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French commercial property finance

France Commercial Property Investment Guide (2025)

Table of Contents

1. Office Investment Guide

Section Table of Contents

Market Overview and Trends (2025)

Repricing Phase: After rate hikes in 2022–2023, prime yields expanded to ~4–4.3% in Central Paris, ~5.5%+ in Lyon, higher for secondary markets.

Flight to Quality: Occupiers focus on modern, energy-efficient offices to meet ESG regulations (Décret Tertiaire).

Older stock needs heavy refurb.

Lower Investment Volumes: Office deals down ~50+% from 2021 peak, but bottoming out.

Core Paris prime assets remain in highest demand.

Financing and Capital Structures

50–60% LTV typical; ~5–6% all-in loan rates.

Banks Cautious: Tighter covenants, preference for prime well-let assets.

Mezz / JV used for value-add deals.

Institutional investors remain active in core Paris.

Asset vs. Share Deals: Share deals can reduce transfer tax (5% on shares vs. ~6% for asset).

3-6-9 Commercial Leases standard (9 years total, tenant can break at years 3/6).

Rents often indexed to ILAT or ICC.

Energy-Saving Mandates: Buildings >1,000 m² must cut energy use - 40% by 2030.

Tax Implications

Transfer Taxes: ~6% on property asset deals;

share deals 5%.

Corporate Tax: 25% on net rental profits; depreciation can offset income.

SIIC Regime (REIT): 0% corp tax if 95% distribution, for listed companies.

Transaction Structuring

Sale-Leaseback: Corporates monetize HQ, investor gets long lease.

Forward Purchase: Acquire new build upon completion (VEFA).

JVs: Local partner + foreign capital for large trophy assets.

Post-Acquisition Strategies

Refurbishment: Modernize older offices, meet ESG standards, boost rents.

Lease Extensions: Re-gear 3-6-9 leases, secure longer WAULT, higher value.

Divest Non-Core: If multi-asset portfolio, sell or refinance stabilized properties.

Regional/Local Overview

Paris (Île-de-France): 80% of France’s office investment.

Prime yields ~4%, prime rents ~€900–€1000/m²/year in CBD.

Lyon: France’s 2nd largest office market, stable demand, yields ~5.5%.

Marseille: Higher yields (~6–7%), some redevelopment projects fueling investor interest.

Outlook and Strategic Commentary

Repricing is near completion;

yields have adjusted. Flight to quality and ESG refurbishments remain key.

If interest rates soften in late 2025, office liquidity should rebound strongly, especially for prime Paris assets.

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2. Retail Investment Guide

Section Table of Contents

Market Overview and Trends (2025)

Recovery: After e-commerce disruptions, prime high-street and dominant malls stabilized in 2024. Retail’s share of investment rose to ~20%.

High Street: Ultra-prime Paris streets (Champs-Élysées, Faubourg Saint-Honoré) still favored by luxury brands; yields ~4%.

Shopping Centres: Bifurcation – prime super-regional centers performing well (~5% yield); secondary malls may need repurposing.

Retail Parks: Defensive segment (DIY, grocery anchors), yields ~5.5%; out-of-town convenience remains strong.

Financing and Capital Structures

50–60% LTV common; banks more cautious on secondary malls.

Mezz or Preferred Equity occasionally for value-add or refurb deals.

Sale-Leaseback used by grocery/hypermarket chains, providing bond-like income to buyers.

Asset vs. Share Deal: ~6% transfer tax on direct purchases vs. 5% on share deals.

Commercial Leases: Typically 3-6-9 structure, annual indexation (ILC or ICC).

CDAC approvals for large new retail developments (restrictive).

Tax Implications

VAT or Transfer Duty: 20% VAT if new build; older assets pay ~6% duty.

Corporate Tax: 25% on net rental; SIIC regime for listed REITs at 0% if distribution rules met.

Local property taxes / “Bureau tax” in certain regions, often passed to tenants.

Transaction Structuring

Forward Funding: For new mall/retail park expansions.

Portfolio Acquisitions: Combining multiple units or grocery stores.

JV/Club Deals: Investors pool capital for large prime city-center or regional malls.

Post-Acquisition Strategies

Tenant Mix Refresh: Introduce F&B, experiential retail.

Omni-Channel Upgrades: Click-and-collect areas, digital integration.

Refurbishments: ESG improvements, reconfiguring anchor spaces.

Regional/Local Overview

Paris: Prime luxury streets at <4–4.5% yields, top-tier malls (Forum des Halles, Italie Deux).

Lyon: Presqu’île high street, Part-Dieu mall. Yields ~5–5.5%.

Marseille: Waterfront malls (Les Terrasses du Port), yields ~6%+.

Outlook and Strategic Commentary

France’s retail sector is regaining momentum – prime high street and grocery-anchored parks see stable occupancy, rising rents.

Secondary assets face repurposing. With yields at 5–6%, retail is again attractive to yield-seeking investors.

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3. Logistics Investment Guide

Section Table of Contents

Market Overview and Trends (2025)

E-commerce Growth: Ongoing shift to online retail drives demand for modern distribution centers.

Low Vacancy: ~5% nationally, prime submarkets near 2–3%.

Rents Rising: Prime net rents ~€50–€70/m²/year in Grand Paris, can exceed €80/m² for last-mile.

Yields: Repriced upward to ~4.75–5.0% for prime big-box, stable after prior compression.

Financing and Capital Structures

60–65% LTV feasible on core warehouses with strong leases.

Development Loans: Pre-leasing or forward sales often required by banks.

Sale-Leaseback: Corporates monetize logistics sites;

investor gains long triple-net lease.

Zoning / PLU: Must confirm warehouse use permitted;

farmland conversions face restrictions.

Environmental Checks: Potential ICPE classification if storing hazardous materials.

Leases: Typically 6/9/12-year;

triple-net with indexation to ILAT.

Tax Implications

VAT: 20% on new builds (recoverable if renting with VAT).

Otherwise ~5.8–6.5% transfer duty.

Depreciation lowers net taxable profits at 25% CIT.

SIIC / REIT: Exempt from corp tax if distribution rules met, possible for large portfolios.

Transaction Structuring

Forward Funding: Investor finances construction, secures new prime warehouse upon completion.

Portfolio Buys: Acquire multiple sites from a developer or corporate disposal.

JV: Local developer plus foreign capital to build or reposition.

Post-Acquisition Strategies

Tenant Retention: Secure long leases (renew, incentives).

ESG Upgrades: Solar panels, LED lighting, compliance with Tertiary Decree.

Expansion: Add more docking, subdivide large space, or re-lease to 3PLs/retailers.

Regional/Local Overview

Paris Region: 60% of logistics volume, prime yields ~4.75%, rents €50–€85/m².

Lyon: Key corridor, vacancy ~4%, yields ~5%.

Marseille: Port-based hub, low vacancy, yields ~5.5%.

Lille: Cross-border distribution, ~4–5% vacancy, strong occupant demand.

Outlook and Strategic Commentary

France’s logistics remains a top performer – e-commerce drives stable absorption, yields near 5% offer solid income returns.

Rents likely to keep rising in prime hubs. If rates stabilize, yields could compress slightly, fueling new capital inflows.

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4. Hotels & Hospitality Investment Guide

Section Table of Contents

Market Overview and Trends (2025)

Tourism Surge: Record inbound visitors (exceeding 90M).

Paris and Riviera lead in ADR growth.

Luxury & Upscale: Strongest segment, buoyed by high-spend travelers.

Recovery: Occupancy near or above 2019 levels, with some cities surpassing pre-pandemic RevPAR.

Financing and Capital Structures

50–60% LTV typical for stabilized hotels; brand affiliation often required by lenders.

Operator Partnerships: Management agreements with global hotel groups.

Sale-Manageback: Owner invests, brand operates – often 10+ year management deal.

Hotel License: Any change of operator triggers administrative formalities.

Staff Transfer: Labor law strong;

employees typically transfer to new owner.

Historic Buildings: Many French hotels in heritage sites require special approvals for refurb.

Tax Implications

Combined Real Estate + Operating Business: Potentially taxed as “fonds de commerce.”

VAT: 10% on room revenue, 20% on some F&B/spa services.

Corporate Tax: 25% on net profits, or SIIC if structured as lease to an operator.

Transaction Structuring

Share Deal: Often to avoid high property transfer duty.

Lease vs. Management Contract: Affects risk/return.

Triple-net leases more stable.

Portfolio Buys: Multiple hotels from a brand or private equity disposal.

Post-Acquisition Strategies

Renovation/Rebranding: Upgrading 3–4 star to luxury, or adopting an international brand.

Revenue Management: Dynamic pricing, direct booking channels.

Ancillary Income: Improve F&B, events, spa for extra revenue.

Regional/Local Overview

Paris: Global tourist magnet, prime yields ~4–4.5%, near-full occupancy in peak.

French Riviera (Nice, Cannes): Luxury resorts, seasonal peaks, yields ~5%.

Provence/Alps: Strong domestic + international leisure, smaller boutique deals.

Outlook and Strategic Commentary

France’s hospitality booms with record tourism. Luxury hotels in Paris & Riviera remain top picks.

Value-add opportunities in secondary cities – refurbishment to brand/4–5 star.

Fundamentals likely to stay robust through 2025.

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5. Alternative Sectors in France

(Student Housing, Healthcare, Data Centers, etc.)

Section Table of Contents

Student Housing & Co-Living

Strong demand in Paris, Lyon, etc. from domestic + Erasmus students.

Yields ~5–6%, operationally intense but stable occupancy.

Co-living also rising in big cities; short-stay community model for young professionals.

Senior Housing & Healthcare

Aging demographics drive assisted living, nursing homes.

Often sale-leasebacks with operators at ~5–5.5% yields.

Regulatory approvals for care homes; staff cost, management key.

Data Centers & Life Sciences

Data Centers near Paris & Marseille for subsea cables, cloud expansions.

Yields 6–8%.

Lab/Pharma hubs in Lyon, Paris-Saclay. Growth potential but specialized facilities.

Niche Assets

Self-Storage: 7% yields, growing demand in urban areas.

Flex Offices: Coworking expansions in Paris & major cities;

short leases, high turnover.

Usually operated by specialized managers.

HNWI Considerations

Alternatives offer higher yields but require operational expertise.

Off-market deals common for healthcare / data centers.

Partnerships with specialist operators can reduce complexity.

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6. Development Projects & Renovation/Value-Add Strategies

Section Table of Contents

Major Urban Projects

Grand Paris expansions (metro lines, district regenerations).

Lyon: Part-Dieu / Confluence.

Marseille: Euroméditerranée waterfront redevelopment.

High Barriers to Construction

Strict zoning & “zero net artificialisation” laws limit sprawl.

Complex Permits: ~6–12 months or more for big projects.

Historic Preservation in central Paris, special approvals for listed buildings.

Value-Add Approaches

Refurbish / Repurpose older offices, malls, or warehouses.

ESG Retrofits: Energy upgrades (needed to comply with Tertiary Decree).

Mixed-Use: Transform underused retail/office into residential/hospitality elements.

Financing Development

50–65% LTC from banks if partial pre-lease or forward purchase.

JV with local developer or operator for expertise.

Forward Funding: Investor pays in stages, locks in prime new asset.

Risks & Best Practices

Permit Delays: Factor extra time, local opposition.

Cost Overruns: Use contingencies, possibly GMP contracts.

Market Cycles: Hedge interest rates, line up tenants or forward commitments.

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7. Primer on Commercial Property Investment & Finance Stack (France-Specific)

Section Table of Contents

Bank Lending & Relationship Approach

Major French banks (BNP, Société Générale, Crédit Agricole) plus internationals.

Relationship-based: strong sponsor + prime asset can secure 50–60% LTV.

Floating-rate loans with interest rate caps standard post-2022.

Conservative Underwriting

DSCR targets typically ~1.3–1.5×, ensuring rent covers interest + principal.

Negative leverage if asset yield < debt cost.

Many deals done with low LTV or all-cash.

Expect thorough covenant packages in 2025.

SIIC (French REIT) Regime

Publicly listed property company paying 0% corporate tax if distributing 95%+ of rental profits.

Good for large portfolios, but requires listing and meeting SIIC rules.

Domestic, foreign investors both can hold SIIC shares for dividend streams.

Equity Structures

Joint Ventures: Partner with local sponsor or operator.

Mezz / Pref Equity for higher leverage plays in value-add or dev.

Club Deals: Multiple HNWI/families co-investing for major acquisitions.

Tax Planning

Share Deals at 5% transfer tax vs. ~6% direct.

Depreciation lowers net taxable profits (25% CIT).

3% annual tax avoided with ownership disclosure.

SIIC / OPCI vehicles for potential corporate tax exemption.

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8. Glossary of Commercial Real Estate Terms (France Context)

Section Table of Contents

3-6-9 Lease
A French commercial lease of 9 years, with tenant-allowed break options at years 3 and 6, plus renewal rights or indemnities.
ILAT / ICC Indices
Official French indices used for rent indexation.
ILAT (Indices des Loyers des Activités Tertiaires) or ICC (construction cost index).
SIIC (Société d'Investissements Immobiliers Cotée)
French listed REIT regime.
Exempt from corporate tax if it distributes ≥95% of rental income, 70% of capital gains.
Must be listed on a stock exchange.
VEFA (Vente en l'État Futur d'Achèvement)
Forward-purchase structure for properties under construction.
Buyer pays in stages, final title upon completion.
ICPE (Installations Classées pour la Protection de l’Environnement)
French classification for facilities with potential environmental risks (storage, chemicals).
Requires special authorization.
Tertiary Decree (Décret Tertiaire)
Law forcing large commercial buildings to cut energy use by 40% by 2030, and more by 2050. A key ESG compliance driver.
Notaire
A public officer mandatory for property conveyance in France, ensuring deed validity, collecting transfer tax, registering title.
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Final Notes for HNWI & Family Offices

France’s commercial real estate spans prime office towers in Paris, global retail destinations, booming logistics, world-leading hotels, plus alternative sectors with robust fundamentals.

Repricing since 2022–2023 has brought yields to more attractive levels (~4–5% prime).

Key themes: ESG compliance (Tertiary Decree), modern refurbishments in older stock, and flight to quality.

With interest rates stabilizing, 2025 is poised for a rebound in investment volumes.

HNWIs or family offices aiming for stable income or value-add returns will find France’s combination of liquidity, regulatory transparency, and global draw a compelling proposition.

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