When productive real estate becomes an asset class

Practical notebook 16: (Re)developing productive activities in metropolitan areas

Thierry Petit, novembre 2024

Institut Paris Région (IAU)

À télécharger : cp16_ok_bat_web.pdf (7,3 Mio)

For a long time, industrial property and productive real estate were considered by commercial real estate players to be smaller markets that were complex to understand. This is due to the very nature of the demand. To meet the expectations of manufacturers and the very specific constraints they face (security, multiple insulation, floor load, height, etc.), property players have to call on specialised know-how and mobilise professionals, often few in number, with very specific skills. This situation runs counter to the drive for standardisation, which is one of the keys to productivity gains. What’s more, the vast majority of production activities are carried out by small and medium-sized subcontractors, craftsmen or logistics providers, who have limited financial capacity and do not offer solid and attractive market prospects for real estate players.

As a result, land and property dedicated to productive activities were and still are dominated by owner-occupied developments for companies wishing to own their own property. In the case of second-hand assets, it is the property negotiators who identify the new tenant companies. In the specific case of large industrial sites, the market is organised differently, with more complex arrangements, as these sites may require various interventions, such as the consolidation of plots, networks and roads, or even pollution clean-up.

In recent years, the way this market operates has changed radically under pressure from a number of factors:

• the strong rise of a public discourse in favour of sovereignty and the reindustrialisation of France ;

• the need to reduce the amount of land available (the ZAN objective), which, by sharply curbing expansion, is encouraging the recycling and densification of existing land against a backdrop of generally rising land prices;

• the financialisation of commercial property, which is gradually affecting all asset classes. This development of investment property is reflected in the principle of the countdown. Thus, for a given property transaction, it is the anticipated price of the rent that can determine the price of the land, and not the other way round!

• the difficulties of physical retailing and the impact of telecommuting on the office market are weakening the attractiveness of these markets and pushing property investors to look at other asset classes.

All of the above factors are stimulating the commercial property market. Progressively, new players are positioning themselves to respond to specific growth markets, such as neo-industry (a new, lighter, high-tech form of manufacturing), laboratories, etc. In addition, property investors looking to diversify their assets or secure returns, even if they are lower, are now turning more readily to productive assets. These may be departments specialising in industry within existing investors, or new entrants specialising in productive assets, some of whom are making innovative proposals, for example in terms of building form (high rise), modularity of space or ‘off-site’ manufacturing. This new interest in productive assets is also accompanied by new practices, and in particular by the development of a rental offer supported by public or private real estate players who wish to retain ownership of their assets, as well as a land offer in the form of emphyteutic leases. This broadens the range of real estate available for productive activities and meets the growing demand from companies that prefer to rent rather than remain owners and have to invest in premises that have to be brought up to very high standards. On the other hand, these property strategies severely limit the supply for companies wishing to acquire the premises and land, and can lead to a supply targeted at the most solvent markets, to the detriment of more financially fragile manufacturers.

These new market conditions are also changing the strategies of the players in the productive property value chain, from the landowner to the user company (see chart). For example, new practices are emerging among public-sector players, who are making more systematic use of innovative tools such as decoupling the ownership of land and buildings, or temporary porting of premises on behalf of companies. These public players are increasingly relying on local property companies to manage portfolios of assets over the medium and long term, complementing the existing public property companies. In the Île-de-France region, for example, IDF Investissements et territoires, a semi-public company set up in 2020 at the initiative of the Region, manages medium- to long-term economic assets, such as the acquisition in 2023 of the 2,500 square metre premises of Delage Aero Industries in Pierrefitte-sur-Seine, enabling it to continue its development there. For its part, Epfif intervenes upstream in the value chain by buying up depreciated land, wasteland and property assets that are later developed by the local authority or a mandated operator. The announcement of the creation of the Terra Eco real estate company by Grand Paris Aménagement, backed by the Banque des territoires, offers a construction lease for businesses, while retaining long-term control of economic land.

All of the above transformations have an impact on the position of players in the value chain, particularly developers, promoters and investors. In the current model, the final cost of land and property is the result of the sum of the players’ costs and their margins, as well as negotiations between players: the revenues of some players make up the purchase price of others in the chain. Today, these players are reviewing their own objectives to meet their profitability imperatives, the level of which could however be questioned in the current transition phases, which require heavy investment. This pressure on profitability would lead to the emergence of integrated players with medium- to long-term holdings of land for productive use, capable of offering specific uses that meet the needs of industrial companies.

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