As the EU has grown, companies throughout Europe have striven to broaden their distribution networks fromnational to a cross-border perspective.With its central location and good transportation system, many companies have incorporated markets in France into their pan-European distribution networks. Property investors have profited handsomely from this trend, and can look forward to continued healthy returns in the future.
It’s a big place with plenty of room for sites. Even 400 years ago, Shakespeare talked about the ”vasty fields” of France. The country”s size may explain the conflicting stories we hear about it: demand is high, supply is tight – so how come rents are low?
ProLogis brought out a report in the autumn called ”France”s Logistics Property Markets – Distribution Gateway to Southern Europe”. It identifies what it calls a ”sweeping logistics revolution” taking place in Europe and it says that France”s central location, ample supply of raw land and extensive highway system have facilitated the country”s transformation into an essential location for retailers, wholesalers and other users with pan-European logistics strategies.
”France is at the nucleus of a pan-European logistics revolution,” says ProLogis first vice president of research Leonard Sahling. ”Until the 1990s, France”s logistics property markets did not provide an organised, well-utilised exchange for the leasing, sale or purchase of logistics property. The establishment of the European Union combined with the lengthening and increasing complexity of the modern supply chain has created new opportunities for property investors there. Well-functioning markets for leasing and selling distribution space not only exist, but have grown large enough to provide lessees, owners, and investors with ample liquidity and stability to attract global capital.”
The market is not as depressed as others which have endured the fall-out from the money markets losses over subprime mortgages in the US. ”Clearly the effect of the US credit crunch has been witnessed across Europe although perhaps not to the same extent in France, for example as the UK,” says King Sturge researcher Emma Jackson. ”The residential mortgage structure in France is arguably more secure than in other European countries like the UK or in Spain, whose residential markets have started to show signs of weakness. On the other hand it seems most of the debt obligations issued by banks to support property financing haven”t been too depreciated.”
The ProLogis report identifies an occupier base characterised by increased outsourcing an excellent transport infrastructure but a lack of modern distribution space.
One of the reasons for poor supply of modern space is the speed at which EU expansion has overtaken developers” abilities to meet the needs of occupiers. As borders disappeared within the EU, companies have sought to redesign their distribution networks, increasing their reliance on fewer but bigger facilities, servicing larger geographic regions. Today ProLogis estimates the total stock of modern space in France to be 15 to 20 million sq m, which compares badly to the stock of all space at nearly 90 million sq m.
Throughout France, in 2006 and the first few months of 2007, Savills reports that some 2.8 million sq m of deals were done, especially along the Lille-Paris-Lyon-Marseille axis. King Sturge says that half of the take-up last year was in the Nord and Rhône Alpes regions alone. King Sturge says that, across the country, take-up of large logistics premises exceeded 2.1 million sq m in October 2007 representing a rise of 16 per cent in volume compared to the same period in 2006 (1.8 million sq m). This outstanding level is mainly due to regional markets where take-up represented 1.7 million sq m.
Savills says, however, that rents for large warehouses in France fell during that period to between €35 per sqm/year and €54 per sqm/year.
France still offers some of the lowest warehouse rents in Europe, according to King Sturge. In Ile de France, rental values for new warehouses now range from a minimum of €41 per sq m/year to €55 per sq m/year, says King Sturge. In Lyon and Marseille, rents vary from €37 per sq m/year to €49 per sq m/year. In other regions, industrial premises are let from €35 per sq m/year to €42 per sq m/year.
Rent is €59 per sq m/year in one of the most recent deals in the Paris area. DHL Express has leased 7,540 sq m at Vitry-sur-Seine. It signed a six-year lease for 6,790 sq m of warehouse and 750 sq m of offices at SCI Vortex”s building. Atisreal was agent.
Meanwhile, demand is there, especially from 3PLs who, in 2006, accounted for more than 60 per cent of take-up. And the road network awaits them. France”s land transport infrastructure is arguably one of the best in Europe. During the past decade, the French government has funded a substantial expansion of its national network of motorways, rail and ports. Trucks account for 75 per cent of the total freight shipments while rail freight accounts for 17 per cent – one of the highest rates in the EU.
French 3PLs are able to flex their international muscles. Last year, Paris-based Geodis formed a ”global strategic alliance with the Ohio”s xpedx in order to give it US coverage. More recently, Geodis acquired German-based international air and sea freight forwarding group Rohde & Liesenfeld. Geodis has also deepened its domestic network in France by acquiring five charter and groupage agencies.
A closer look at France”s logistics space market shows some significant regional variations. France was sidelined by the expansion of the EU eastwards, which made the bigger Western European ports bigger and left second tier ports such as Le Havre playing catch-up. That catch-up is, however, being achieved and Le Havre and Normandy are now key areas for logistics space demand.
Normandy handles half of France”s maritime trade. It offers a potential reach of 200 million consumers in less than 48 hours by truck. As a result, it has one the highest concentration of logistics facilities in France after the Paris region. Growing at a rate of 10 per cent per year, the ports” cargo throughput reached 100 million tonnes (2.13 million TEU) in 2006. Port facilities will increase threefold with the completion of Le Havre”s Port 2000 development.
”Le Havre is a benchmark port,” says ProLogis general manager Ranald Hahn, ”it is a high potential site with many advantages: easy access, diversity of modes of transport, density of activity, significant labour pool, low property costs and tax advantages. That is the reason why ProLogis, leader in logistics real estate [he insisted on saying that], has more than five per cent of its French real estate holding in Le Havre ”With labour costs 38 per cent lower compared to other Northern European ports, available land sites at a stable 8 – 20 per cent lower than elsewhere, Normandy claims it offers operations costs reduced by an average of 20 – 30 per cent”and why it goes on investing long-term in the Normandy region.”
With labour costs 38 per cent lower compared to other Northern European ports, available land sites at a stable 8 – 20 per cent lower than elsewhere, Normandy claims it offers operations costs reduced by an average of 20 – 30 per cent. Meanwhile, project managers from local inward investment agent Normandy Development, ”support potential industrial projects on all issues at no cost,” promises Normandy Development executive director for international operations Jean-Jacques Foignet.
Belgian developer Warehouses de Pauw said last year that it has entered into an agreement with Van Maercke Immo France to build two new projects in Northern France at a cost to WDP of €35 million and a total size of more than 70,000sq m. They are 12,000 sq m in Seclin and 60,000 sq m in Libercourt, outside Lille.
Neighbouring Picardy has seen benefits, too. Geodis opened in Amiens in October. On a 44,000 sq m site at the Espace Industriel Nord, 140km north of Paris, this site offers 85 loading dock doors, a 5300 sq m operating area and employs 140 people. All Geodis Calberson Picardie and France Express ”groupage” and ”express” deliveries and pick-ups for the Amiens sector are now handled here. Using its wifi-based parcel management system, the facility is able to process more than 600,000 express or conventional groupage shipments a year.
There has been a slight slowdown in deals in the Paris area reported since the summer. Pre-credit crunch, many say sagely. Back then, the market was at its height. In those palmy days, ProLogis leased a recently completed 20,400 sq m distribution centre to Sony DADC France at ProLogis Park Chanteloup, located in the town of Moissy-Cramayel, south-east of Paris. Sony DADC France is using the facility as a pan-European hub to distribute various media formats, including movies, music and video games.
At the same time, ProLogis announced it was to develop a 34,700 sq m distribution centre at the park for Locaposte, a division of La Poste, the French national postal service.
The agency plans to use the facility as its primary warehouse and parcel sorting office in the Paris region.
ProLogis Park Chanteloup is located on the Francilienne (second Parisian beltway), in close proximity to the A4, A5 and A6 motorways. The park, which currently contains five facilities, will comprise ten buildings totalling 250,000 sq m at full build-out.
Meanwhile, AMB Property Corporation leased 40,000 sq m to supply chain solutions provider Agility in Paris, Houston and Amsterdam. ”Our development expertise, and our ability to provide Agility with ideal facilities at three key global trade locations, were significant factors in the selection of AMB to assist this important global customer”s expansion plans,” says AMB senior vice president and director of customer development Steve Callaway.
The Paris deal was at the AMB Gonesse Distribution Centre, a 55,600 sq m development adjacent to Le Bourget Airport and southwest of Paris” Charles de Gaulle International Airport. Agility leased approximately 12,600 sq m there.
Meanwhile, Eurodep, advised by Savills leased a 16,000 sq m warehouse owned by Gécina. The Warehouse is located in the economic zone of Baranfosse in Lagny le Sec near Paris, facing the N2.
Samsung Electronics France chose Geodis and its 14,000 sq m site in Evry, south of Paris. Geodis is handling distribution and logistics for the consumer electronics company”s high-tech products (LCD and plasma screens, hi-Fis, MP3s, DVDs, notebooks), as well as reverse logistics for WEEE (waste electrical and electronic equipment) including brown goods and IT equipment. Geodis is handling the administrative management of customs declarations at ports and airports relating to importing products and supplying the logistics platform. Its freight forwarding handles up to five containers per week, inbound are 30 lorries a day (7,500 units a day). Distribution is an average of 150 groupage shipments and 140 freight shipments per day, involving more than 45 lorries.
There remains a shortage of modern property, particularly near to the main logistics hubs around Paris, says King Sturge. Gazeley has 18,000 sq m of warehouse space available for construction now at Magna Park Vatry. King Sturge is letting agent.
Shortage of new supply
King Sturge says the Paris region has 22 million sq m of logistics space. The amount of second-hand available stock has decreased over 2006, especially in the Paris region, and amounts to 1.7m sq m in France, reflecting a national vacancy rate at 8.6 per cent. ”Though occupiers are more sophisticated in their requirements and favour modern accommodation with a high specification over second hand space, the shortage of new supply brought companies to let refurbished buildings or second-hand properties in good condition,” says Jackson.
Compared to the figure for Paris, Savills says that Orleans warehouse stock totals 1.5 million sq m, representing a fifth of the Ile-de-France stock. Savills reports that plenty of deals were done in the first half of last year, leading to ”unequalled results”. This precipitated rents rising for prime buildings.
”Brand names increase their implantations in regions in order to be closer to consumers,” says Jackson. King Sturge says that the Bordeaux area is one of the future logistics areas. Cdiscount (Casino group) is currently gathering its storage units in the southwest of Bordeaux. E. Leclerc has already opened a logistics centre of 100,000 sq m. In six years, 180,000 sq m have been developed close to Avignon with Castorama letting 70,000 sq m and Decathlon occupying two buildings for a total surface of 30,000 sq m in this zone.
With all this rosy news, ProLogis reckons this is a good time to be a developer in France. ”As the EU has grown, companies throughout Europe have striven to broaden their distribution networks from national to a cross-border perspective,” says Sahling. ”With its central location and good transportation system, many companies have incorporated markets in France into their pan-European distribution networks. Property investors have profited handsomely from this trend, and can look forward to continued healthy returns in the future.”