Strong fundamentals attract logistics investors to France

Strong fundamentals are attracting more international investors to the French logistics sector, delegates heard at Garbe’s Investment Briefing – France: Real Estate Outlook 2023, which took place recently on Real Asset Media’s Realx.Global platform.

Riccardo Marcelli Fabiani, Economist, Oxford Economics

“We’ve seen a shift to France, which is a well-developed market that offers many opportunities,” said Tobias Kassner, head of research, Garbe Industrial Real Estate. “While transaction activity is declining in most European countries, we have seen an increase in France, especially around the Ile-de-France area as the urban fringe has become more attractive due to lower rents, especially in the logistics region around Orleans.”

Geopolitical uncertainty and the conflict in Ukraine have also played a role, Kassner said: “Many institutional investors are not deploying capital in CEE because of its proximity to the war and they are looking West.”

France’s lower rents are also attracting German companies that operate in regions close to the French border, said Michaël Vidamant, managing director France, Garbe: “Many companies are shifting across to France to benefit from lower costs, so that’s an interesting area to invest in.”

The vast majority of investments and 58% of take-up is in France’s “logistics backbone” that runs from Lille to Marseille. The Paris region, where rents are highest, represented 30% of total transactions in 2022. An increasing lack of supply is now pushing investors into other regions. affecting the overall take-up.

“In the West side of France, around Nantes and Bordeaux, there very little land available for logistics but now the offer is coming in, so we are seeing an alternative backbone being created,” said Vidamant.

The situation varies from region to region, but it is particularly dire around Lyon and Marseille, which have the worst levels of supply, he said: “There are almost no warehouses available at all, which means that tenants either have to relocate elsewhere or to accept to pay a rent premium to maintain a presence in the area.  Logistics stock is at record lows.”

Only the Hauts-de-France market still enjoys relative fluidity, especially close to Lille. “Most of the speculative development is happening there,” Vidamant said.

Looking ahead, Garbe expects the market to be relatively quiet in the first six months of the year, as investors adopt a wait-and-see attitude in the expectation that prices will drop.

“But in the second half of 2023 strong fundamentals will take over and activity will pick up again,” said Vidamant. “I’m confident because there are good dynamics in the market.”

France’s stronger economic performance is underpinning the resilience of real estate in general, and logistics in particular.

In last year’s challenging economic context France posted the lowest decline in the Reecox index that tracks the performance of the European real estate sector, recording a fall of 2.6% in Q3 compared to -6.4% in the UK and -10.3 in Germany.

“France is better positioned than other countries thanks to lower inflation, the lowest in the Eurozone,” said Riccardo Marcelli Fabiani, economist, Oxford Economics. “This was because of drastic Government interventions that put a cap on energy prices, so households’ purchasing power was less affected and they could carry on spending, thereby supporting the economy.”

Annual price growth was 5.9% in France, compared to 8.7% in Germany and 9.2% in the Eurozone.

France recorded GDP growth of 2.5% in 2022 but in the current weaker economic environment growth will be more sluggish this year, stopping at a predicted 0.1% and it is then expected to pick up significantly in 2024.

This year’s performance will be better than its neighbours’, said Marcelli Fabiani: “Economic growth in France is expected to be stronger than other European countries and in particular stronger than Germany’s this year.”