Setting the situation of the French real estate market in context if you are thinking about buying or selling property in France read on. French Real Estate Market professionals met last month to review the present situation of the industry and the outlook for the coming year. Senior investors, homeowners, lenders, and property developers gave their perspectives on the status of values, rates, and yields, as well as important developments in the local market, in order to be prepared for 2022 and into 2023.
Although the French property and capital markets have demonstrated resilience and continued to improve over the last year, there is still considerable concern owing to the prevalence of Covid-19, the forthcoming presidential elections, and rising inflation rates. Patrick Artus, Natixis’ Global Chief Economist, was the main speaker at the round table discussion, which covered the following topics: lessons learned from 2021, risks for 2022, economic outlook, capital markets, and interest rates.
In terms of expectations for the coming year, CEOs are mainly positive about an increase in consumer income and purchasing power, but they are sceptical about a significant shift in monetary policy in reaction to inflation, interest rates, and asset prices in France. The general consensus is that the ECB (European Central Bank) will operate prudently, and interest rates should not be an issue in 2022.
According to Artus, the GDP has already recovered and returned to pre-pandemic levels, and it should be back to pre-Covid-19 levels within a year. Energy prices, on the other hand, will continue to climb because supply has declined faster than demand due to insufficient production of fossil fuels. “We will live in a world of pricey raw commodities,” said Laurent Vouin, Savills Investment Management’s Head of France/Benelux. Transportation prices will remain high, but no more than they are now.
The French market’s logistics perspective
Séverine Maumy-Laffineur, Managing Director and Co-Head Portfolio Manager at Barings Real Estate Advisers and has handled logistics investments that accounted for up to 50% of the fund value in the previous year, indicating the rising demand for this kind of asset class.
There appear to be a number of opposing viewpoints on the logistics bubble. In the French market, one may argue that there is a bubble because rent prices did not rise considerably for 30 years and have been steadily growing since the health crisis. However, conversations on the matter have revealed the relevance of the asset class to a wide range of enterprises, including restaurants, grocery stores, e-commerce sites, and so on. Logistics has evolved into a critical asset, thanks in part to the epidemic.
According to Artus, an American university study on the evolution of commerce recently came out and made some noise, showing that in Europe, e-commerce is now well above its pre-Covid 19 level, but in the United States, it has fallen back below pre-pandemic levels, exposing a possible trend to be closely monitored: a return to much more traditional forms of distribution.
There is also a change in demand from services to products. Goods demand is returning to normal levels, while service demand is increasing. In the OECD region as a whole, “during two years, consumption of commodities by volume has climbed by 27 percent, while consumption of services by volume has decreased by 1 percent.” “That’s horrible,” Artus says.
What might the market expect for the rest of 2022?
Another asset class that saw changes as a result of the epidemic and all of the limitations that came with it was the office sector. Remote work and, when the crisis was brought under control, the hybrid model were to blame. Last year, most economists predicted that logistics and residential would be the two assets to watch. As people migrated away from large cities and city centres, square metres became less important, resulting in a reduction in office investment.
However, investments in the office sector continue; “the tragedy has not really happened,” argues Artus, because occupancy rates in the better parts of Paris remain excellent and there will always be employees to place in offices on a pretty regular basis.
The current desire for this industry is to have a headquarters again, where teams can be reunited in collaborative workplaces and individuals can finally connect and engage in an environmentally sustainable building. However, it is not an easy problem. When adding a couple of days a week of work at the headquarters, employees’ automobile travel time to the workplace might generate up to millions of CO2 emissions.
In conclusion, the outlook for the coming year and next year is bright, although not without obstacles. To be prepared for the effects on the sector, it will be critical to monitor market movements and geopolitical results.
