Property Investment improved in France in Q2 €4.6 billion invested since the beginning of the year

8 Jul, 2010, Paris

At the mid-year point, €4.6 billion had been transacted in the French real estate investment market, a 77% increase from the corresponding period in 2009.

“Following a slight fall in investments in the first three months of the year, activity started to pick up again in the 2^nd quarter, which alone represented €3 billion, at a similar level to that recorded in the 4^th quarter of 2009 (with €3.1 billion). This general improvement of the market can be explained by greater supply alongside increasing demand for all asset types, notably amongst international investors. Market players are more confident and are gradually re-positioning themselves on larger deals”, said Olivier Gérard, President of Cushman & Wakefield France.

The average transaction size stood at €15 million in the first half of 2009, whereas the average figure since the beginning of 2010 stands at €24 million. Furthermore, in comparison with the corresponding period last year, the number of transactions has also increased: 195 transactions have been recorded since the beginning of the year (187 in the first half of 2009), 7 of which were over €100 million (6 in the first half of 2009) and 3 of which were over €200 million, the latter of which contributed to 24% of total commitments.

Retail, the favourite asset class amongst investors

One of the key characteristics of the market is the keen interest investors are showing in retail, which is considered as a safer and more stable option than other asset classes and which provides investors with the opportunity to diversify. In the first half of 2010, €1.6 billion were transacted on the retail investment market, representing more than a third (35%) of all investments in France. When considering last year, retail assets have increased their market share by 45% compared to the H2 of 2009 and 78% compared to the H1 of 2009. It should also be noted that the level recorded at the end of the first half of 2010 is higher than the average annual retail volume recorded in the last 10 years (€1.54 million). Prime shopping centres are particularly sought after and accounted for 13 asset sales, 66% of commitments in retail property and a total investment volume of €1.06 billion.

With a total of €2.6 billion invested so far this year, office investments in France are on the up, and have increased by 59% compared to the 1st quarter of the year. The 2^nd quarter saw the completion of larger transactions, encouraged by the improvement in the lettings market. However, offices only represent 58% of the total volume invested so far this year, compared with an average of 80% before 2009. Most activity occurred in Ile-de-France (83%) and Paris and the inner suburbs in particular, where demand is higher.

Investments in industrial assets totalled around €320 million, i.e. 7% of the total volume invested and experienced a 43% increase in activity: logistics platforms sales and acquisitions (mainly those located in Ile-de-France) went up significantly, indicating renewed interest amongst specialised investors in logistics, which accounts for 90% of industrial investments.

Investments according to Location

With €2.9 billion invested in the first half of 2010, investments in Ile-de-France went up by 100% in the second quarter when compared to the first. Sums invested in office property were more significant. However, investments in Ile-de-France remain low and well under the usual average figure.

Regional locations have maintained significant market share, accounting for 34% of investments in France. This is due to the influence of the retail sector which represented 76% of investments made in the provinces, through large asset deals and sale and leaseback portfolios. On the other hand, offices were not very dynamic in regional locations apart from Lyon, accounting for just €200 million of investments (12% of total investments in the provinces). This asset class has suffered from the disappearance of speculative schemes amongst others, which helped boost the market in the past along with investor aversion to risk, which has meant that investors have mainly been focusing on well-established markets in the Paris region.

French & German Investors are the most active

The French market has been driven by French Institutional investors and German funds, who together accounted for 76% of transactions. The remaining 24% can be assigned to Middle-Eastern investors (9% with the acquisition of the HSBC headquarters) followed by the Anglo-Saxons and the Dutch (9% and 4% respectively).

Equity investors seeking core products continue to be active in the market. On the other hand, opportunistic funds continue to be penalised by the lettings market and financing difficulties.

Yields

Due to high demand for securely let assets, prime yields have fallen successively since their peak in the 2^nd quarter of 2009, by between 50 to 100 basis points depending on the asset type. At the end of June, average prime yields stood at 5.92%, down by 25 basis points since March 2010. High street retail yields remain stable whereas offices and logistics yields registered a fall of between 25 and 50 basis points over the last quarter. Prime property yields are likely to go down further over the next few months, but at a slower pace.

“Despite more dynamic and better oriented market conditions, “wait-and-see” strategies remain in place. Whilst more investors are willing to invest in larger assets, requirements are mainly for fully let properties, let under long term leases. 2010 should be the year of the “long term investment”: we estimate a total investment volume of just over €10 billion for 2010 as a whole, similar to levels recorded in 2003/2004”, commented Olivier Gérard.

End

INVESTMENT IN COMMERCIAL PROPERTY IN FRANCE (€ billion)

Source: Cushman & Wakefield

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