Office space in the Paris CBD is running low with a vacancy rate of only 3.2 percent. Project developers have responded: according to JLL, around 1.7 million square metres of new office space will come on the market by 2019.

Weathering the storm

France has turbulent economic and political times behind it. But for real estate experts, the country remains firmly established on the investment map. There are opportunities not only in the Parisian metropolis, but in regional cities as well.

Since the 14th century, the coat of arms for the city of Paris has borne the motto: “Fluctuat nec mergitur”. Loosely translated from Latin, it means “She is tossed by the waves but has not gone under.” In a sense, this motto also applies to the French real estate industry, as Schroders Real Estate investment firm reveals in a recent market report. Even though the conditions in France and specifically in Paris can sometimes be challenging, the French capital and the country as a whole are firmly established as a very desirable market for investors, project developers and other real estate professionals. Figures from Real Capital Analytics (RCA), a research institute based in New York, underscore its vital importance. They show that real estate investment volumes in France totalled €29.6 billion last year, putting La Grande Nation in third place in Europe behind Germany and the UK. The fact that transactions fell by 22 percent in the first quarter of 2017 changes nothing about the positive growth effect, comments Richard Malle, Global Head of Research at BNP Paribas Real Estate (BNPPRE). “The deal flow is currently very huge,” he explains. That’s why Malle expects investment volumes of around €30 billion for the current year as well

Paris in focus

For many years, approximately three quarters of investments in commercial properties in France were made in the Paris metropolitan area – no wonder, since France is such a centralised country where the capital city is the measure of all things in every respect. “Paris will remain the number one market for foreign investors given its size, liquidity, and product diversity,” insists Thomas Guyot, Head of Property Investment, France at Schroders.

To prove his point, he indicates the size, liquidity and product diversity of the Parisian market. Furthermore, the office space market in the capital benefits from several special effects – for example, the boom in the technology and digitisation sectors, notes Cécile Blanchard, Director of Real Estate Market Research with La Française Real Estate Asset Management. “With (...) the gradual change of working space occupancy formats, central and well-connected locations are very much in demand.” Add to that the hope that Paris will benefit greatly from the Brexit and the resulting weakening of London. The company in charge of marketing the La Défense office quarter responded to the Brexit vote with a creative and amusing advertising campaign featuring a frog with a tricolour tie and a slogan that clearly has London in its sights: “Tired of the Fog? Try the Frogs! Choose Paris La Défense.”

The Grand Central will be one of the most modern and symbolic office buildings in Paris after completion, and with the best possible accessibility.
Tania Bontemps, President of Union Investment Real Estate France SAS

But the Grand Paris Express infrastructure project will certainly have the greatest impact on the real estate market there. It will build an additional 205 kilometres of railway lines and 68 new train stations in and around the Paris metropolitan area. “It should help to improve the economic and property growth of the Île-de-France region, hence generating many investment opportunities,” believes BNPPRE researcher Richard Malle. Union Investment Real Estate GmbH recognised this potential early on and at the beginning of this year acquired from The Carlyle Group the Grand Central development project at the Saint-Lazare train station in Paris.

The project offers 23,600 square metres of rentable space and the station plays an important role in the Grand Paris infrastructure project. “The Grand Central,” says Tania Bontemps, President of Union Investment Real Estate France SAS, “will be one of the most modern and symbolic office buildings in all of Paris after completion, and with the best possible accessibility.” Once it is finished in mid-2019, the property will be placed in the UniImmo: Germany portfolio.

This is not the only project currently increasing the volume of office space under construction in the greater Paris metropolitan area. According to JLL, around 1.7 million square metres will come on the market by 2019. Expanding the inventory of rentable space is urgently necessary because office vacancy in the Paris CBD recently fell down to 3.3 percent. Spectacular major projects are also taking shape around the rest of the country (see pages 18 and 19). The most important of these include Quartier Euroméditerranée in Marseille, where the La Marseillaise office tower designed by star architect Jean Nouvel is shooting skywards. Measuring 135 metres high, the €200 million building will offer around 35,000 square metres of modern office space.

In Nice, Compagnie de Phalsbourg is developing the urban area around Thiers-Est train station. In other major cities, train stations are also becoming focal points of crucial urban development. For example, the Quai Ilot 8.2 office, retail and hotel complex is currently under construction in Bordeaux – right near the new train station that opened its doors in July and offers a convenient connection to Paris in just two hours. A new district is also taking shape in Lyon near Part-Dieu train station, where the project developer Foncière des Régions recently completed its Silex1 office building – which already has reached around 90 percent occupancy. Lyon, a city with close to half a million residents, is already France’s second-most important real estate investment location. According to the study recently published by the Urban Land Institute and PwC “Emerging Trends in Real Estate Europe 2017,” it is even more appealing than Paris from the perspective of international investors. In a ranking of European cities, Lyon came in tenth, while the capital had to be satisfied with 17th place (out of 30 cities in the study).

A question of returns

Nevertheless, many other locations also have their appeal, notes Stephan von Barczy, Capital Markets Director at JLL in France. “In a context of strong demand and a lack of opportunities in most market segments in the Greater Paris Region and in Lyon, the main regional markets are real alternatives and allow investors to diversify and find higher yields. However, investors remain selective and favor the most mature markets, which boast levels of take-up above 100,000 square metres and low vacancy rates.” According to BNP Paribas Real Estate, peak returns for core office buildings in the Paris CBD fell to 3.15 percent in the first quarter of this year, while returns of 4.00 percent are quite realistic in Lyon. In other regional cities like Lille or Toulouse, even 5.10 and 6.10 percent respectively are not uncommon. The JLL expert believes Lille, Bordeaux and Aix/Marseille all belong in this category. Toulouse, Nantes and Rennes are other cities that many experts think are worth taking a closer look at for investment purposes.


Investment management companies are playing an increasingly important role in the French investment market. Union Investment aims to grow with a portfolio of office, retail and hotel investment properties in Paris and the rest of the country, but focusing primarily on the office market in the capital city. Asian investors – especially from South Korea – are also very active in this area. Larry Young, Director of International Investment at BNPPRE, explains: “South Koreans invested almost €1 billion in the Île-de-France in 2016, and there are many other deals looming with them and other Asian investors.” Experts vary widely in their opinions on how returns will develop. Magali Marton, Head of Research at Cushman & Wakefield in France, expects returns to grow by 25 basis points by the end of this year, while Stephan von Barczy at JLL believes a further decrease on exceptional assets with a strong Parisian character is possible. But one thing is absolutely certain: the French metropolis will never go under.

Highly prominent projects impress in Paris and the regions

A new urban quarter for Bordeaux

Over the coming years, the massive Tribequa construction project will create a new quarter in the city of Bordeaux in southwestern France, home to around 250,000 people.

From industrial zone to urban quarter: the large-scale Tribequa project will take shape in Bordeaux in 2018.

The project, which BNP Paribas Real Estate (BNPPRE) and Bordeaux-Euratlantique Land Use Planning Institute presented at MIPIM 2017, encompasses more than 55,000 square metres in the Saint-Jean Belcier industrial area. The new quarter is following the trend seen throughout Europe of combining different uses in a small area. According to the design by Emmanuel Combarel from ECDM Architects, a three- or four-star hotel with 120 rooms and total area of 4,200 square metres, 465 residential units, 10,800 square metres of office space and 1,650 square metres of retail space will line the Place d’Armagnac. The former Tri Postal building will also be converted into a 5,000-square metre conference and exhibition centre. Marketing began in June 2017; BNPPRE plans to break ground in the second quarter of 2018.

A skyscraper cuts a fine figure in Toulouse

A spectacular skyscraper will climb towards the clouds in the southern French metropolis of Toulouse over the next five years – the Occitanie Tower, designed by American architect Daniel Libeskind.

The Occitanie Tower in Toulouse includes office, hotel and retail space.

The client is the project developer Compagnie de Phalsbourg. Plans envisage a 40-storey, 150-metre-high tower that will contain 11,000 square metres of office space, 100 to 120 apartments, a Hilton hotel, retail space and a panorama restaurant. The massive project, estimated at €130 million, is part of the city’s extensive urban development plan around Matabiau train station. “I believe that this project,” says Mayor Jean-Luc Moudenc, “will give Toulouse a signature building in keeping with its role as a regional European capital.”

The unique feature on the building is a recessed spiral on the façade running from bottom to top. A lush hanging garden will be planted here. Studio Libeskind is working on realising the new garden tower with Toulouse-based architecture firm Kardham Cardete Huet. Construction is slated to begin in 2018 and the tower is expected to be completed in 2022.

New business centre in the heart of Paris

The Grand Central Saint-Lazare project is currently taking shape close to Gare Saint-Lazare, Paris’ second-busiest train station with around 100 million travellers per year.

The Grand Central project– 20,000 square metres of office and retail space at Gare Saint-Lazare.

The new business centre with around 23,600 square metres of rentable space will contain approximately 20,100 square metres of office and retail space with three lobbies, two restaurants, a bar and a public auditorium. Its special features include a public promenade, several terraces stretching over 2,000 square metres as well as a living roof that can be used for agriculture. Union Investment acquired the project located on the Rue de Londres and Rue d’Amsterdam in January 2017.

The seller is The Carlyle Group, which has been developing the business centre since 2013. To prove its sustainability, the project has earned an HQE (Haute Qualité Environnementale) “Excellent” certificate as well as a BREEAM “Very Good” certification.

The project is slated for completion in mid-2019. The acquisition was made for the UniImmo: Germany open-ended real estate retail

The Macron Effect

The victory of political newcomer Emmanuel Macron, bolstered by stable economic growth, is having an impact on France’s real estate market. By Myriam Chauvot

Myriam Chauvot, a well-known French journalist specializing in finance and economics, lives and works in Paris.
Les Echos

The French market began the year in a state of disarray. The fear that the populist politician Marine Le Pen, fiercely opposed to immigration, European free trade, and the euro currency, might win the presidential election led to unusual situations. “Between the two rounds of the presidential election (April and May), several foreign investors acquiring big assets on the office market inserted a clause in the contract making the completion of the transaction dependent upon the outcome of the election,” recalls Magali Marton, head of Research at Cushman & Wakefield in France.

Investors breathed a sigh of relief at the landslide victory of the staunchly pro-European and liberal Emmanuel Macron, although the 39 year-old ex-Rothschild banker (and François Hollande's former minister of economy) had never held an elected post before. On the bond market, the spread between the French treasury bond (the OAT) and the German Bund, which had reached 75 basis points in April, quickly went back to its normal level of around 35 basis points. No one knew where “La République en Marche” (LREM or “The Republic On The Move”), the party Macron founded in 2016, would find candidates for the parliamentary elections, but it did not matter: The “Macron effect” was born. LREM endorsed mostly candidates who had never run for political office before (entrepreneurs, nurses, etc.). Delighted voters gleefully seized this opportunity to solve a political conundrum: how to get rid of the old political order without putting populism in power? On June 18th, LREM secured the absolute majority in the National Assembly, wiping out all the traditional political parties....including the populist Front national.

Emmanuel Macron now has free rein. The business community is looking forward to the liberal reforms he promised, such as a roll-back of regulations, a cut in social contributions, and a lower corporate tax rate. Macron had also pledged during the presidential campaign to reform the labour law at once, in order to bring the unemployment rate (9.3 percent as of this April) down to 7 percent in 2022. This August, the National Assembly voted on an enabling statute that allows the government to skip the lengthy legislative process and to reform the labour law by decree. “There are 3.5 million unemployed people and passing a law requires two years, it’s too long!”, explained Gérard Collomb, minister of Home Affairs, on TV, two hours after LREM’s landslide victory.

All the stars are aligned for the youngest president France has ever had. He has a parliamentary majority and the rapidly improving economy should support his reforms. GDP growth is accelerating. According to the IHS Markit PMI Index, in both April and May, the rate of increase in economic activity hit a six-year high. The National Institute of Statistics (Insee) states that more jobs were created in the first quarter than at any time since 2010. In May, in the Eurozone “only France saw its pace of job creation accelerate,” writes IHS Markit. These positive signals explain why the French real estate market remained dynamic in the first quarter and will likely exceed expectations this year. “We are now anticipating investments of around 30 billion euros in 2017, rather than the 27 billion we had initially forecast”, says Magali Marton of Cushman & Wakefield, France.

Emmanuel Macron can enhance France's appeal. But the Macron effect is fragile. Representatives of the LREM do control the National Assembly, but the majority of them are newcomers in politics and furthermore,  40 percent  do not belong to any political side. They might not stick to the presidential agenda. Furthermore, only 43 percent of the French voted in this parliamentary election, which is the lowest voter turnout ever for a national election. Hollande's minister Myriam El Khomri, who tackled the labour law reform in 2016, was not re-elected to the National Assembly while Marine Le Pen made her entrance in the hemicycle for the first time after decades of futile efforts. Should Macron displease, she stands in the wings, willing to wait five years.


More about these topics: