Risk premium remains intact. At the end of Q1 2021, it seems apparent that the effects of the pandemic than began in spring 2020 look set to keep the economy under embargo throughout 2021. A veil of uncertainty has been drawn over the economy, redefining traditional economic mechanisms and making forecasts opaque.
As a result, the real estate investment market posted a decrease at the beginning of 2021 compared with a record performance seen over Q1 2020.
Interest rates remain at record lows and are contributing to real estate’s continued attractiveness compared with the bond and stock markets. While capital is plentiful, investors are exploring diversification strategies. On the one hand, geographic diversification with French investors seeking opportunities in regional markets, as well as abroad. On the other hand, diversification by asset type has continued with the conclusion of large logistics portfolio transactions this quarter, mainly in regional markets as well as urban logistics in the Greater Paris Region. Urban logistics is attracting a growing number of investors as demand rises for warehouses located in close proximity to consumption hubs. The prime yields offered by these recently built warehouses and industrial premises are still higher than those offered by prime offices. Although the race for yields is already underway, value-add or opportunistic projects, which offer higher returns, were few and far between over Q1.
French investors may have been clearly in the majority this quarter, but the Greater Paris Region real estate market remains highly attractive to international investors, particularly those from Germany, the Middle East and North America over Q1.
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