Outlook 2018: Europe & France Investment Briefing Dentons Europe (Paris), 5 Boulevard Malesherbes Paris, Paris, 75008, France | 10:00 - 12:30

France feels Macron effect

Rental growth is coming back to Paris as the city’s prospects are buoyed by France’s economic and political renaissance, delegates heard at the PropertyEU Europe and France Outlook 2018 briefing, which was held in Paris last week.

‘Nothing has happened on that front for a very long time, but finally rents are beginning to increase in Paris,’ said Paul Raingold, President, Générale Continentale Investissements. ‘It is my firm belief that due to a combination of factors, such a more limited supply, a pro-business president with a majority in Parliament and big infrastructure projects underway, rents in the office market will go up quite considerably.’

Economic growth in France and in general in the Eurozone is surprising on the upside, forecasts are being revised up and sentiment is positive. A growing economy is leading to more jobs being created, which is a clear positive for the office market.

‘Employment growth will push up demand for offices and will lead to rental growth,’ said Guy-Young Lamé, Director, European Research, Invesco Real Estate. ‘We are already seeing real rental growth in the Western Crescent in Paris. It also helps that vacancy rates are very low in the capital and development activity remains subdued.’

Brexit will also play its part in boosting demand for office space in the capital. Paris unexpectedly got a boost when it was chosen over Frankfurt as the new headquarters of the European Banking Authority, which has to relocate from London after the UK leaves the European Union. In practical terms it means the transfer of just 200 jobs, but the prestige factor is huge.

The good news have kept coming. Goldman Sachs had opted for Frankfurt, but when CEO Lloyd Blankfein visited Paris recently, he announced that they will split the business and have two European hubs, one in Germany and one in France. Employees ‘will probably prefer Paris,’ he added.

The momentum now looks unstoppable, said Lamé: ‘It has all just started: Bank of America has taken 10,000 m2 in Rue Boissy, HSBC is actively looking for offices, and there are many brokers going around looking for space.’ The next couple of months will see an increase in activity, she said, ‘because banks and companies cannot wait for the end of Brexit negotiations, they will have to make decisions on relocations early next year. And we are ready to welcome them to Paris.’

Any positive fall-out from Brexit is welcome, but Paris does not need to rely on that, said Raingold: ‘It is just the cherry on the cake. The fact is that Paris is a real capital city again, and in the last few weeks you could feel the momentum building. I see significant rental growth ahead.’

Paris is ready also because ‘it has been leading Europe in providing new facilities and services,’ he said. In a fast-changing office market, the French capital can offer flexible space and incorporate services from fitness to concierge and from cafés to restaurants, as well as good infrastructure and a transport system that is being upgraded.

‘We hear from our clients that Macron has changed the perception of the country,’ said Alexandre Poupard, Partner, Dentons. ‘The impression is that he knows how important it is to boost the image of Paris as a financial centre. The era of France-bashing is over.’

It is the price of success: domestic investors, who have so far dominated the French real estate market, will find themselves competing for assets with foreign players, experts agreed at the PropertyEU Europe and France Outlook 2018 briefing, which was held in Paris last week.

French investors so far have played the lead role, accounting for over 70% of transactions. ‘I regard this as a distinct advantage, because it makes the market less volatile and more sustainable,’ said Tania Bontemps, Présidente, Union Investment Real Estate. ‘The French market has always been attractive and stable, without oversupply or crazy rents. What has changed now is others’ perception.’

The signs are indeed that French investors may now face more intense competition from foreign players. Macron’s positive image abroad, and the country’s economic renewal, are attracting investors from near and far. Americans and Asians, South Koreans in particular, as well as Middle Eastern investors and European neighbours are all looking for opportunities.

‘France is going through a very exciting time now,’ said Renaud Jézéquel, General Manager Paris Branch, Helaba. ‘As a bank we are very positive on the outlook for the country and we are growing our presence here. France is becoming more strategic for the Germans.’

A year ago it was not easy to persuade the Union Investment board to invest in France, but now ‘all the lights are green’, said Bontemps. ‘I hope this phase of euphoria continues. If Macron stays business-oriented and delivers the reforms, the next two or three years could be incredible for France in terms of investment.’

France also gives investors the huge advantage of choice in terms of sectors, types of assets and locations, experts agreed.

‘There are plenty of opportunities for every type of investor and in different asset classes, from office to logistics to retail to alternative,’ said Alexandre Poupard, Partner, Dentons. The reforms already being implemented by the Macron government, such as cutting the corporate tax rate and making the labour market more flexible, are sending a good message to investors, he added.

‘You can choose to invest in core, value-add or spec, depending on your investment strategy and the returns you want,’ said Jézéquel. ‘You also have a choice of locations. Do not underestimate the potential of cities like Lyon, Strasbourg, Bordeaux, Lille or Marseille.’

French cities feature in the list of the top 25 cities worldwide for their ‘live, work and play’ qualities, said Guy-Young Lamé, Director, European Research, Invesco Real Estate: ‘They not only have a good quality of life but also a good business ecosystem, so they are interesting not just for offices but for residential and hotels as well.’ Paris, Lyon, Lille, Nantes and Bordeaux all feature in the top 25 global rankings alongside Berlin, Barcelona, Montreal and Auckland.

The success of Paris need not be at the expense of France’s other thriving cities, said Bontemps: ‘The regions will really come up in the next few years.’