The elections results in April and May have alleviated investors’ concerns over a deterioration in the French property market. Although we have maintained a neutral-to-overweight call on France in general, there is a mixed picture among markets and segments. Office and retail prices in Ile-deFrance have reached levels that are difficult to justify, while the yield premium offered by La Défense offices and the regional cities has diminished. We believe the French logistics sector may have above-average returns on the back of both superior rent growth prospects and yield convergence towards other sectors.
Macron’s victory at the presidential and legislative elections has already been reflected by a strong rise in business confidence, back to positive territory for the first time in six years. The planned corporate tax cut to 28% by 2020 and forthcoming structural labour market reforms should help to boost job creation. But on the flip side, Macron’s pledge for drastic cuts in public spending and the likelihood of strikes against the upcoming reforms could hold back momentum. French GDP forecasts have recently been revised upwards and growth is now expected to hit 1.8% per annum this year and next, its highest rate since 2011.
Furthermore, although joblessness in France remains high, the unemployment rate has declined by a further 30 basis points during the first half of 2017, to stand at a seasonally adjusted 9.6% in June.
Source : Deutsche Asset Management