Investment in business real estate is changing

Decrease “relative” as well as significant changes: this is the assessment of the French business property investment market in the first quarter of 2022, according to Knight Frank, a specialist consultant in this sector. Therefore, in a press release dated April 8, he announced a downturn in the market. The latter fell by 12% in the first quarter compared to the same period last year and reached 4.7 billion euros. The drop, however, remains relative, with the quarter’s numbers 15% higher than the ten-year average, and even among the top five first quarters in history.

In particular, the negative dynamics in the market is due to several factors, including a decrease in the number of large transactions (more than 100 million euros): since the beginning of the year, 13 transactions of this order have been recorded compared to 15 last year over the same period and 21 in 1 quarter of 2020. Another factor explaining the observed decline is the evolution of investments in office real estate, which traditionally plays the role of a market driver: at the beginning, 2.2 billion euros were invested there. 2022, that is, a fall of 45% per year. As a result, the share of this segment has declined sharply, continuing a trend already evident in 2021. It represents only 46% of all investment in France in 2022, compared to 74% in the same period of the year.

And in this context, the Île-de-France sees that its dominance on a national scale is weakening a bit. Thus, with 1.7 billion euros invested in offices, the region currently represents only 77% of the amount invested in the French services market, compared to 87% a year ago. Vice versain the rest of France, last year’s dynamism was confirmed in the first quarter of 2022, with investment in offices remaining nearly stable compared to the same period in 2020 and 2021.

Logistics, new Eldorado

Contrary to the downward trend in investment in office real estate, Knight Frank notes dynamism in relation to industrial and retail properties. The latter confirms the recovery that has already begun in the second quarter of 2021. In the first three months of 2022, 1.2 billion euros were invested there, that is, 26% of the amounts invested in the French real estate market. Last year, over the same period, this segment practically disappeared from view, having invested only 200 million euros… But the catch-up effect only partly explains the current growth. “However, this asset class has proven to be reliable and is in the process of being upgraded, offering real opportunities for investors.“, estimates David Burla, director of research at Knight Frank France, in a press release.

In this segment, shopping centers concentrate almost half of the invested amounts (for example, in Bordeaux). Volumes represented by assets on the first floor remain very limited due to the limited number of large transactions on the main Parisian arteries. In addition, the two asset classes that have best weathered the health crisis have collected smaller but still significant volumes: food and peripherals. Eventually, “As such, 2022 promises to be a good year for business, even if soaring inflation and deteriorating household sentiment pose significant risks to consumption.”, analyzes Knight Frank.

Another segment that continues to grow is industrial real estate, with more than 1.2 billion euros invested in the first quarter, up 16% on the same period in 2021 and 108% more than the ten-year average. years. Here it is the logistics segment that drives the market: it accounts for 73% of the volume! “In recent years, industrial real estate has moved into another dimension, whether it is large warehouses, business premises or data centers, the e-commerce boom is increasing the storage and distribution needs associated with last mile delivery and big data in the context of supply shortages.”, analyzes David Burla.

War and ecology will affect the future

It remains to be seen how these various trends will play out in the current highly changing context. The Russian-Ukrainian conflict has already added to the uncertainty surrounding the health crisis and heightened investor caution. This could further delay the investment recovery and dampen rental market momentum. However, in addition to these stipulations,The fundamentals of the French market remain strong. First of all, France is a stable country, with an economy that is more resilient than other major European countries. Thus, it can assert its safe haven status in a particularly turbulent geopolitical and financial context.” emphasizes David Burla. Which notes that foreign investors represent 46% of the volumes invested since the beginning of 2022 and are especially present in transactions worth more than 100 million euros.

Another encouraging sign is the resurgence of retail, an asset class that has been hit hard in recent years. Finally, the demand for logistics remains very high. It also marks the transformation of the market, which is distributed across the territory in a more balanced way than before the health crisis, with the strengthening of the power of regional metropolitan areas. However, “The Russian-Ukrainian conflict should also contribute to changing the face of the French real estate market.adds David Burla.

It is about the role of the evolution of inflation and interest rates, as well as the destabilization of supply chains and shortages of raw materials, exacerbated by the war, which will affect the cost and construction time. And to the consequences of the conflict, we must add the environmental restrictions that will be imposed on the sector:hot topics» the availability and cost of energy underline the need to green real estate assets to ensure their long-term sustainability and liquidity…

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