Foreign investors lead in French investment market
Overseas buyers, led by the Americans, captured 51% of the property investment sector in France, becoming the majority for the first time since the global market crash, says Savills
For the first time since the global housing crash, foreign investors have had the largest share of the French investment market, says a new report.
Investment volume was more than one-third (35%) higher than in first half 2013, with transactions above ?100million accounting for almost 75% of the total investments in the first half of 2014.
The share of domestic investors fell from 65% in the first half of 2013 to 49% in 2014, according to the France Investment Report, which leading global agent Savills has just published.
“American investors were responsible for most of this reduction, as they signed one of the year’s largest transactions, Cœur Defense, to take 22% of the market.
“Asian investors, largely absent in the first quarter, made a remarkable entrance and accounted for 5% of investment.”
International investors were strong in all market segments and accounted for 60% of the invested volume in transactions above ?100million and 44% in the segment ?20-?100million.
Although growth in the French economy was very weak, investment demand was strong due to the massive amount of capital earmarked for real estate and favourable financing conditions. The market was also boosted by the return of ‘mega deals’.
Marie-Josée Lopes, Head of Research Savills, says, “One of the features of the market in 2014 was the resumption of transactions above ?500million including three exceeding a billion euros.”
“American investors and, to a lesser extent, German investors were very active in this smaller sector. Americans are following more opportunist strategies than other players in the current market.”
If the French economy improves, the property investment market is likely to benefit and sustained investment activity and several massive deals will probably see investment pass the ?20billion threshold in 2014. The 10-year average is ?16.2billion.
“Foreign investors have returned to France in force. They will be willing to expand their activities if indicators for the French economy improve and financing conditions remain good.
“Other Asian funds, especially Chinese ones, will probably start becoming active in France alongside existing market players. There will continue to be a shortage of new supply in 2015 as the number of planning permissions and off-plan sales remain low.
With Gross Domestic Product growth of 0.3% in 2013 and expect growth of 0.8% in 2014, property investors, while very interested in the French market, have been confounded by the weak economy and the slow leasing market, says Savills.
But thanks to an exceptional level of investment activity in the second quarter, transactions reached ?6.1billion. The figures for retail investment, which more than doubled to rise 109% to account for 28% of investment and office investment, which increased 35% over the year to account for 58% of the total.
The share of services has been low since the start of the year, halving from an 18% share last year to 9% this year. The industrial market remained stable at 5% of total investment.
Demand from investors was exceptionally high, but tended to be focused on well-established areas, with most coming in Paris outside the Central Business District. Office yields remained steady. In Paris, the prime yield was still 4%.
Looking ahead, Savills says there will continue to be a shortage of new supply in 2015 as the number of planning permissions and off-plan sales remain low.