Investors crowd into France’s commercial real estate market
According to recent research, investors paid €10.7 billion euros for French office, retail, logistics, and industrial properties between January and June 2014 – an increase of 73% over the same period in 2013.
The increase was particularly marked in the 2nd quarter, with investment of €6.9 billion, up 99.3% on the same period in 2013. Experts forecast that total investment could reach €20 billion during 2014.
The slow take-off of the French economy has not deterred long-term investors, who are focusing mainly on Paris. In the short term, they seek higher yields than they can achieve from government bonds or in other capital cities, such as London. Rising prices are depressing rental yields in prime London locations to around 3.75%. By contrast, in Paris’s business district they are around 4%-4.5%. In the La Défense district west of Paris they can rise to around 6.75%.
In the longer term, investors expect rental income to increase as the French economy picks up. They have targeted prime properties in the expectation that corporate demand for office space will surge.
Some big deals have fueled the market in the first half of the year. U.S. private equity fund Lone Star bought the 180,000 m2 Coeur Défense complex for €1.3 billion. In February, French commercial real estate group Gecina sold off its 75% stake in the Beaugrenelle shopping center for €700 million to a group of private investors.
This trend has continued into the second quarter, with, for example, the purchase of Le Madeleine office and retail complex in the 1st arrondissement (district) by Norway’s oil fund for €425.6 million.