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CBRE Group, Inc. is the world’s largest commercial real estate services and investment firm, with 2017 revenues of $14.2 billion and more than 80,000 employees (excluding affiliate offices). CBRE has been included in the Fortune 500 since 2008, ranking #207 in 2018. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services.

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Regularly released content on the state of the real estate and infrastructure industry are produced by our subject matter experts and shared on their blogs. A selection of them can be found below.

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EUROPE WATCH

France has been at the centre of media attention over the past few months as a result of the prolonged and sometimes violent yellow vest protests. One thing that seems to be ignored, however, is that this movement looks rather restrained compared to much larger protests for which the country is notoriously famous. Furthermore, President Macron has already been successful in implementing many of his reforms aiming to solve the country’s chronic problems with labour market rigidity and the size of the state. While a slow process, we believe these reforms will support France’s long-term potential economic growth. An area of further improvement to the Paris economy is the Grand Paris Express, which is currently the largest infrastructure project in Europe. It aims to improve the connectivity in the Paris region through the addition of four new metro lines and the extension of two existing ones. This is expected to create new business areas and improve the attractiveness of existing office districts, therefore creating attractive value enhancement investment opportunities. In this month’s Europe Watch, we shed light on this mega project, the investment opportunities it is set to create and how it will contribute to the appeal of the City of Lights to occupiers and investors alike.

A SLOWING ECONOMY WITH BRIGHT PROSPECTS

The French economy has shifted to a lower gear in 2018, with growth coming in at 1.5% y/y, compared to 2.3% y/y the year before. The cause of the slowdown is twofold. First, a contraction of industrial output and slower consumption – dampened by higher taxes and inflation – dragged economic activity down in H1 2018. Then the expected rebound in the second half of the year was cut short by the yellow vest protests. Domestic consumption will be key to growth in France in the years to come. The government’s new fiscal measures in response to the protests, including tax cuts for people on modest pensions, tax exemptions on overtime and a €100 boost to the minimum wage, will support healthy disposable income growth. Overall, economic growth is projected to continue in the coming years, at a pace of around 1.6% this year, and 1.4% in 2020.

MARCH 2019

3,298.26

4.4%

Euro Stoxx 50

0.00%

ECB Policy Rate

0.19%

4 bps

10-yr. German Bond

$65.87

6.4%

Brent Crude

Data points through end of February 2019. Change represents month-over-month change.

HOUSEHOLD CONFIDENCE AND BUSINESS SENTIMENT IN FRANCE

Source: Thomson Reuters

PRINCIPAL CONTRIBUTORS:
 
Ali Bouhjra
Karine Woodford
PARIS TOP CHOICE FOR INVESTMENT

According to Ernst and Young’s latest ‘Europe Attractiveness Survey’, Paris is the most attractive city for foreign investors, overtaking London for the first time in more than a decade. The election of President Macron and Brexit were cited as the main reasons for this change of focus. Furthermore, the report highlights that the number of foreign investment projects in France jumped by a third during the 12-month period and that together, the UK, Germany and France account for nearly 50 percent of all foreign projects in Europe. In another well-regarded yearly investors’ survey, ULI’s/PwC’s ‘Emerging Trends Europe’, Paris’ prospects rose sharply, climbing 13 places in 4 years. This suggests that the European investment landscape is shifting and that investors are increasingly keen on the French capital, despite low yields.

WHICH ARE THE THREE MOST ATTRACTIVE EUROPEAN CITIES FOR FOREIGN INVESTORS?

Source: EY Europe Attractiveness Survey June 2018 (total respondents: 502)

IMPROVED CONNECTIVITY BETWEEN PARIS AND SUBURBS

France’s appeal to investors will be enhanced by the ‘Grand Paris’ project – a huge urban development initiative for the Île-de-France (Greater Paris region), intended to better connect Paris with its surrounding suburbs. Launched in 2010 under president Sarkozy’s government, no project on this scale has taken place in France since Baron Haussmann undertook a radical transformation of the city in the mid-19th Century. The cornerstone of the project is the modern transport network, the ‘Grand Paris Express’, which will create new links between different parts of the conurbation and its inhabitants. The new network will see the creation of four metro lines and 68 metro/RER stations and will form seven newly-defined strategic hubs – thus generating opportunities for new business, retail and industrial submarkets. Whilst the overall project is due for completion in 2030, the new transport network will be operational in time for the 2024 Olympics.

GRAND PARIS EXPRESS

Source: Grand Paris Express

STRUCTURAL CHANGES TO BROADEN INVESTMENT OPPORTUNITIES

The Île-de-France was one of the fastest growing European investment markets during 2018, with over €22billion invested across all property sectors, according to Real Capital Analytics. With the largest share of deals taking place in the office sector, the city’s office market is currently one of the most dynamic across the region. International investors’ share of the French investment total has risen this year (to 42%), whilst domestic capital has reduced. The vacancy rate in the CBD is extremely tight, however, at just 1 percent. Lack of good-quality space continues to push tenants into non-CBD locations, providing opportunities for developers and investors in new submarkets expected to further benefit from the €26 billion ‘Grand Paris’ project. Saint Denis, which will accommodate the 2024 Olympic village, is expecting 3 million sqm of development, whilst the more established submarkets of La Défense and the Western Crescent will also benefit from improved interconnectivity.

GREATER PARIS REGION:
TOTAL INVESTMENT VOLUME BY YEAR

Source: RCA

BETTER VALUE TO BE FOUND IN PARIS SUBMARKETS

Paris CBD remains one of the most expensive office markets in Europe and capital growth trends in recent years suggest that yields may experience an outward shift in the medium term. However, yield compression remains possible in the outskirts of Paris – particularly in those areas set to benefit from the ‘Grand Paris’ project. Indeed, rents here have been steady for many years, and there is potential for an uplift as we are still far from historic highs. It is this potential for future rental uplift which explains the city’s rise in recent rankings for best cities to invest in. Indeed, we can expect the investment going into the Grand Paris rail/metro expansion project and the 2024 Olympics to support development and rental growth in peripheral locations. According to Cushman & Wakefield, Stratford Office rents increased by 31% since the 2012 Olympic Games, above the City of London’s average of 23%. Can we expect similar levels of rental growth in Paris’ newly formed fringe locations in years to come? Only time will tell.

GREATER PARIS REGION: YIELDS BY SUBMARKET

Source: CBRE Global Investors

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This information is for our clients and investors only. Please note that the content of this report is for informational purposes only and should not be viewed as investment advice or an offer or solicitation. Any opinions are solely those of the Strategy & Research Team of CBRE Global Investors and are subject to change without notice, and may not be consistent with market trends or future events. This research is based on current public information that we consider reliable, but we do not represent it as accurate, updated or complete, and it should not be relied on as such.

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