GARBE Knows Europe – Country Scope France

Key Facts Logistics Real Estate Market France:

	Logistics space stock: 49.2 million sqm (Q2 2022) (2018-Q 2/2022: +5.0% avg. annual growth; +9.6 million sq. ft.)
	Prime rent: EUR 5.80/sqm (Q4 2022 – update July 2023) (2018-2022: +4.8% Ø-annual growth; +EUR 1.20/sqm)
	Peak net initial yield: 3.90% (Q4 2022 – July 2023 update). (2018-2022: -4.5% avg. annual growth; -1.00% point)
	Investment volume: EUR 7.6 billion (2022) (2018-2022: +17.5% Ø-annual growth; +EUR 3.6 billion)

France: Third-Largest Economy of Europe

With its population of around 68 million, France is home to one of the most advanced and oldest logistics markets in Europe. It is no coincidence that it plays a key role in European logistics. Extending from the North Sea in the north, the River Rhine in the east, the Mediterranean in the south, and the Atlantic in the west, the country has always maintained a close bond with water-bound transport, thus establishing its status as a trading nation over the centuries and as one of the leading logistics markets today. Its gross domestic product of approximately 2.6 trillion euros in 2022 makes France the second-largest national economy in Continental Europe and the seventh largest worldwide.

Emergent Logistics Regions Broaden the Expanse of the Overall Market

The established logistics regions of France are mainly clustered along the so-called “backbone,” a belt extending from Lille to Marseille via Paris and Lyon. Other established logistics regions include Strasbourg, Nantes, Bordeaux, and Toulouse. Also worth mentioning are the logistics regions of Le Havre on the Channel, Dijon as a hub connecting Paris, Lyon, and Strasbourg/Germany, as well as the city of Nice on the Côte d’Azur.

The Market Cycle has Not Peaked yet

France counts among Europe’s leading locations in the logistics market segment due to its centrality on the Continent and its well-developed infrastructure. Neither the emergence of new European logistics hotspots nor the EU enlargement have compromised its leading position. The popularity of logistics real estate during the pandemic and the trend toward re-shoring and near-shoring will ensure for the foreseeable future that demand for real estate and floor space will keep going up. Accordingly, a major dip in market demand is not to be expected for the time being.

In 2021, GARBE deepened its commitment on the French logistics market by opening a dedicated branch office in Paris. We talked to Michael Vidamant, Managing Director of GARBE Industrial in France, and wanted to know why the potential of the French logistics market is not nearly exhausted.

1) The French logistics real estate market is considered to be relatively compact. Why is GARBE paying such close attention to that market nonetheless?

In terms of GDP, France is the second-largest economy in Continental Europe, after Germany. The geographic proximity, the quality of the infrastructure, the economic stability, and a globalized logistics landscape encourage the idea that France will be a key area for the development of GARBE Industrial in Europe.

German investors have always been active in France. In 2022, they accounted for 5% of the logistics investments in the country. Having a branch office in France enables GARBE to support its clients even outside its historic home market.

Moreover, applying the term “compact” to the French market calls for clarification because logistics and industrial real estate investments in 2022 amounted to 9.6 billion euros in Germany and to 7.6 billion euros in France. These two markets are in second and third place in Europe, after the United Kingdom, and account for more than 40% of the logistics demand in Continental Europe in 2022.

2) Which special characteristics set the French logistics market apart from the German one?

Although the trend continues to evolve, France remains a centralised country for the time being, with the bulk of its logistics business transacted via the “backbone” (the belt extending from Lille to Marseille). Germany, by contrast, has seven regionally dispersed top locations. In addition, it has numerous other logistics regions that gained in significance relative to these top locations over the past years.

The rental level in France has traditionally been lower than in the other major countries in Europe. Prime rents in European logistics increased by 12% between 2021 and 2022. While the rent growth in Paris equalled 9%, the prime rent in Munich increased by 17% during the same period of time.

Still, the logistics markets in either countries are evolving along similar lines: contracting supply, robust demand, barely any vacancies, and rising rent rates, albeit on a significantly lower rent level than in Germany.

3) In what ways has the coronavirus crisis impacted the French market, and how will it influence its development going forward?

The French logistics sector was discovered by institutional investors in the late Zero Years when investments in logistics real estate crossed the mark of 2 billion euros for the first time. The COVID-19 pandemic caused this asset class to develop faster than others, including retail, office, and hotel. In fact, it was the boom in online retailing that helped logistics to become established as a major industrial sector in France. Its growing significance enabled the logistics landscape to expand into regions where it had previously been under-represented. We assume that the national logistics network will continue to undergo a process of geographic differentiation, much like in Germany. The process will focus both on established and on growth industries.

4) What are currently the most important demand factors on the French market?

As in most other European countries, online retailing in France is evolving in sync with the ongoing economic transformation of society in general. To continue with this transformation and to make it more attractive at the same time, the logistics sector has begun to integrate environmental criteria even in the early stages of its production chain. This generates added value for occupiers but also for the respective region served.

The COVID-19 pandemic and the war in Ukraine encouraged the retention and re-shoring of certain business processes that had in some cases been moved off-shore, and this trend is likely to boost future demand.

The growing significance of environmental, technical, and technological aspects as well as of the way a property presents itself and its service features to occupiers and investors also fuels the idea that the supply side, meaning both existing assets and property developments, must be positioned accordingly.

5) Which regions are likely to become the rising stars of the French logistics landscape? And in what ways do they set themselves apart from established logistics regions such as Île-de-France or Marseille?

In the past, the backbone (Lille – Paris – Lyon – Marseille) used to account for two-thirds of the logistics real estate take-up. The difficulty of finding available plots of land, the complexity of the administrative procedures, the rising prices in combination with growing construction costs, which are far higher in the traditional logistics regions than they used to be, all of these factors encourage the development of locations that are deemed secondary. Owing to their excellent road and rail networks, more affordable land prices, and lower levels of competition, the regions Hauts-de-France, Atlantic seaboard, and Grand Est will probably increase their market shares.