French retail real estate on the comeback trail

Once the martingale of investors, French retail real estate has largely lost its credentials over the past decade, having been hit by such shocks as the advent of e-commerce, the health crisis and the ensuing inflationary surge. Yet more and more investors who had turned their backs on the sector are beginning to take notice. What if retail were on the way back?

Retail real estate has come a long way. "At the turn of the 2009-2010 decade, retail was second only to office in the priorities of institutional investors", points out Christian Nehmé, Head of Retail Services Capital Markets & Lettings at Savills France. Initially focused solely on high street and shopping malls, the institutionalization of the sector spread to retail parks from 2007 onwards.

The market was doing well, with good transactions in all sub-sectors," he continues. Until the rise of e-commerce, crystallized by the arrival of Amazon, and the transition to retail bashing. Only one product was spared: the high street; the identified arteries of major cities."

Foreshadowed as early as 2014, this paradigm shift really took hold in 2017, when investors began to turn their backs on out-of-town retail, and intensified from 2019 onwards when shopping centers also fell out of favor in allocation strategies. "From 2016-2017, shopping centers were seen as problematic because of their very high rents and charges, or their technical complexity, which made them very difficult to restructure, major consumers of capex and rapidly obsolete", explains Christian Nehmé, recalling that retail real estate was already in crisis when the Covid-19 pandemic entered... when stores were forced to close for health reasons.

For almost 30 years, many retailers were unable or unwilling to change their concept and distribution strategies," he notes. But just when everyone thought the pandemic was going to bring retail to its knees, it came out of it very well, because the majority of retailers, who had suffered the retail bashing, had already prepared for it, notably by adopting two-channel strategies."

Some retailers, particularly in the ready-to-wear sector, have been hard hit by the disruption described above, and have been forced to file for bankruptcy. Against all the odds, however, it is clear that the physical retail sector is maintaining a rather resilient operating performance. After two years in which growth in household consumption was less than 1%, the statistics compiled by Procos confirm contained growth in physical retail activity. According to the federation, which represents 310 specialist retail chains, its members ended 2024 with sales up a slight 1.1% on the previous year, on a like-for-like basis.

This increase is all the more welcome given that it followed a substantial 3.5% jump in 2023. And the trend continues this year: between January and April 2025, store activity grew by 1.4% compared to the same period last year. In its study "2025 Mid-Year European Outlook: Still On Track, Despite Tariffs", AEW projects, for example, that "retail sales (in real, inflation-adjusted terms) are expected to grow by 1.7% per annum between 2025 and 2029", adding that "most of this comes from online sales growth", but that "in-store sales are also expected to improve".

Also, sales made in physical stores are expected to increase by 3% by the end of 2025 in continental Europe compared to their pre-pandemic levels, according to the report, and maintain "stable, albeit moderate growth" of 0.6% per year over the next five years.

"While the purchasing power of the French will increase only very slightly in 2025, the expected deterioration in the job market, France's continuing political instability and a persistently tense international geopolitical situation will fuel wait-and-see behavior among households and limit the recovery in consumption," warns Newmark in a recent study analyzing the Banque de France's macroeconomic projections.

Despite this, Jérôme Descamps, President of Sélectirente, remains confident that physical retailing in France will confirm its resilience: "Nothing will replace physical retailing. It's a very French trend: we like to go into a shop to feel, touch and be advised. Even Generation Z, who use the Internet for over 90% of their purchases, will buy or pick up 50% of their products in-store."

Investors are becoming curious again, which is encouraging some investors to reconsider the sector in their allocation decisions. All the more so as their historically favored asset class, office space, is itself currently going through a period of "bashing". In this phase of market recomposition, some investors feel that the compartment may still be in a repricing phase, with many questions about its rental market, with the exception of Paris CBD," says Magali Marton, Director of Studies and Research at Knight Frank France. As a result, we've seen a certain redirection of capital towards the retail sector, which, with investments approaching €3 billion, performed rather well in 2024," she adds.

Of course, if we exclude the few large-scale transactions that enabled the sector to account for 38% of the €3.4 billion invested in French commercial real estate in Q1 2025 - Ardian's acquisition of a 60% stake in Kering's portfolio of three "ultra-prime" Parisian assets alone accounted for almost two-thirds of the €1.3 billion invested in retail - it may still be difficult to find transactional evidence of this renewed interest on the market.

However, all the players consulted by Business Immo report weak signals pointing to a return to favour or, at the very least, a renewed curiosity on the part of investors. "Since the autumn of 2024, we've been seeing generalists asking questions about retail, players we hadn't seen invest in retail for more than five years, or even almost ten," notes Vanessa Zouzowsky, Head of Retail Capital Markets at Cushman & Wakefield France, for example. Thierry Cahierre, COO Real Estate at Redevco, also confirms: "The 'retail bashing' has been behind us for over a year now. Investors are starting to look at retail again, albeit still cautiously, and I'm sure the market will pick up again fairly quickly, if not very quickly, once the movement is initiated."

In fact, CDC Investissement Immobilier's acquisition of a 15% stake in the Westfield Forum des Halles shopping center, from Unibail-Rodamco-Westfield for €235 million, can be seen as an important marker for a market still lacking benchmarks, says Magali Marton: "It's significant that such a long-term, risk-averse investor feels that a dominant asset like this one remains relevant." According to Thierry Cahierre, "investors have clearly understood the true resilience of retailing, particularly in terms of the structure of the commercial lease and the financial relationship we have with the retailers".

Even bank lenders, long resistant to (re)financing retail assets, are now more open to certain opportunities. "Prime pied-à-terre assets - provided they have the right retailers - retail parks and food retail are doing well," reports Damien Giguet, CEO of Shift Capital, a consultancy specializing in real estate financing. Dominant shopping centers are also back under the radar of lenders, who have shown a little more appetite for larger assets, particularly in Italy," he adds. On the other hand, it remains very complicated to find financing for a secondary shopping arcade attached to a hypermarket in the provinces or the inner suburbs, just as it is for high street assets in secondary locations."

Thierry Cahierre points out that "the retail sector has already undergone disruption and change", noting that the sector "was the first to be affected by the Internet revolution and the advent of new modes of consumption", and that "investors can therefore be certain that it has already undergone its transformation". He adds that "these assets have undergone significant cost and valuation adjustments in recent years" and that "investors have understood that the movement has reached the bottom of the curve and will start moving up again".

After the steady decompression that began in the second half of the last decade, prime yields on the three main types of retail assets have largely stabilized since 2023, according to Cushman & Wakefield: at 4.25% for high streets, 5.25% for shopping centers and 5.75% for retail parks. As Vanessa Zouzowsky points out: "It has not escaped the attention of institutional investors, particularly insurers, that prime retail rates are higher than those for office space. But whereas the search for a prime office asset is confined to the Paris CBD, prime retail offers a slightly broader range."

Savills reports that the different retail sub-sectors have divided the volumes invested in the sector relatively equally in 2024: 31% for high street, 27% for retail parks, and 34% for shopping centers. And while the capital's finest shopping streets are the focus of much of the headlines because of the XXL deals taking place there (see opposite page), good deals can also be found in other markets, assures Jérôme Descamps: "In certain Parisian micro-locations, as in major French cities, rents are continuing to rise because demand is strong and supply cannot be stretched. Prime yields have also fallen compared with last year, even for our assets that are not located on the capital's "ultra-prime" thoroughfares".

For Magali Marton, "the conditions for market fluidity are in place: we have a clear understanding of retail assets in all their diversity, we know how to assess the risk or premium associated with the various brands, and tenants have demonstrated their ability to survive major shocks".

The biggest brake on retail property investment may in fact be a lack of product. "Vanessa Zouzowsky argues: "If the renewed interest in retail is rather theoretical at the moment, it's mainly because investors can't necessarily find what they want. "Many investors, for example, would be interested in downtown retail in regional cities such as Lille, Bordeaux or Lyon, which offer yields in excess of 5%, but products are rare," she adds.

And if investors can't find a product that perfectly matches their strategy, they're stuck. "You'd need the perfect product at the perfect rate, but the problem remains that some buyers value assets more harshly than sellers," she agrees, which still prevents many from putting their money where their mouth is. Investors are very cautious, and although they have the available capital, they remain very meticulous, paying close attention to every facet of an asset," confirms Christian Nehmé. They are well aware of current economic factors.

However, they are also aware of the cyclical nature of the business, which allows them to put their immediate positioning into perspective." The latest economic news, in particular the drop in consumption anticipated by the Banque de France, "means that the market environment is much less clear today than it was even six months ago", adds the Director of Studies and Research at Knight Frank France. But while she sees this as a "grain of sand in the wheels", Magali Marton does not believe that it is "likely to stop investment".

By mid-May, the consultancy had already identified a pipeline of some forty potential transactions totalling €1.8 billion, "with many lines between €10 and €50 million, as well as a few more exceptional products in excess of €100 million". Vanessa Zouzowsky agrees: "We have a lot of marketing in progress, but the market is mostly made up of small lines under €20m. There are a few big projects under consideration at the moment, particularly off-market, but it's possible that only half of them will come to fruition, or that some will be postponed until 2026, given the complexity of commercial deals."

So those hoping for a major rebound in retail real estate may have to wait until at least next year. But the desire to invest is back, and for a long-suffering sector like retail, that's already a very good start.