As property prices in Paris continue with their upward movement, restricting yield opportunities for international investors, many are now seeking value in regional cities such as Lyon, Marseille, Toulouse, Bordeaux, Nantes, Lille and Strasbourg.
According to JLL, France is one of the only European markets having a worse 2015 than 2014 although it is largely due to lack of product. At a presentation at the recent Munich trade fair, David Green-Morgan, JLL's global capital markets research director said: "Over the past 2-3 years we have seen a change in behaviour. Now investors, particularly from Asia are seeing real estate, particularly in Europe as a safe haven – and the emphasis on wealth preservation especially from Asia has become more important".
Although many investors tend to focus on bigger cities such as Paris, a lot of capital is looking to generate more aggressive returns and therefore there is a rising interest in regional opportunities. This is a trend that is also happening outside London in the UK and outside the Big Six in the German market, (Munich, Düsseldorf, Frankfurt, Berlin, Hamburg and Cologne).
Peter Rawls, investor relations director for the huge Euroméditerranée urban renewal project on the sea front in Marseille, said yields in prime offices in the city are between 5.76% and 6.1%, comparable to other regional cities in France. Availability of capital is not the problem and many large investors such as Germany's Union Investment Real Estate and US manager Pramerica are already allocated. "The main challenge is that those who are already invested don't want to sell", he said.
However, regional cities are attracting families through quality of life and industry is stepping up to provide employment. The Airbus group has it's headquarters in Toulouse with divisions in other French regions and its main helicopter arm is based near Marseille airport. Marseille also acts as a gateway to Africa which is attractive for commercial real estate investors, particularly from China.
Jean-Philippe Blangy, managing director of UK-based fund manager Tristan Capital Partners said his firm hasn't yet developed a strategy for French regions but is beginning to look at more opportunities in France. All the major regional cities are attractive for potential office investment, while retail value can be found throughout France, even in smaller locations. "We have €5bn of assets under investment and most of that so far in Germany, UK and Spain – but there is no specific focus on the regions", he said. "In France our investments are 100% in Paris and zero in the regions".
According to Blangy, the yield spread between Paris and Marseille is much wider than that between Berlin and London, and even regional cities in Germany are closer to less attractive capital market yields.
"But in France the yields are still more attractive and the good thing in France is that you can still get decent financing", he said, adding that foreign investors have an inaccurate perception of value in French residential property where he believes rent restrictions are no more hindrance than in Germany.
Green-Morgan indicated there is a reversal of the global trend out of the regions and into the major cities. In France, the efficient rail infrastructure is helping this trend. A lot of Asian capital is coming to Europe and holding long term, he said.
"Most of the Asian capital is focusing in general on locations where it can close deals more easily. But what we are seeing particularly from the Chinese capital is that it is much more inclined to go into regional markets now, and particularly on the development side".