France - Investment volume over time 21%
Legend: Invested volume at Q1 Invested volume Apr./Dec. 10-year average
45 000
40 000
35 000
30 000
In € millions
25 000
20 000
15 000
10 000
4 885
5 000 4 729
0
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Source Savills Research
savills.com/research 3
Origin of funds invested: On the international
radar
At times of crisis, international investors often bow out, leaving domestic players to prop up
the market. This is exactly what we saw in 2020. Balance, however, is already being restored.
Clearly, the French market is still firmly on the international investor’s radar.
French buyers accounted for 59% of investment feeling the need to pause and take stock before
during Q1 2021. That’s a practically equal making their next move.
portion to Q1 2020 (60%), before Europe fell
prey to the pandemic. When we take the French real estate market France : Distribution of investment
That tells us that the first three months of 2021 as a whole, once again German investors stand volumes
were marked by the ‘reinternationalisation’ out for their enthusiasm, representing 15% of
Legend:
of the French market. In fact, the share of total investment volume. What’s more, their
France Germany United Kingdom
investment volume attributable to domestic share has grown over the last twelve months.
Rest of UE North America Asia Pacific / Middle East
investors swelled to 65% in the early days of the Meanwhile, North American investors are still Others
first national lockdown. very well represented, although their numbers
have dwindled slightly in the last year. Providing
This phenomenon is largely due to a healthy 10% of all funds invested, their statistical
appetite for logistics property among weight has been somewhat diminished by their 9%
2021 Q1
international investors. Indeed, of the €820 participation in assorted club deals between 5%
7%
million absorbed by this sector in Q1, 83% investors of different nationalities, which can be
came from outside France. German investors tricky to break down. Finally, Q1 2021 marked
15% 2020 Q1
seem particularly keen, accounting for 47% the breakthrough of Middle Eastern investors 10%
of investment volume, followed by the North (5% of total investment volume), responsible for
American contingent on 33%. the quarter’s second-largest transaction (Altaïs 2% By origin of funds
2%
Towers in Montreuil). 4% invested
French investors are more focused on the office 60%
59%
market, where they remain the dominant force Although still on a limited scale and 12%
(67% of investment volume). The office sector restricted to certain segments, this rapid 15%
is currently facing a number of challenges, reinternationalisation has drawn a diverse mix
including the meteoric rise of remote working, of nationalities and profiles to the French market
unanswered questions about the future and speaks to the potential for a rebound in
organisation of working life and the drop-off in international demand over the next few months.
the lettings market. All of that means that local There’s just one snag: will these investors find
Source Savills Research
players are better placed to size up a property’s sufficient opportunities to put their money into?
potential. Many international investors are
savills.com/research
France - Investment - Q1 2021
Type and quality of transacted assets: When
supply and demand don’t meet
The first quarter of 2021 did not resolve the paradoxes bequeathed by 2020. Now that
security is investors’ primary concern, the French market is becoming increasingly
concentrated around the office sector, on course for potentially challenging times due to
changing working patterns. Meanwhile, certain investors are more than willing to try their
luck in the value-add segment.
The office sector accounted for 76% of France’s alternative property, still regarded as a niche That said, there was one noticeable shift in the
real estate investment in Q1. That’s a substantially market. To make matters worse, the alternative value-add segment in Q1 2021: the majority of
larger slice than in Q1 2020, when it came in at sector has suffered from the fallout of global travel investors had eyes only for central Paris, leaving
68%. restrictions, which dealt a severe blow to the hotel the rest of Île-de-France in the cold. In contrast,
Within this sector, the overwhelming majority trade. this segment is heating up in the main regional
of funds were funnelled into core assets, cities. This upbeat activity is a sure sign that
proportionally fairly stable (73% of office On the other hand, the strong performance of major investors (and their financial backers) have
investment volume, up from 74% in Q1 2020). the value-add and core+/opportunistic segments every confidence in the absorption capacity of
Meanwhile, the value-add segment retained a is down to proactive acquisitions on the part the central Paris lettings market, still viewed
significant share (17%, up from 16% a year ago). of French investors, armed with a fine-grained as France’s premier investment destination. It
knowledge of the local lettings market and flanked also speaks to the latent potential waiting to be
This may seem paradoxical, but let’s look a little by tenacious opportunistic investors from North unleashed through changes of use – a route that
closer. In fact, the current market landscape America. Despite an increasingly risk-averse more and more buyers are now considering.
has much to do with the nature of supply. Just financing landscape, Q1 2021 saw a number
as we saw in the second half of 2020, there has of successful transactions of this kind, often
been plenty of investor interest, but too few involving lot sizes in the €50–100 million bracket.
opportunities to satisfy demand. That is what is There were even a few deals pushing €200 million,
happening in the core segment, where deals were one example being 1–11 Rue Louis Le Grand in
fairly sparse. There are also a lot of frustrated Paris’s second arrondissement.
prospective investors in industrial, logistics and
France : Distribution of investment volumes
Legend: Offices Retail Industrial Legend: Core Core+ / Opportunistic
Services Value Add
4%
17%
2021 Q1 2021 Q1
17% 3%
16%
22%
2020 Q1 2020 Q1
4% 10% 10%
By property type
By level of risk
7% (office)
68%
74%
76% 73%
Source Savills Research
5France - Investment - Q1 2021
Yields: No surprises France: Prime yields
With demand far outstripping supply, prime yields have been 8% Offices
held down to very low levels, to the extent that the spread with Paris CBD
bond yields has tightened. Conversely, the gap between the core 7%
market and everything else is widening.
6%
Scarcity breeds value. A glance at the prime Outside of the office market, yield behaviour has 5%
yields in the core segment leaves us in no doubt been inconsistent over the course of the past
about that. At the close of Q1 2021, they remained year. For shopping centres, the prime yield stands
entrenched at historic lows. at 5.00%. This puts it broadly on a level with the 4%
In the Paris CBD, for example, yields for the end of Q4 2018, mainly because investors are still
most sought-after office buildings were steady at just as partial to a choice opportunity.
2.75%, having failed to budge since settling here For high-street retail units in Paris, the prime 2.75%
3%
in Q3 2020. yield rose to 3.00% during 2020, an advance of 50
This situation is perfectly logical, conferring a basis points since the low of 2.50%. There was no
significant advantage on the real estate sector. At change in Q1 2021. 2%
the end of March 2021, the spread of bond yields 12 13 14 15 16 17 18 19 20 21
came in at 281 basis points, significantly above On the back of brisk activity around large
the ten-year average (235 basis points). With logistics platforms, the prime yield in the 8% Shopping centres
yields for France’s ten-year OAT bond on the up, industrial sector continued to fall (down 40 basis
Ile-de-France
the bond yield spread looks to be narrowing: it points q-o-q and 65 basis points y-o-y), settling at
stood at 309 basis points in December 2020, and 3.60% at the close of the quarter. 7%
is in fact tighter than at any point since the end
of 2018.
6%
As for office property in the core+ and value-add
segments, risk–reward ratios are being evaluated 5.00%
on a case-by-case basis, making the whole 5%
concept of yields somewhat arbitrary and almost
of secondary concern.
In central Paris, for instance, where supply 4%
remains limited and demand is propped up by
major occupiers, it is becoming increasingly clear
that investor decisions are being based on market 3%
values. As long as the price per square metre does
not exceed a certain ceiling (set at different levels
depending on location), the risk is regarded as 2%
12 13 14 15 16 17 18 19 20 21
acceptable. Beyond Paris, it’s a different picture.
8% Industrial
Elsewhere in France, the valuation spread is Ile-de-France
widening to a much more conspicuous degree. We
are finding that office properties due for a rent 7%
adjustment (whether sublet, in need of a revamp
or occupied by tenants on a short lease) offer a
yield advantage equivalent to up to 200 basis 6%
points. Here too, however, the relative potential
of each location and each individual property
is being carefully scrutinised, with particular 5%
consideration paid to factors like the scope for
a change of use and the ongoing development of 3.60%
Grand Paris Express transport network. 4%
The result is a growing heterogeneity in terms
of valuations. As mentioned in the summer of
2020, the yield landscape, then, is becoming 3%
increasingly fragmented or ‘archipelagised’.
2%
12 13 14 15 16 17 18 19 20 21
Source Savills Research
savills.com/research 6France - Investment - Q1 2021
The investment map: Other regional capitals
Without question, Paris still reigns supreme in the French commercial real estate market. That
said, the first quarter of 2021 brought further confirmation of a trend that has been on our
radar for a number of years: the blossoming of regional markets.
Over the first three months of 2021, the Paris
region attracted investment of more than €3.3
billion: 68% of the national total. Clearly, Île-de-
France still runs the show.
As 2021 kicked off in volatile fashion, with health
and safety paramount in our minds, the ongoing
rebalancing of the investment landscape towards
regional markets of the last few years seemed
unaffected. Indeed, since 2017 the regions have
held tight to a share of total investment volume in
excess of 30%.
It looks very much like this trend is here for the
long haul, especially since Île-de-France’s share of
the investment pie was only marginally affected
by the difficulty of detangling transfers of entire
national portfolios – quite a change from the
standard experience of recent years.
Lyon Part-Dieu - Photo by Sébastien Artaud on Unsplash
France : Investment volume by location
Legend:
Ile-de-France (excl. share in national portfolios) Since the start of the year, investors have been
Other Regions (& national portfolios) testing out opportunities in regional markets
mainly through acquisitions of individual
properties or exclusively regional portfolios
7%
(good examples being the Oméga and North
12% 10% 11% 10%
logistics portfolios, purchased by Deutsche Asset
31% 29% 30%
35% 32% Management and Deka Immobilien respectively).
These investors have no qualms about taking on
exposure to large properties, as long as they offer
a desirable location in a major regional city.
93% 88% 90% 89% 90%
Marseille had its moment in the spotlight in
69% 71% 70% 68% Q1 2021, with high-profile transactions such
65%
as the €90-million Astrolabe deal and the sale
of the Totem building for close to €70 million.
For the moment, Marseille is outshining Lyon,
traditionally France’s premier regional market.
2012 2013 2014 2015 2016 2017 2018 2019 2020 1T 21
Source Savills Research
7France - Investment - Q1 2021
At a glance: What makes the Île-de-France
market different?
Ile-de-France vs Other Regions : Investment volume by property type
6% 2021 Q1 2021 Q1
2% 12%
2% 6%
9%
1% 2020 Q1 Legend: 2020 Q1
34% 41%
Offices
Retail Regions & national
Ile-de-France Industrial portfolios
Services
55%
40% 5%
88%
92% 7%
Ile-de-France vs Other Regions : Origin of funds invested
2021 Q1 4% 2021 Q1
11% 6%
5%
14%
8%
14%
2020 Q1 Legend: 2020 Q1
1% 39%
France 26% 16%
5% Regions & national
Ile-de-France Germany
12% portfolios
3% United Kingdom
56% Rest of UE
North America 4%
2% Asia Pacific / Middle East 2% 65%
72%
Others
10% 26%
Ile-de-France vs Other Regions : Investment volume by level of risk
2021 Q1 2021 Q1
17%
22%
16% 13%
2020 Q1 5% 2020 Q1
Legend:
10% 10%
Core Regions & national
Ile-de-France Core+ / Opportunistic portfolios
Value Add 56%
74% 22%
83%
73%
Source Savills Research
savills.com/research 8 savills.com/researchFrance - Investment - Q1 2021
Outlook:
So what’s next?
1 As we move through 2021, forecasters are optimistic
of a buoyant recovery, the consensus being that France
will experience economic growth of around 5–6%,
mostly in the second half of the year. The Bank of
France has indicated that the restrictions imposed
in March should not significantly affect its earlier
growth projection (5.5%). This means that France is on
Savills team
track for a swifter recovery than most of its Eurozone Please contact
neighbours. us for further
If these forecasts bear out, investors should grow more information
confident of a decent return, further boosting the
recovery of real estate investment trusts (SCPIs). These Boris Cappelle
trusts attracted 6.1% more investment in Q1 2021 than CEO
in the previous quarter, reaching a total of €1.68 billion. Savills France
With €639 million, office SCPIs still hold the lion’s +33 1 44 51 77 17
bcappelle@savills.fr
share of this market, followed by specialist vehicles –
particularly those focused on the health-care segment
(€491 million). Thomas Canvel
Managing Director
France Investment
2
+33 1 44 51 77 16
tcanvel@savills.fr
Certainly, 2021 should be a much brighter year
than 2020. In light of the Q1 figures, the strength of
demand and the profile of deals under negotiation, it Cyril Robert
looks like the French investment market is on solid Head of Research
ground. Solid enough to beat its 2020 performance? France Research
With supply-side constraints casting a long shadow, +33 1 44 51 17 50
cyril.robert@savills.fr
that remains to be seen. At the very least, it would seem
reasonable to expect 2021 investment volumes to come
in level with 2020. Cover photo:
Artur Aldykhanov on
3 With opportunities in the core segment thin on the
ground, there’s bound to be a lot of unsatisfied demand
Savills plc: Savills plc is a global
real estate services provider listed
on the London Stock Exchange.
We have an international network
of more than 700 offices and
out there. That will continue to put pressure on prime associates throughout the
yields, which will stick close to their historic lows. As far Americas, the UK, continental
Europe, Asia Pacific, Africa and the
as office property in the Paris CBD is concerned, they Middle East, offering a broad range
of specialist advisory, management
seem firmly dug in atYou can also read
