The transformation of the French logistics property market

Fresh impetus for the French logistics real estate market is currently coming from the areas of fast fashion and social commerce, writes Cedric Mallmann

Logistics centre in Ensisheim from the Union Investment portfolio

Retailers are increasingly concentrating on the sale of goods via social media channels. As a result, they are focusing on the agility of supply chains and logistics real estate, for example by positioning products closer to the consumer and/or relocating production to European countries. This is currently leading to additional demand for modern logistics space both close to metropolitan areas and at established production sites.

In France, high-quality space in good locations is in short supply. In addition, ESG requirements and the so-called ZAN policy (Zéro Artificialisation Nette), which aims to avoid net new sealing, are making new developments more difficult, particularly in urban areas. The French government hardly allows any building land for logistics centres. The supply is thus not growing.

In addition to the Dorsale, which runs from Lille via Paris and Lyon to Marseille, regions such as western France, Toulouse, Bordeaux and the Centre-Val de Loire are therefore currently becoming increasingly important - supported by demographic growth and lower prices. The difficulty of finding available land, the complexity of administrative procedures and rising prices in conjunction with construction costs, which have risen significantly in historical logistics areas, are boosting the development of locations that were previously considered secondary.

Union Investment has been active in the French market for about 20 years, primarily as an office investor, and has maintained its own asset management unit in Paris since 2005. Our entry into the French logistics market occurred in 2019 with the acquisition of Logistrial Real Estate AG from Garbe Industrial Real Estate, which included a portfolio of 19 logistics properties, among them a development in Ensisheim, France.

Data centres in demand

The ongoing digital transformation and increasing use of AI are having further effects on real estate markets: data centres - particularly in the greater Paris and Marseille areas - are increasingly in demand and are becoming more of a focus for investors. Due to the shortage of space and approval requirements, the conversion of warehouses is also becoming increasingly attractive.

After all, data centres do not create many jobs and should therefore be even less likely to be given the green light for new sites. As a result, completely new areas of business are also opening up. The first real estate service providers are offering to review the real estate portfolio with regard to its suitability for conversion into data centres. Locations close to power connections and fibre optic infrastructure are therefore seeing rising prices and demand.

Cedric Mallmann is investment manager logistics, at Union Investment

According to the major real estate agents, investment volume this year should overall settle at pre-pandemic levels. Core plus and value-add strategies remain the driving force, particularly in urban areas for small to medium-sized units. Regional diversification and data centre concepts are seen as decisive competitive advantages.

The shortage of space in France and stable demand will likely continue to support rental growth in the long term - especially in undersupplied regions. Investors therefore prefer short remaining lease terms in order to leverage the potential for rent increases. Older properties are also likely to be increasingly offered on the market - with opportunities for conversion or repositioning.

Cedric Mallmann is
investment manager logistics, at Union Investment