Large investors are pouring money into French retail property in 2011 in a move away from the increasingly crowded UK and German markets, with deal volumes set to rise by almost 2 billion euros ($2.9 billion) this year.
French prime malls are the latest hot spot for global real estate investors seeking to benefit from rebounding European economies, after targeting the retail sectors of the UK, Germany and even Spain.
"The investment market in France is extraordinary strong at the moment," said Tom Newton, a director at Eurocommercial Properties in charge of the company's French portfolio. "There is lots and lots and lots of money trying to get into France."
French insurer Axa, Dutch pension fund ABP, German insurer Allianz and the Canadian Pension Plan (CPP) are among those hunting retail malls, market sources said.
Investors targeting Fench retail assets have cited rising consumer confidence, strong disposable incomes and an improving economy, as well as their proven track record in providing returns to their owners.
"Investment in French retail assets will continue to increase as this sector is seen as increasingly transparent, with attractive yields compared with other asset types," said Lydia Brissy, head of research at Savills France.
Yields on prime French retail assets were 5-6 percent, against 4.5 percent for blue-chip offices, she said.
Investment volumes should rise 33 percent to 16 billion euros in 2011, from about 12 billion in 2010, property consultancy DTZ said in a report, with retail taking about 40 percent.
A wide range of buyers, including managed and private funds, have entered the market, pushing down yields about 50 basis points from 2010, said Magali Marton at DTZ.
"As long as you have a long list of buyers, yields will stay low and could even go lower," said Frederic Fontaine, chief executive of retail property group Corio's French unit, which at the end of 2010 had 23 malls in the country.
Demand for retail property pushed Europe's commercial real estate investment up by a third in the first quarter, with the sector taking 43 percent of 28 billion euros in deals, property consultancy CB Richard Ellis said in May.
There has traditionally been a low supply of prime retail real estate coming to market in France, with owners holding assets for long periods, property investors said, noting the weight of money targeting the sector might trigger sales.
The market is dominated by several big players, such as Anglo-French property investor Hammerson, Franco-Dutch property group Unibail-Rodamco and mall operator Klepierre, which DTZ says want to up their exposure.
"Retail investment in France has proved to be very stable as an investment, which has been one of the reasons buyers like ourselves are interested in it," said Steve Cowen, investment director for Europe at Grosvenor Fund Management. ($1=.6845 Euro)