Real Estate: New Ways to Invest

What is your view on the current context of real estate investment in France?

The real estate market is currently going through a transition phase. The rise in interest rates has profoundly changed the economic equation: financing is more expensive, which puts downward pressure on prices and thus on asset liquidity. The cards are being reshuffled, reshaping real estate investment. Moreover, new regulatory requirements, particularly regarding energy performance and sustainability, are redefining asset values. We are therefore observing a two-speed market: on one side, recent assets that are well located and environmentally efficient, which remain highly attractive; on the other side, older or energy-intensive assets that suffer significant discounts and require substantial renovation investments. This market restructuring is both a challenge and an opportunity: it creates selectivity but also attractive entry points for patient investors with a strategic vision.

In this context, what types of investments are investors seeking?

We observe a polarisation of strategies. Some investors seek "core" or "core+" assets that offer stability and visibility, such as prime office buildings in major metropolitan areas, urban logistics, or managed residential properties. Others favor repositioning opportunities—assets to rehabilitate, restructure, or bring up to standards—that allow for value creation.

Regarding investment vehicles, two trends seem to stand out. On one hand, next-generation real estate investment trusts (Sociétés Civiles de Placement Immobilier, or SCPIs) attract investors with attractive distribution yields, often exceeding 6 or 7%. Their still modest size and opportunistic positioning on generally core+ strategies enable them to offer very competitive returns in a restructuring market. However, this enthusiasm should be tempered. The portfolios of these new SCPIs, sometimes considered less qualitative than those of historic SCPIs, along with high fees, raise questions about their ability to maintain performance over the long term. Conversely, some historic SCPIs are facing liquidity difficulties and distribution yields often below expectations, which weakens their attractiveness in this new environment.

On the other hand, value-add and opportunistic strategy funds are gaining popularity among institutional investors, family offices, and private clients. They target assets with significant value-creation potential, often through rehabilitation, restructuring, or ESG compliance upgrades. These funds operate within a strategic repositioning framework that requires the ability to anticipate regulatory changes (e.g., tertiary decree, green taxonomy), strong technical expertise, and an agile approach to financial structuring, often involving the use of structured debt leverage.

What do you offer your clients in this context? To meet what needs?

As a Private Bank, we offer a tailored approach that goes beyond simple product selection. Our role is to build a comprehensive and diversified allocation, integrating real estate as a key component of a long-term portfolio, recognized for its ability to generate performance and play a stabilizing role within a long-term allocation.

In this context, our real estate allocation strategy focuses on building a foundation composed of robust diversified funds invested across multiple asset classes and geographic areas, thereby reducing risks and ensuring stable performance over time. This foundation is complemented by thematic funds targeting promising sectors such as logistics, healthcare, retail, or strategic geographic areas, aligned with major real estate market trends. This approach adds a dynamic dimension to the allocation, with increased potential for appreciation.

Finally, we offer more specialized strategies, known as value-add or "opportunistic," aimed at assets to be repositioned or renovated, requiring active management. These higher-risk strategies also offer the potential for superior returns and are intended for investors seeking to optimize the overall performance of their real estate allocation through more targeted diversification. This structured approach reflects our commitment to combining robustness, diversification, and performance while adapting the allocation to each client's objectives and risk profile.

Our role is to support our clients in a complex market and to meet their needs through a broad spectrum of solutions available within an open architecture framework.

To what extent does real estate remain attractive in this environment?

Real estate remains attractive, but it must be analyzed and understood through the lens of real estate cycles to capture opportunities. We are coming out of a long bullish cycle driven by historically low interest rates, strong demand, and sustained asset valuations. Since 2022, we have entered a transition phase marked by price corrections and tighter financing conditions, requiring great caution regarding planned acquisitions. This stage marks the beginning of a new cycle, where opportunities abound for investors able to anticipate market shifts. Historically, the start of a cycle is a key period to position oneself: prices are more accessible, negotiation margins larger, and repositioning assets offer strong appreciation potential.

Today, the most active investors are those adopting a strategic and selective approach. They seek to take advantage of falling prices, identify properties to renovate or restructure, and incorporate new regulatory requirements, particularly regarding energy performance.

Real estate retains its fundamentals: it is a tangible asset, income-generating, and historically resilient in times of crisis. It enables building a solid wealth strategy, especially when integrated within a diversification framework. Finally, investment vehicles are evolving: opportunistic SCPIs, club deals, usufruct arrangements, or tax deficit structures are all solutions that allow adaptation to this new cycle while securing wealth objectives. Real estate has not lost its attractiveness; it simply requires a more nuanced reading and the ability to project into the medium to long term.

Real estate remains an attractive asset class but needs to regain agility. Investors seek an evolution toward a stable, coherent framework adapted to current challenges.

For any further information, your Private Banker remains at your disposal.