BRIEFING: Logistics sector at turning point in France

The growth of ecommerce is driving investments in the logistics sector in France and rents are predicted to be on an upward path in the next 12 months, delegates heard at PropertyEU’s France Investment Briefing which was held in London on Wednesday.

‘The logistics sector is at a turning point in France this year, with a strong potential for rent increases, a lot of interest from investors and good yields,’ said Francois Rispe, managing director and regional head of Southern Europe for Prologis. ‘The hybrid model that combines sales in shops and ecommerce is the strongest now, as retailers are adjusting their models and becoming much more resilient as a result.’

Ten years ago Prologis did not have any ecommerce tenants in France, while today they represent 15% of the total, said Rispe: ‘Ecommerce now represents 20% of take-up on a yearly basis and I believe it is going up to 25%. There is great potential growth for logistics because of ecommerce: this is just the beginning.’

Not only is the market share of ecommerce growing, but retailers have successfully set up their own online offerings. ‘Click and collect is particularly popular, so ecommerce, which until recently was seen as the enemy, has now become a friend,’ said Bertrand Courtois-Suffit, owner of Mall & Partners.

Hybrid model
The popularity of the hybrid model means that retailers need a warehouse as well as a shop, and the pressure to improve service levels to US standards is a challenge. In order to give customers the option to buy online in the morning and collect or have the item delivered in the afternoon, the warehouses need to be close to urban centres, so demand is expected to increase.

Some 81% of the logistics market is located on the North-South route along the motorway which is the backbone of France. Take-up has increased by 44% in the first three months of 2015 to 714,400 m2. Headline rents for A class properties are between €30 and €60 per m2, which is low compared to the UK or Germany. Rents have been going up for the last three years but are still lagging behind pre-crisis levels.

‘The market is not fully priced compared to other markets in Europe,’ said Rispe. ‘Rents will definitely increase, there is a 10-15% margin of progress.’ Another factor to take into consideration is that land, which used to be available and cheap, is now becoming scarce in many places in France and this will push rents up.

‘Yields on prime logistics investments in France are 6 to 6.5%, while in London they are below 5%, which from a French point of view is good money, hence the interest in logistics,’ said Nicolas Verdillon, executive director of capital markets at CBRE Paris.

As far as retail trends go, prime continues to rule. The main shopping streets in Paris have seen substantial increases in rentals in the last year, with Avenue Montaigne at +275% compared to last year, Rue St Honoré at +203% and the Champs Elysées at +130%. ‘Last year there was a big increase in retail investment volumes to €7 bn, mainly driven by French investors, but do not anticipate the same level of investment this year,’ said Verdillon. ‘There will be a slowdown, but what is interesting is that the €1 bn invested so far this year has been evenly split between foreign and domestic investors.’