A medium-sized city in France refers to an urban area with a population ranging from 20,000 to 200,000 inhabitants. In terms of rental real estate, these territories exhibit characteristics distinct from metropolitan areas: a more abundant older housing stock, significantly lower acquisition prices, and a rapidly changing rental demand due to recent regulatory developments.
Older housing stock and the Climate Law: the DPE constraint reshaping the rental market
Most articles on investing in medium-sized cities mention low prices and attractive yields. They overlook a phenomenon that is altering the very structure of the market: the gradual ban on renting energy-inefficient properties (DPE classes F and G), imposed by the Climate and Resilience Law.
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The rental stock in medium-sized cities is often older than that in metropolitan areas. Urban areas like Châteauroux, Bourges, or Saint-Quentin have a high proportion of housing built before the first thermal regulations. The FNAIM Centre-Val de Loire and the ADIL of Indre have reported since 2023 an increase in refusals to rent properties classified F or G.
To understand real estate trends on Trend Immo, one must measure the concrete effect of this contraction: fewer properties available for rent, leading to a rising rental tension in historically relaxed cities. A landlord who renovates a property classified F to reach class D gains a direct competitive advantage in a market where supply is shrinking each year.
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Denormandie Scheme in medium-sized cities: rental renovation and targeted tax relief
The Denormandie scheme specifically targets older properties needing renovation in certain town centers. Its extension benefits medium-sized municipalities like Montluçon, Lunéville, or Maubeuge, where the need for rehabilitation of the housing stock is real.
The mechanism is simple: the investor buys an old property, carries out renovations representing a significant portion of the total cost of the operation, and receives a tax reduction in exchange for a commitment to rent at a capped price. This scheme differs from the old Pinel scheme by focusing on the renovation of the existing stock rather than new construction.
Criteria that make Denormandie relevant in medium-sized cities
- A low acquisition price, allowing for the integration of renovation costs without exceeding the scheme’s caps, unlike in metropolitan areas where land costs absorb most of the budget.
- An abundant and often degraded older housing stock, which widens the choice of eligible properties compared to large cities where renovation is already well underway.
- A rental demand that is mechanically strengthened by the removal of energy-inefficient properties from the market, ensuring a more stable occupancy rate for renovated properties.
A common mistake is to reason solely in terms of gross yield. The Denormandie changes the equation: the net profitability after tax advantage can exceed that of a metropolitan investment, provided that the renovation costs are accurately estimated and the municipality is on the list of eligible areas.
Rental yield in medium-sized cities: what low prices don’t tell you
A low price per square meter mechanically produces a higher gross yield. This is the most frequently cited argument on the subject, and it is correct from an arithmetic standpoint. The problem lies elsewhere.
Rental vacancy represents the main risk in medium-sized cities with an unfavorable demographic trajectory. The study conducted by France Stratégie on 202 medium-sized French cities shows that the majority of them (85 studied cities, such as Bayonne, Chambéry, Vannes, or Sète) have experienced more favorable trajectories than the national average over the last decade, in terms of demographics, employment, and real estate prices.
In contrast, about 16% of these cities (such as Châteauroux, Épinal, or Sedan) show declining trajectories. Investing in a medium-sized city without checking its demographic and economic dynamics is akin to betting on a gross yield that vacancy will erode.
Urban center versus outskirts: a distinction not to be ignored
France Stratégie highlights a structural phenomenon: the urban centers of medium-sized cities are significantly less dynamic than their suburban outskirts. Employment and population are growing more in the periphery than in the center.
For rental investors, this data changes the perspective. A property located in an old city center may offer a high nominal yield but suffer from weak demand, while a property in the first ring, better connected, will attract more stable tenants. The actual yield depends as much on the sub-municipal location as on the purchase price.
Selecting a medium-sized city for rental investment: practical filters
Rather than a list of “best cities,” here are the filters that help eliminate poor choices even before visiting a property:
- Check the demographic trajectory over the last ten years using INSEE data: a city that continuously loses inhabitants presents a structural vacancy risk.
- Consult the list of municipalities eligible for Denormandie or other renovation schemes, indicating a public willingness to revitalize the town center.
- Analyze the proportion of properties classified F and G in the local rental stock: a high proportion indicates both a risk (renovation needed) and an opportunity (contraction of competing supply).
- Evaluate transport accessibility (TGV station, highway, frequent TER): the most dynamic medium-sized cities, like Bayonne or Vannes, combine quality of life with accessibility to a metropolitan hub.
The rental market in medium-sized cities does not form a homogeneous block. The disparities between a growing urban area and a city in demographic decline are as marked as those between Paris and a rural sub-prefecture. The profitability of a rental investment in these territories relies less on the entry price than on the ability to identify cities whose local, regulatory, and demographic dynamics protect the occupancy rate in the medium term.