Asian capital reshapes Paris investment market

Paris real estate is no longer the preserve of European investors as more capital from Asia flows into the city

26 avril 2019

Paris’ real estate market is no longer the preserve of European investors as more capital from Asia flows into the city.

The French capital saw 41 percent of investment come from abroad last year – up on its 10-year average of 35 percent average, according to JLL data.

“International investors used to mean German,” says François Blin, capital markets director France JLL. “But we’re now seeing multiple sources of capital target Paris real estate. A lot of that is Asian, with Koreans leading the way.”

The less cyclical nature of Paris’s real estate market has been the major draw for foreign investors, says Blin.

“The French word for property, immobilier, in many ways summed up the market, it’s been historically “immobile” and not as liquid as markets such as London,” he says. “Paris is a market that peaks and troughs less.

“That means global investors can instead enjoy the safety and the stability. It’s akin to cash in the safe.”

New areas for investment

However, investors seeking large big-ticket deals may struggle in the centre of the low-rise French capital, where prime yields are as low as three percent.

Instead, areas such as major business district La Défense, with its range of towers and large floorplates, are coming into focus for foreign investors.

Blin says a number of South Korean investors are currently bidding on major office towers at La Défense.

“An office tower leased to a large corporate is exactly what new international investors appreciate and understand,” says Blin. “La Défense presents investors with the possibility to find that large, single ticket deal.”

Last year, the district attracted Singaporean sovereign wealth fund GIC which paid €465 million for the Ariane office tower.

Equally, Blin says areas such as Nanterre, as well as the addition of a new suburban RER line and Metro station further west of La Défense in Courbevoie, are attracting large occupiers such as VINCI and TECHNIP, which is consolidating its staff into one office starting 2020.

“Occupiers want to be there, and so the boundaries are being pushed,” he says. “That should mean more choice of product for investors.”

Major infrastructure project Grand Paris and the city’s plans for hosting the 2024 Olympics Games are also opening up new areas of the city for investment.

South Korea’s Hana Financial recently invested through Seoul-based REIT manager, JR AMC, in the Rueil-Malmaison district west of Paris, buying the Cristalia office building for €171 million, according to reports in the Korean press.

“Long-term thinking from local and national government is bringing new areas into focus and some investors are starting to take some positions in new sub-markets such as St Denis Pleyel, where the Olympics will take place,” says Blin.

Hyundai Investments last year invested €235 million in Saint-Denis, buying the Balthazar office building. Hyundai was financed by three South Korean securities companies, HMC Investment Securities, Hana Financial Investment and BNK Securities - an affiliate of Busan Bank.

An element of risk

Despite 2018 being a record-breaking year for international investors in Paris, they’re being more discerning than in previous cycles.

“Investors are generally more conscious of the long-term than in the past and are being more selective,” Blin says. “That means there’s more analysis and due diligence before decisions are made.”

Yet amid heightened competition and tight supply, many investors are prioritizing rental growth over yields. 

“That means the number of bids is high and some investors are willing to pay low yields if they see rental income is on an upward trajectory,” Blin explains. “The development pipeline is under control and vacancy is low.”

That, he adds, bodes well for 2019 and could see competition between investors further intensify.

“We should remember that domestic investors still have a strong hold on the Paris real estate market,” says Blin. “But foreign capital will continue to shake things up in the coming months.”

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