Foreign investors’ faith in France’s prospects is such that they are now planning for the long term and putting their capital into value-add and development, panellists agreed at the PropertyEU France Investment Briefing, which was held on Wednesday at Colliers International’s London offices.
‘We have changed strategy in the last year, moved away from core investments and sold a large part of our portfolio,’ said Steve Cowen, managing director, development and investment, Grosvenor Europe. ‘We now invest in value-add, repositioning secondary office assets in central Paris. We believe this is where the real opportunities are.’
There is a big difference of 50% and more in the rents tenants are prepared to pay for grade A quality space, he said.
‘I am very positive about the French market because there is a lot of demand in the occupier market,’ said Oliver Kummerfeldt, European real estate analyst, Schroders. ‘It makes sense for investors to capture the positive occupier momentum by providing high quality space which is still extremely scarce.’
Paris is Paris is a very large market, but there is a clear need for quality offices, experts agreed.
‘Grosvenor had made the right choice,’ said Arnaud Violette, general manager business development, Colliers International, France. ‘There is a real emphasis on the end-user now. Landlords want to attract and retain tenants, so in Paris that means adding value. Demand is high and vacancy rates are low, so there is no risk.’
Positive financing environment
Investors’ activism is facilitated by a positive financing environment, said Serge Bacconnier, deputy head, Paris office, Berlin Hyp: ‘We are seeing a lot more requests from investors for value-add projects. The good news is that there is a lot of money available for everything from core to development, which clearly adds to the incentive to invest in the market.’
The backdrop to all this activity is the political renewal led by president Emmanuel Macron. So-called ‘Macromania’ has generated a lot of hype, but looking beyond it there are objective facts.
‘The reduction in the corporate tax rate from 33% to 25% by 2022 will have a positive impact on the French economy and on real estate,’ said Thierry Granier, partner, CMS, France. ‘Measures are being taken to make development easier. There are many positive changes to the investment climate.’
As investors seek to convert and reposition buildings, the Government is pushing through reforms to make change of use easier. ‘They are making it harder for private citizens to object to change of use, which has always been an issue in France,’ said Cowen.
The fundamentals are improving, with GDP growth up to 2% in 2017, the highest level since 2011, and a prediction of 2.3/2.6% for this year. The unemployment rate is down, foreign direct investments have increased by 16% last year and investments in real estate were up by 7%.
‘Macron is not the saviour, but he has brought two crucial things to France: stability and visibility,’ said Blair Lewis, chief operating officer, Colliers International France. ‘Perceptions of the country have changed for the better and the most important factor is clarity. Investors can plan ahead because they know what his programme is. The French story is now easier to sell.’
France is also benefitting from the woes of neighbouring countries, panellists pointed out. Brexit is creating uncertainty in the UK, Germany has a fragile Government, Spain has to deal with the Catalonia independence issue, in Italy the recent elections have brought populist anti-establishment parties at the helm. France by comparison is a model of political stability and a desirable safe haven for investments.
‘France is being seen as a stable country where it is safe to invest,’ said Bacconnier. ‘It is also clear that the Government is business-friendly and that Macron has a good chance of pushing his reforms through, so it is a more attractive environment for investors.’
When investors come, they find the market is competitive but well-organised and efficient. ‘There is a lot of competition from both local and foreign players but it is easy to work in the French market because it is very liquid, open and transparent,’ said Cowen.
Paris, in particular, is ‘a very deep, diverse and international market,’ said Kummerfeldt. ‘It is less dominated by domestic investors than it used to be. It is important to have local knowledge and a team on the ground, but there’s no disadvantage to being a foreign investor.’