As the ECB increases rates to combat inflation, the combined effect of expanding real estate yields and a more expensive and scarcer debt financing could lead to significant repricing of real estate assets. As an example, European REITs have recently been trading at discounts to NAV last seen during the Great Financial Crisis (GFC).

However, this effect should be less pronounced for asset classes with good supply-demand fundamentals such as logistics and industrial assets, where rents can rise in line with, or ahead of, inflation. This is reflected in the recent relative performance of REITs: office and retail REITs reach discounts to NAV of 50%+, while logistics and industrial REITs show less acute discounts of 30%³.

While this environment is expected to impact negatively volume and prices of transactions, direct real estate investments in the previous quarter have remained strong with investment volumes in France increasing 32% in Q3 2022 compared to Q3 2021. This number is somewhat skewed by a few large transactions closed during the quarter, but initiated before Summer 2022, such as the €900m acquisition of a Parisian office portfolio by LVMH (11% of total investment volume) and the €650m acquisition of the retail asset 150 Champs Élysées by Brookfield Asset Management (8% of total volume)⁴.

• 3/Source: EPRA discount to net asset value as of Sep-22, BNP Paribas Exane
• 4/Source: BNP Paribas