COVID-19 Impacts on French Real Estate

Magali Marton • 7/8/2020

The second round of municipal elections, held on Sunday 28 June, brought elected officials from the environmental party to a few large cities in France. In the wake of this election, the Prime Minister resigned and a new Prime Minister - Jean Castex - was appointed on Friday 3 July. His Government is still in the constitution phase and should be known on Monday 6 July. At the top of the priorities, employment and especially that of health personnel with the ‘Ségur de la santé’, before resuming dialogue with the social partners on pensions, unemployment insurance, then dependency.  

The Prime Minister therefore announces “a new social agenda” without forgetting ecology which “is not an option” based on his own words. The task will be difficult; the Ministry of Action and Public Accounts has published its first forecasts for the Year 2021 budget. They forecast an economic recovery of 8% next year, excluding the effects of the future stimulus plan. The deficit is expected at -5.5%, before future new measures expected in September, and the debt at 117.5% of GDP.


25 June

France is continuing its exit from lockdown, from Monday 22 June cinemas, holiday centres and casinos are reopening in compliance with strict sanitary rules. In addition, the constraints are also easing in the world of sport and the resumption of collective sports activities with, again, ‘appropriate prevention measures’. Conversely, combat sports are prohibited. The deconfinement will also continue, and from 11 July, we’ll see the end of the State of Health Emergency in mainland France, for stadiums, but also for racetracks, which will then be reopened to the public, with a ‘maximum’ of 5,000 people. 

The Government therefore confirms the conditions for a return to economic activity as normal as possible while the OFCE (French Observatory of Economic Conditions) anticipates an 80% increase in business failures resulting in the loss of 250,000 jobs in 2020. The report also shows strong differences in impact depending on the sector: unsurprisingly, the hospitality and catering sector is extremely exposed to the risk of bankruptcy, while the industry in general is much less so. Another more surprising lesson: like very small companies, large companies, which are more indebted and have less liquidity, are more exposed to default, while SMEs and mid-size companies are less exposed. 


18 June

In a televised address broadcast on the evening of Sunday, 14 June 2020, the President of the French Republic Emmanuel Macron announced a new series of measures to bring about a return to ‘normal’ life for French people. Except for some overseas departments (Guyana and Mayotte), the whole of the French territory will come back to the ‘green’ zone, thus bringing about the total opening of cafes and restaurants - those of Ile-de-France could not unless they had outdoor spaces.  

The other flagship measure concerns the reopening of schools and colleges with the compulsory presence of all students from 22 June 2020 until the summer school holidays which begin on 4 July 2020. The President also clarified the procedures for reopening the borders of the Schengen area from 15 June.  

The latest economic forecasts indicate a drop in GDP of -9.8% in 2020 and before a rebound of + 7.9% in 2021, it is urgent therefore, in the President's own words, to "revive the economy". In its last note, Oxford Economics does not expect a return to normal economic activity in France before 2022, with a sharp rise in unemployment and household consumption - the engine of the French economy - down is 10% in 2020. 

8 June

Two elements came to close in the week of 1 - 5 June, the first week of the second phase of deconfinement in France with, on the one hand, the opening of negotiations on ‘remote working’ and, on the other hand, the submission of the report mediation on the payment of rents for retail spaces.

On ‘remote working’, employers and unions opened discussions on Friday 5 June 2020, these should be complete at the end of September. Based on the observation that the lockdown period represented a form of remote working ‘crash test’, all organisations - both employers and employees - agree on the need to supervise remote working. Many issues are to be addressed: organisational, human and family issues, social, territorial, mobility, human resources. The topics are not lacking even if the objectives of one or another already diverge. 

As for the battle for retail space rents, the mediation set up on 23 April 2020 by the Minister of the Economy and Finance has ended in semi-failure, with the drafting of a charter framing the deferrals and cancellations of rents for the lockdown period, and setting a recovery period to 30 September 2020. This is a provision exclusively reserved for retailers who need it, whatever their size. This charter received the support of the representatives of the landlords; fifteen retailer federations refused to ratify the document. 

2 June

Today a new phase of lockdown in France, with the reopening of all bars and restaurants (complete reopening for ‘green departments’ and only the terrace for those in ‘orange departments’) and the end of travel restrictions for journeys less than 100 kilometers.  

The opening ban, which impacted the department stores of the boulevard Haussmann and shopping centres of over 40,000 sq m, was lifted on Saturday, 30 May by prefectural authorisation, except for the “Halles” in Paris and the “Quatre Temps” in La Defense.  

There is indeed an urgent need to return to normality and to revive the French economy when we anticipate a 20% drop in GDP for the 2nd quarter of 2020. The Government is entering a phase of normalisation of support for businesses with less financial support for partial activity and aid of €1,500 for companies in difficulty in the catering / accommodation sector.  

A recent study by the Banque de France has shown record corporate debt (€35.4 billion in March, €25 billion in April, when flows are on average 4.5 billion per month). This trend is accelerating in May - from 1 May 1 to 15 May, companies obtained another €32 billion in new loans. It’s a question of businesses restoring cash that has been shattered by 10 weeks of confinement to pay wages, or suppliers. 


28 May

Portent is accumulating on the front of the French economy with the first announcements of savings plans or layoffs in some large companies such as Air France and Renault. The plan presented by the carmaker provides measures to achieve €2 billion in savings and the potential closure of 3 factories, including the legendary Flins factory which could halt car production in the near term.  

France therefore opens the chapter on the economic consequences of the health crisis, and we think that this is only the beginning. Some major names in the retail sector also report serious difficulties: After André, Orchestra-Prémaman, 5àsec, Pacific Peche and Tie Rack. And now it is Alinea and NAF NAF's turn to go into receivership. This procedure is applicable in the event of payments cessation; it aims to enable the safeguarding of the company, the maintenance of activity and employment and the settlement of liabilities. Potential buyers have made themselves known but no decision has been made.  

The first court ruling ordering an insurance company to compensate a restaurant manager for operating losses suffered since the start of the crisis has been announced. The decision opens a breach in the fight between restaurateurs and insurers. Some insurers have already announced exceptional lump sum compensation payments. 


21 May

One week after the end of a ‘strict’ lockdown, a first and obviously incomplete assessment can be drawn. It highlights a clear desire on the part of companies to restart their activities, while emphasising the operational difficulties of this recovery, and the additional costs generated (purchases of protective equipment, lower productivity, division of team work etc.). For some business sectors, this additional cost could range from 10% to 30%, already for some, these additional costs have had to be passed on to the end user. 

The new health security protocols also generate significant additional costs for retail activities. While all shops - except bars, restaurants and leisure facilities - have reopened since 11 May. According to initial estimates, this additional cost can represent up to €100,000 for a supermarket, if we include protective equipment, employee bonuses and the payment of additional hours necessary to replenish the shelves during store closing hours.  

The equation is therefore not so simple. However, it is a better situation than for tourism, where activities are still on hold even though the Government has just validated the principle of holidays for all French people in July and August - everywhere in France, and overseas (DOM TOM). Full refund measures have been put in place if reservations must ultimately be cancelled. Online booking services and SNCF (National Train Services Company) have consequently recorded strong activity since this announcement.   


14 May

D-day for the end of lockdown in France started with the reopening of public transport, schools, non-essential shops, except bars and restaurants and large shopping centres in the Greater Paris Region.  

A new era therefore opens for a period of 3 weeks and in a country cut in two between red departments (North-East of France) and those green. At the end of May, if the indicators are positive, a new phase may begin, notably with the reopening of cafes and restaurants, which have been closed since 15 March. The next few weeks are therefore crucial. 

On the commercial real estate market, a survey lead by the Capital Markets team at Cushman & Wakefield France shows that 66% of the investors questioned are still active in the market and ready to buy assets with a letter of interest. They have a volume of more than €47 billion for their future acquisitions but only €17 billion of assets would - according to respondents - be sold. About 2/3 of respondents have not changed their investment strategy. The strategy changes when it comes to asset allocation in portfolios (21% of respondents see an increase in logistics and residential assets and a decrease in retail assets) and / or the investment risk profile (16% of respondents). A return to normal is expected in 2021, with a decompression of prime yields anticipated for 77% of the respondents. Its size varies according to the asset types considered: the more resilient residential (around 25 basis points), and the more impacted shopping centres (more than 100 basis points). 

For the full results >> watch the webinar


7 May

While the first figures of the economic recession (-5.8% in the 1st quarter 2020) for the French economy were published last week, everyone's eyes are looking at the end of lockdown announced for 11 May. This date has yet to be confirmed and the next few days will therefore be crucial to prepare for the return to a ‘new normal’ which raises many questions.  

For corporates, a return to work protocol sets the main principles for the organisation of spaces and employees (4 sq m per employee, direction of movement in spaces, disinfection and wearing of masks etc.), but the Government invites companies to continue to work from home. A recent survey indicates that 74% of companies also plan to develop home working in a sustainable way after the crisis (mostly with the updating or implementation of a charter or agreement).  

There are also many questions about the conditions and use of public transport and even more about the re-opening of schools, colleges and high schools, and in the first place for kindergartens and primary schools. On the retail side, the opening of shopping centres with a surface area of more than 40,000 m² is subject to a prefectural decision, while the ban remains for bars and restaurants.


30 April

The soap opera of discussions on the payment of rents during the confinement period has just experienced a new rebound last week: the second amended finance law for 2020, adopted on 23 April allows landlords to deduct tax debt forgiveness from rents agreed between 15 April and 31 December 2020 under certain conditions: 

  • The tenant must be a company
  • When the landlord is also a company, the landlord and the tenant must not belong to the same group
  • When the landlord is an individual and the tenant business is operated by a person belonging to his family circle, he must be able to justify the tenant's cash flow difficulties

Being able to deduct charges relating to abandoned rents has also been confirmed. 

Finally, tenant companies will be able to deduct from the profit they have to declare, which corresponds to the forgiveness of rents, their tax loss carry-forwards, without applying a limitation over €1 million. 

This measure should finally clarify the situation at a time when companies are preparing to reopen from 11 May. The end of lockdown poses a myriad of practical questions and will generate additional costs linked to the necessities of social distancing, which are still in force.


23 April

As France begins its 5th week of lockdown and the consequences of the COVID-19 crisis mutated into a severe economic crisis (-8% announced for the GPD in 2020), the tone mounts between the landlords and the retailers.  

A few owners announced very early on the cancellation of the rents, placing themselves in the middle of an ethical question. Retailers are asking for rents and charges to be cancelled, at least until the end of the confinement. On 11 May so-called non-essential shops will be able to reopen (essential shops have remained open). In mid-July bars and restaurants will be able to reopen.  

All retailers have left the CNCC (National Centre of Shopping Centres) and 12 professional associations are now speaking with one voice. In a press release dated 17 April 2020, the CNCC, as well as other associations representing landlords (AFG, ASPIM, FSIF, FFA, CAISSE DES DEPOTS Group) asked its members to spread rents over 2 years for small children’s shops, normal payment for large brands and a case-by-case approach for medium-sized businesses. Next week will see a clarification of the situation as the Government is now clearly putting more and more pressure on landlords… 

16 April

French President Emmanuel Macron announced on Monday 13 April a possible exit from confinement on 11 May, subject to strict compliance with gradual social distancing measures. 

The French economy must remain at a low activity level for another 4 weeks. This has already put more than 8 million workers in partial activity and plunged the gross domestic product to -6% in Q1 2020. Each fortnight of confinement leads to a loss of annual GDP close to -1.5%. Businesses financial situation is therefore worrying, and leasing or investment in the commercial property market already reflects this.  

In this context, during Q1 2020, the office market in Ile-de-France experienced its worst performance of the decade with barely 340,000 sq m of take-up (-37% year-on-year).  

At the same time, activity was particularly dynamic on the investment market with €7.3 billion invested. Obviously Q2 will be strongly impacted by the near impossibility of signing any deal; transaction volumes will therefore proportionally decrease considerably. All eyes are therefore on Q3 hoping for a recovery. 


9 April

At the dawn of the fourth week of lockdown in France, the impacts of the COVID-19 health crisis are beginning to take shape economically.

415,000 companies and almost 4 million people - figures as of 1 April 2020 - now benefit from a ‘partial activity measure’, which means the State pays a part of company wages. These are mainly companies with fewer than 20 employees (42% of employees) working in the retail sector (21.4% of requests), accommodation and catering (15.7%) and construction (14.3%) sectors. 

The dialogue between the professional federations and the State - which commenced at the start of the crisis - continues to ensure the right conditions for resuming economic activity: 

  • A recommendation to allow building activity to resume partially, while ensuring the safety of employees  was validated by the Government and was made public on 2 April 2020. 
  • The time limits for appealing administrative acts (building authorisation, building controls, declaration of intention to dispose of, etc.) could be shortened. 
  • The digitalisation of transactions (notarial deed online, electronic signatures of the parties) could facilitate the completion of real estate transactions with purchase and lease contracts.

2 April

As part of the fight against the COVID-19 pandemic, the French Government ordered the confinement of people from 17 March, in parallel with the closure of ‘non-essential’ businesses, announced on 14 March. 

During this health emergency, Government action in respect of businesses has been strong and rapid: 

  • The postponement of tax deadlines and social security for the month of March. 
  • The public assumption of partial activity costs. 
  • The State guarantee of up to €300 billion in loans on bank loans to companies enabling them to consolidate their cash. 
  • An emergency aid of €1,500 will be paid at the beginning of April to the smallest businesses - a solidarity fund is created for this purpose, which will be matched with €1 billion, including €250 million from the county institutions. 

Few measures directly affect the commercial real estate market in France. However, there are no penalties nor interest on arrears in the event of rent non-payment. This measure is applicable during the duration of the health emergency and the following 2 months for companies eligible for the solidarity fund. 

It is too early to measure the impact of these measures on the real estate market. The National Statistics Institute has already estimated the economic loss of -35% compared to a ‘normal’ situation. 

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