The young Napoleon was fascinated by history and geography. He was an artillery second lieutenant stationed in Valence in 1785, it was peacetime, so he set about reading everything he could lay his hands on about those two subjects.
The logistics industry can blame Napoleon for his part in history. Thanks to the Napoleonic Code, which set continental Europe so far apart from the UK, with its security of tenure and supremacy of the individual, the French state is all-powerful and regulation weighs heavily on logistics operators who choose France. If you build your edifice of state with the economy at its base and government at its top as Napoleon did, then France is and has become ever more so dangerously top heavy.
However, the logistics industry has to blame a higher authority for France’s geography, because that is what could sideline the country as a major logistics location.
€120 billion market
Currently, logistics in France is fairly rosy. Invest in France reckons the total value of the logistics market in France is around €120 billion, compared to a value for all of Europe of €710 billion. Different ways of counting may mean that Invest in France is probably over-egging French importance in logistics across the continent, but you could never fault a French government agency for national pride.
Invest in France goes on to claim that ‘integrated logistics subcontractors’ have, for several years now, experienced an increase in business of 10-12 per cent per year.
It points to leading French operators Géodis for mastery of the electronics, high-technology, automotive, IT and pharmaceutical sectors; Premium Logistics for the automotive, cosmetics, pharmaceutical and textiles sectors; Norbert Dentressangle for the automotive, cosmetics, drinks and textiles sectors; STEF -TFE for fresh and frozen products and drinks; and FM Logistics for consumer goods and electronics.
Foreign companies control around 33 per cent of the French logistics subcontracting market – principally the usual suspects DHL-Exel, CEVA, ABX Logistics, Ziegler Group, Katoen Natie, UPS, Nippon Express and NYK. They are taking advantage of the trend that has led to nearly 30 per cent of companies in France currently outsourcing their logistics activities. France has the highest level of subcontracting in this sector in continental Europe. It has good roads, too, with low congestion of 30 vehicles per km (European average is 44)
But France – and this goes for Spain too – may be sidelined by the growth of new trade routes from Hamburg, Antwerp and Rotterdam to Central and Eastern Europe. This belief has become a prop for the corporate strategy of developers such as Eurinpro.
According to Eurinpro’s research, most of France, Spain and Italy are already ‘unattractive’ or ‘very unattractive’ to logistics operators. Only Paris and points north can join the club of ‘top ten city regions’, ‘very attractive’ and ‘attractive’ that includes most of England, Germany, Benelux, Czech Republic, Western Poland, Slovakia, Slovenia and Hungary.
Unattractiveness to global logistics operators does not necessarily mean unattractiveness to property developers. Eurinpro admits it has a watching brief on what it considers the unfashionable ends of France. It says Lyon has among the best potential in Europe for yield compression, so it is expecting freehold prices to go up relative to rents there. ‘France has some of the strongest projected returns [in Europe],’ says Eurinpro’s Jeff Pulsford. ‘France, Spain, Ireland and Finland are predicted to be the best performers.’
Research by Cushman & Wakefield shows the €55 per sq m average rent of a new 50,000 sq m shed is dipping, yet capital values are rising as the average 6.25 per cent yield for the same space is also going down. Jones Lang LaSalle reckons rents are bottoming out in France, which could explain current investor interest in the country.
Investor’s shopping list
French logistics space is not on the new shopping list for investors provided by Urban Land Institute, which looked at occupier demand centred on Europe’s main transportation hubs. It puts Istanbul, Moscow, Barcelona, Hamburg and Budapest at the top – but France is well above Munich, Frankfurt and Berlin at the bottom. Who do you believe? Cushman & Wakefield tips Berlin.
And by no means all global supply chain businesses are gloomy about France’s future. DHL Exel Supply Chain has publicly noted that the top ten logistics companies in the world have just a 17 per cent market share. In other industry sectors, the top ten have bigger shares. It aims to redress this imbalance and has, for example, made public its desire to rent five million sq m of space around the world over the next five years. Its Deutsche Post heritage might mean that its obvious focus would be Germany over France but it has an active brief to search for space in France, according to DHL’s strategy and business planning director Michael Samuels.
Developer Slough Estates has a two-year plan for growth in France, including opening at least one new office in Lyon. Its aim, says executive director Continental Europe Walter Hens is to ‘build scale’ in each region of France which is ‘strategic’ to the key industrial, logistics and suburban office markets there. Slough is already well established in Ile de France with an office in Paris.
France has other obvious advantages. The old plaint that the UK can’t get a high-speed rail link through Kent right while France simply bulldozes every home in its way stands true in many areas of France’s planning law. It makes France a worldleader in many aspects of shed development which has, traditionally, been a user of large land footprints.
The French bulldozing attitude has also filtered through to green issues in development. Sheds’ ability to carry large numbers of photovoltaic cells has been taken on board enthusiastically by developers in France. ProLogis’s 2.7 million sq ft park at Chanteloup is a major exponent. ProLogis is among the club of developers including Gazeley and Rosemound that has learnt you win land opportunities if you have a sustainability agenda.
France provides a significant chunk of development carried out by Parkridge, the shed developer that Prologis has just acquired. ProLogis has also acquired a 25 per cent interest in Parkridge’s non-industrial real estate operations, including a retail warehousing development business focused on markets in the France as well as the UK and Spain.
And how can anyone call France a sleepy backwater when super-deals still take place there. ProLogis is to develop a 32,000 sq m distribution facility for Michelin in South-Western France. ProLogis has signed an agreement to acquire a 32-hectare property from Michelin in Poitiers. The parcel is the site of a recently closed Michelin manufacturing plant. ProLogis will build a large distribution centre on the property, which Michelin will use to serve markets in France and other countries in Europe under a multi-year lease.
The site allows for the construction of three additional buildings, for a total of more than 136,000 sq m of industrial space. It is located near France’s A10 motorway and N10 national road, enabling efficient distribution to markets throughout France and other parts of Europe. Completion of the first distribution centre at the new park is expected in the second half of 2007. Michelin currently leases more than 27,900 sq m from ProLogis in multiple markets in the United States.
ProLogis is the largest provider of industrial distribution facilities in France, with an operating portfolio of more than 24 million sq ft of space concentrated around Paris, Le Havre, Marseilles and Lyon. In addition to Michelin, customers in France include Bridgestone, Danone, GEFCO, ID Logistics, LU France, Rossignol, TNT Logistics and UPS.
Gazeley’s latest big deal in France was in the summer of last year: 70,000 sq m of new warehouse accommodation for Procter & Gamble in Amiens. The €40 million warehouse facility, arranged over two buildings, is located in the industrial area to the north of Amiens. The units, which feature Gazeley’s sustainable design concept EcoTemplate, will be built simultaneously with completion and handover to the customer planned for spring 2007.
Procter & Gamble commissioned Gazeley to identify a shortlist of suitable sites in northern France capable of supporting its supply chain network property requirement. It chose the Amiens site and appointed Gazeley as a development partner to oversee the entire project. Gazeley subsequently purchased the 20 hectare site on behalf of Procter & Gamble, which will use the site as an international distribution centre to service the delivery of its branded laundry products across France, Germany and the UK.
Among small deals by foreign distributor investors, UK-based Triumph Motorcycles has chosen France for its European distribution centre. It will be based in Fontaine, Franche-Comté, in Eastern France, and will supply the European market and some non-European countries too. It will be operated by French logistics group GEFCO. Triumph parts & accessories manager Paul Checkley says: ‘The reason we chose France is that the flexible and efficient logistics links to ports of receipt and other European markets made it the most effective logistical choice. The variety of suitable locations and the availability of modern, professional facilities also contributed to our decision.’
The ‘hot banana’
France’s position on the over-ripe side of Europe’s hot banana (the side facing Central and Eastern Europe you might call ‘ripening’) made it an attractive place for foreign developers to do business when the banana was truly fashionable during the 1990s. The country was then at that part of the business cycle where foreign developers typically play safe with sites, when developers typically have money to spend and are amazed at the cheap land opportunities when they arrive.
The French land market is no longer as cheap as it was but it has allowed Gazeley Properties, for example, to be marketing sites from Arras in the north via Paris and Chaponnay to Fos in the South. Gazeley also has sites around the northern ports and one near the Spanish border at Valence d’Agen.
Five out of the fifteen main ports in Europe are located in France: Marseilles is the Mediterranean’s largest port and the third largest in Europe in terms of freight traffic. France’s only national logistics cluster, as designated by Invest In France, Le Havre is Europe’s fifth largest port. Marseille and Le Havre are only 22 and 23 days respectively for containers coming from Shanghai, compared to 26 days to Hamburg. Next come Dunkerque, which handles 47.56 million tonnes annually and is experiencing steady growth, followed by St Nazaire and Bordeaux.
French airports are attractive, as airports always are. With 27 of them, including the international airports of Paris CDG-Orly, Lyon Saint-Exupéry, Marseille Satolas, Nice and Mulhouse/Basel, France’s airport network handles 1.751 million tonnes of freight a year.
France has always had great connections with the rest of the world. But history and geography have failed to coincide with each other over that national asset – France’s ability to make its former empire Francophone. It used to be a little bonus of operating in France: you had unique access to Francophone markets in both Indo-China and West Africa. However, they are not yet important logistics markets and France’s influence in both those areas is on the wane. By the time they become important, you will be better off making friends with India or China if you want influence in, say, Vietnam or Cote d’Ivoire.
In terms of logistics, Napoleon’s ambitions for his country may not be realised as the wash of history changes the emphasis of countries around the world. The French logistics industry may be judged badly by both his pet subjects. However, there’s still money to be made there by developers, if not logistics operators.