The IEIF publishes its annual study on real estate investments: 40 years of comparative performance

The IEIF study covers 4 complete decades, marked by four major economic crises: bond and stock market crash of October 1987, bursting of the internet bubble in the early 2000s, subprime crisis in 2008 leading to the global financial crisis, brutal shock on the world economy from 2020 with the onset of the health crisis.

This 2023 edition, with the characteristics of investments at the end of 2022, covers a transition period. In fact, during the very end of the period under review, the global economic environment rapidly evolved from the war in Ukraine and the ensuing energy crisis: high inflation, sluggish economic growth, rising interest rates , so many elements that mark the end of a cycle and to which are added the trends that the health crisis has accelerated: deglobalisation, changes in lifestyles, awareness of climate deadlines, etc.

As a preamble, the 40 years of performance study takes stock of the characteristics of household assets to understand their expectations in terms of investments but also the evolution of their savings behavior.

A level of household savings that remains high

The average household savings rate in France stands at 16,6% in 2022, after 18,7% in 2021 and 21,4%, the high point in 2020 according to INSEE. Mainly placed in bank deposits in 2020 and 2021, part of this savings has been reallocated since the second half of 2022 to higher-paying financial investments, in particular to regulated savings products that the rise in their interest rates has made more attractive. . Other investments acclaimed by savers, the Livret A and the sustainable and solidarity development booklets (LDDS) on which 40 billion euros were spent in 2022 according to the Caisse des Dépôts (CDC). Net inflows in life insurance increased by 14,3 billion euros and now represent outstandings of 1.842 billion euros, down -18% compared to 2021.

As highlighted by the AMF Barometer of Savings, an annual study on the attitudes and opinions of savers with regard to financial products, the level of knowledge of savers in matters of investment remains low and many encounter difficulties in understanding their investments, for example on the effect of inflation on the purchasing power of savings.

Different performance rankings depending on the period

• Over 5 years (2017-2022): the performance of Industrial Premises (covering logistics and business premises) is particularly high, due to the strong appreciation of the market values ​​of Logistics over the period. 6 asset classes (Life Insurance, OPCI, Livret A, Money market, Bonds and Property) have IRRs lower than inflation. Over this period, interest rate products had a negative IRR, as did listed real estate with a 5-year IRR of -9,4%, in line with the sharp decline on the stock market.
• Over 15 years (2007-2022): over this period, direct real estate clearly dominates the ranking of performance, in particular Retail and Industrial (with respectively 15-year IRRs of 7,2% and 6,1%) . SCPIs are on an equal footing with Housing and Offices (15-year IRR of 5,7% for the 3 asset classes). Gold, a countercyclical asset and a safe haven, presents the highest performance (15-year IRR 7,4%).
• Over 20 years (2002-2022): Retail is clearly at the top of the ranking with a 20-year IRR of 17,3%, followed by Property (11%): logically since the period covers the years 2005, 2006 and 2007 in which capital returns on retail assets exceeded 16 points in each of these 3 years. Property Investment Companies mainly exposed to Retail also benefited. The other direct real estate assets are then positioned: Industrial Premises (10,1%) then Offices (9,9%) and Housing (9,6% for Housing France and 8,7% for Housing in Paris) .
• Over the long term: Over 30 years (1992-2022), Property Investments and Housing are ahead of Equities with respective IRRs of 10%, 9,3% and 8,8%. The IRRs of SCPIs and Offices are very close, in line with the high historical exposure of SCPIs to Offices. Over 40 years (1982-2022), investments on the stock market are the most efficient: shares and listed real estate outpace the other asset classes. Housing in Paris has a 40-year IRR of more than 10%.

A still attractive risk/return ratio for real estate compared to other asset classes

Given these characteristics, real estate is positioned halfway between equities on the one hand and bonds on the other hand and presents an attractive return-risk ratio compared to these 2 references.

Risk-return pairs make it possible to position the various investments in relation to each other according to the durations observed, by distinguishing for a comparable level of risk, the levels of performance obtained from the various investments or, at a comparable level of performance, the investments which turn out to be more volatile, and therefore more risky.

• Over 5 years, Housing France and Logistics France have outperformed equities.
• Over 10 years, equities show the highest levels of performance, at the cost of much higher volatility than other assets.
• Over 15 years, Housing, Offices, SCPIs and Gold have performed better than Equities.
• Over 20 years, Housing (France and Paris), but also Gold, have outperformed Equities and Property Investments, which have experienced performances very close to SCPIs and France Offices but with a much higher level of volatility.
• Over 30 years, Residential France, which clearly outperforms Residential in Paris, presents a performance superior to that of listed assets, but with three times less volatility.
• Over 40 years, equities show higher levels of performance and volatility than other assets. Housing in Paris is performing very well, outperforming Property Investments, for a much lower level of volatility

For Stéphanie Galiègue, Deputy Managing Director of the IEIF: "the results of the 2023 edition confirm a strong dichotomy between real estate asset classes: those whose performance has been very robust until 2022, such as Industrial (in particular Logistics) and Housing (low volatility) and those whose model has been significantly weakened by the health crisis: Offices, Retail. 2022 marks a pivotal year, as economic and monetary conditions have changed radically: sustained high inflation, sluggish economic growth, rising interest rates, thus heralding a new cycle where the challenges posed by deglobalisation and the new world order, by climatic deadlines and by the aging of the population, necessarily modify the structure of the economy, savings and therefore the behavior of the various investments. »