Paris is at the top of its game, attracting capital from investors old and new who are interested in offices but also residential and hotels, delegates heard at the PropertyEU Outlook 2019: Europe & France briefing, which was held in Paris recently at Taylor Wessing’s offices.
‘After 20 years in Paris it is the first time that I can say that Paris is top of the list as a place to invest in Europe,’ said Giles Wintle, independent consultant. ‘The fundamentals are pretty good and if you are a bit imaginative and invest in resi there are great opportunities to be found.’
Prospects for resi are so positive that even German investors are crossing the border. ‘German companies are looking to France as an important residential market,’ said Alfred Fink, partner, Taylor Wessing, citing a major €1.4 bn transaction for 4,000 apartments that has been signed but not yet closed.
The Germans are not alone, Fink added: ‘We are talking to Singaporean investors, not just sovereign wealth funds but corporates as well, that are showing an interest in France for the first time. There are new investors from Latin America as well as South Korea, Austria as well as the Middle East.’
New investors are looking for portfolios rather than single transactions, he said, and they are ‘particularly interested in repositioning, redevelopment and distressed situations.’
The biggest opportunities are in conversions from offices to residential, turning obsolete office buildings into much-needed apartments, said Raphael Tréguier, founder and managing partner, Kareg Investment Management. ‘At present there are 10m m2 of obsolete offices in Paris, while there is a shortfall of 300,000 residential units,’ he said. ‘There is a serious imbalance between supply and demand. In order to address it you need a new way of looking at Paris, increasing and improving the density of the city rather than expanding it.’
There are solid reasons to invest in conversions to resi, he said. ‘Investing in people rather than big corporates is a good diversification strategy, the demographics are positive because Paris has a young and growing population, liquidity is high and the market is very deep.’
The legal background is also favourable to resi, as the ELAN law, which has just been approved, is changing the financial equilibrium, introducing new forms of rental agreements to facilitate professional mobility and could have a role in encouraging people to buy apartments as an investment.
‘Most French institutions are coming back to resi now’, Tréguier said. ‘From a financial point of view it makes sense as yields between the two sectors have converged and total returns are comparable for the first time in 25 years.’
Making the link between offices and residential is the right way to go because real estate investments can no longer stay in water-tight compartments but must be connected and integrated, said Tugdual Millet, chief financial officer, Covivio.
‘You need to create links between the products, for example learn from the hospitality sector to improve resi and offices,’ he said. ‘Integration and diversification allow you to improve profitability and to be flexible in a challenging environment.’
Paris is at the top of the cycle but, despite this, office rents are still going up because of lack of supply and high demand.
‘Vacancy rates are well below the ten-year average and total returns are forecast to be 8.4% in Central Paris, 9.8% in the CBD and 11.1% in La Défense thanks to higher rents and lower yields,’ said Richard Malle, global head of research, BNP Paribas Real Estate.
Looking ahead, prospects are even brighter for Paris offices because of Brexit, panellists agreed. American banks have taken up space for thousands of people and they are poised to move when the time is right. If leaving the EU changes the status of London, as seems likely, the French capital will be the first one to benefit.
‘Paris is the best place to work in Europe after London,’ said Benjamin Cartier-Bresson, head of Paris office, Berlin Hyp. ‘So change will come to Paris because of Brexit.’