Market driven by foreign investor transactions
Following a timid start to the year, investments in the Greater Paris Region market have increased quarter on quarter. €5.5 billion was therefore invested over Q3 2016, taking the overall performance since the beginning of the year to €12.4 billion; this equates to a 6% year-on-year increase and is 36% higher than the long-term average.
Following the sale of "Tour First" in Q2 for an estimated €800 million, a further 2 transactions for values over €500 million boosted the market over the summer. AMUNDI acquired three assets in the Greater Paris Region from KANAM as part of a European portfolio for an estimated €700 million and GIC sold two iconic buildings in Paris to a French institutional investor for approximately €500 million. This activity managed to offset a slight downturn in transactions in the €100 to €300 million segment. There have been 28 transactions for values over €100 million since the beginning of the year, amounting to a total of €7.3 billion, compared with 38 over the same period in 2015 for a total of €7.8 billion (-6%). Activity in other market segments continued to rise, with a 39% increase for transactions under €50 million totalling €2.8 billion in investments (still very liquid) and a 19% increase for transactions in the €50 to €100 million segment (€2.3 billion) – despite a lack of product. The number of transactions across all segments was markedly higher than levels seen in recent years, with 213 transactions recorded over the last nine months compared with an average of only 156 over the same period for the last five years.
In terms of geographic distribution, investments remain fairly balanced across the various submarkets of the Greater Paris Region. The Central Business District, which has seen its performance double year on year, remains in the lead with €2.6 billion in investments. The Western Crescent came in a very close second place (€2.5 billion) with particularly good performances seen in Neuilly-Levallois and Péri-Défense. In La Défense (€1.7 billion in investments since the beginning of the year), recent disposals of the "CBX", "Egée" and "Europe" towers confirmed the good level of activity seen over the first half of the year. The Outer Suburbs also posted a good level of activity with €912 million in investments. In fact, it was only the Inner Suburbs that bucked the trend with only €1.2 billion in investments resulting in a 30% year-on-year decrease in volume. The Inner Eastern Suburbs posted reasonable results following the recent disposal of the "Elyps" project for approximately €180 million whereas volumes halved in the Northern and Eastern areas.
Offices (€10.3 billion) and retail (€1.4 billion) may have seen similar levels of performance year on year, but those for industrial and logistics assets have more than doubled over the same period. With €545 million in investments, warehouses posted their highest level of performance since 2007.
The Greater Paris Region investment market clearly remains dominated by French investors who accounted for 80% of investments. However, this share has fallen over the last three months due to an increase in activity from international investors of various nationalities. American and Korean investors were the most active with €500 million in investments. This variety can also be seen on the sell-side where there were no fewer than 7 nationalities represented over Q3 2016. Overall, since the beginning of the year, foreign investors have been net-vendors with almost €5.2 billion of disposals, but only €2.4 billion in acquisitions. German investors were particularly active in terms of disposals (€1.6 billion) – especially KANAM as it continues to clear assets as part of its liquidation. Alongside this, the Greater Paris Region market has also been driven by foreign investors trading as they seek value-add opportunities.
Given the high degree of competition for core assets, investors have continued to shift their interest towards riskier assets; assets classed as "value-add or opportunistic" have therefore accounted for 34% of investments since the beginning of the year, representing a slight year-on-year increase (31% in 2015). The number of forward funding sales (VEFA) carried out since the beginning of the year demonstrates this element of risk taking.
Already at a historic low, prime yields reached a new record following further compression over Q3. The prime yield now stands at 3.00% in the CBD and 4.25% in La Défense. Even so, with the OAT having fallen to 0.12% at the end of June, real estate retains its attractiveness compared with other investment vehicles with a risk premium of 288 basis points.
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