Economic climate

At the global level, growth remains sluggish. Amid international trade tensions, uncertainty over how Brexit will play out and various other destabilising factors (social and political unrest in several European countries, volatility in the financial markets, emerging economies in flux, etc.), the economic climate is looking distinctly stormier than it did at the outset of 2018.

In Asia, China’s performance is failing to live up to expectations (+6.6%, the lowest level of growth in 28 years); in Europe, Italy slipped into recession in the second half of 2018 and the German economy is rapidly losing steam. GDP growth for the Eurozone as a whole came in at 1.8% in 2018, trailing far behind the 2017 figure of 2.7%. Q4 2018 was particularly lacklustre, and there are no signs that early 2019 will be much better.

Indeed, the IMF recently downgraded its growth forecasts [1] to reflect more modest expectations for global GDP growth: 3.5% for 2019 (0.2 of a percentage point lower than previously projected [2]) and 3.6% for 2020 (a markdown of 0.1 of a percentage point).

Almost every economy on the planet has been affected by faltering growth. Although the US economy is still expected to grow by 2.5% in 2019, the effects of the budgetary stimulus package are waning and in 2020 the pace of growth is set to drop to 1.8%. In China, while the economy is still growing at a rate most established economies can only dream of, the tempo is steadily slowing (the forecast predicts 6.2% growth in both 2019 and 2020).

That said, the darkening outlook for growth is first and foremost a product of events in Europe. The Eurozone is projected to grow by just 1.6% in 2019 (down 0.3 of a percentage point) and 1.7% in 2020. The slowdown in Germany (-0.6 of a percentage point, with forecast growth of 1.3% in 2019 and 1.6% in 2020) and Italy (-0.4 of a percentage point, with growth of 0.6% in 2019 and 0.9% in 2020) were the main factors behind the IMF’s decision to tone down its outlook for the Eurozone.

 The French market in 2018

The French market had never seen such high investment levels. Corporate real estate generated an investment volume of almost €32.5 billion in France during 2018. The previous record dates back to 2007, when the market hovered around the €30 billion mark.

The volumes are impressive, but the growth is just as remarkable: the amounts invested in real estate assets have risen by 21%. France's performance is all the more remarkable given that it took place in a much less buoyant European context, down 6% in 2018. France accounted for 14% of European investment volumes (excluding Russia), compared with 11% in 2017.

The French market is admittedly still far behind the two European giants, the United Kingdom and Germany (with 64.4 and 60.4billion euros respectively in 2018), but it is performing much better: while the market inthe United Kingdom shrank by 9% in 2018, the market on the other side of the Rhine recorded only a modest 2% increase. France has thus consolidated its position on the podium of the three leading European markets. It also has real growth potential to move closer to the volumes of its main competitors.

The progress and performance are considerable. However, 2018 is not just a record year that can be relegated to the rank of an epiphenomenon, but is rather part of along-term trend that reflects the growing importance of the French market. 2018 was the fifth year in a row to end with a volume of activity exceeding 25 billion euros. Prior to this period, such an amount had only been reached once before (in 2007). We are indeed witnessing a change of scale…

This change and the go-it-alone approach of the French market in Europe may be surprising. However, they follow a logic: French real estate regained its appeal throughout 2018 as a result of the decrease in yields seen among some of its neighbours, while French yields, which had previously decreased significantly, stabilised.

France has also been able to count on other key strengths: due to the depth and resilience of its rental market, the prospects offered by its economy and the confidence inspired by the reforms advocated by the government among international investors, attention has been focused on certain categories of alternative or value-add real estate assets, offering the possibility of higher yields than for Core assets.