Emmanuel Macron's election as president of France will have a positive impact on the country's real estate sector, according to Olivier Vellay, head of investment for Continental Europe at M&G Real Estate.
The rise to power of the young centrist reformer follows contests in Austria late last year and the Netherlands earlier this year during which populist and far-right candidates failed to come out on top and represents a victory for both France and Europe, he noted.
'Macron's election will act as a stimulus for the French economy and lead to much-needed labour reforms and measures to reduce the high unemployment rate (10% ed.). The outcome of the French presidential election has also clearly reduced the political risk in Europe and reinforced Europe's attractiveness. I think it will help restore stability in both France and the Eurozone.'
The euro surged against the US dollar to a six-month high shortly after the election result, but has since eased along with French stocks which, analysts said, had already priced in Macron's victory. French stocks, as represented by the CAC 40, have been trading recently at a nine year peak, a report by M&G shows.
Vellay conceded that there was still work to be done to ensure Macron gets a free hand in pushing through his economic reform plans and that the outcome of the upcoming parliamentary elections next month would play a key role in that context. Political analysts have said Macron will most likely need to create a majority from moderate parties across the political spectrum, in particular the left and centre, to garner enough support for his fledgling En Marche! party.
'This may well be the start of a new tradition of coalitions in France,' Vellay said.
Greater demand for real estate
Macron, a former minister of the economy under the current French president François Hollande, launched his En Marche! political party in April last year, borrowing ideas from both the left and right, but ultimately creating a set of policies which were pro-competition, pro-immigration and pro-EU. These stood in stark contrast to Marine Le Pen’s Eurosceptic Front National which campaigned to re-introduce the franc and tighten border controls.
While there is still some uncertainty as to how next month's parliamentary elections will pan out, sentiment in France is now upbeat, Vellay said. 'Macron has said he will simplify labour laws and reduce corporate taxes. That will mean more desks in offices, a greater need for factories, business parks and so on. Macron is also pro competition which will attract new business and create more demand for real estate.'
That said, the French real estate market had not been negatively affected in the lead-up to the presidential elections, Vellay said. An update by M&G on the French election shows that French markets continued to see downward yield movements even during the build-up to the election, with offices in Lyon and French industrials hardening by 55 bps and 30 bps respectively in Q1 2017.
While there is some anecdotal evidence that investors were building in opt-out clauses in case of a win by far-right leader Marine Le Pen of the National Front or hard-left candidate Jean-Luc Mélenchon, their number appears to be limited, Vellay said. 'There was no pause in letting and investment and now that bond yields have started rising again, the favourable spread with real estate yields has been restored.'
Pan-European strategy
Another report published earlier this month by M&G revealed that continental European real estate markets should offer strong returns during 2017 despite the Dutch and French elections in the first half of the year. Consensus forecasts for Eurozone GDP suggest only a modest slowdown to 1.6% in 2017 (down from 1.7% in 2016), the firm's latest Continental Europe Market Outlook notes.
M&G remains very active in terms of its pan-European investment strategy, Vellay confirmed. The company is pursuing transactions across Europe, notably in Berlin where it is believed to be close to sealing a deal for an office valued at some €100 mln. It is also believed to be looking at office assets in Belgium and Luxembourg and logistics in Denmark.
In the past 12 months, M&G has finalised a number of groundbreaking acquisitons including a €280 mln office in central Stockholm, its largest European transaction to date. In September last year, it inked a deal to acquire Market Central Da Vinci in Rome, the largest retail park in Italy, for €208 mln.
M&G Real Estate had £26 bn (€31 bn) invested in real estate across Europe, North America and the Asia-Pacific region at end-2016.