The market is currently in a wait and see period, illustrated by Q4 2022 investment volumes decelerating in France to a level 43% lower than the 10-year average

Sellers are unwilling to dispose of their assets knowing they will have to take a price cut, while buyers are waiting for a decrease in real estate prices as their investment returns are impacted by higher financing costs. As a result, while the 10-year French government bond increased by more than 300bps since 2021, real estate yield expansion was much more limited. In fact, prime office yields remained at 3.0%[3] in Q4, implying a negative risk premium against the 10-year French government bond, a first since 2007.

This shifting macroeconomic landscape is leading to a dichotomy between assets with strong fundamentals able to pass on inflation onto their tenants and those that cannot.

[3] Source: BNP Paribas