MIPIM gains in 2006

by Dominique THIBAULT

A continuous transactional fever shook the Cannes Palais des Festivals from March 14-17 at the 17th edition of the International Property Professionals Market. An undeniable sign of economic revival and the flourishing health of the sector. In the Top Five of most prolific countries in terms of projects : first come the United Arab Emirates and Russia, then the Scandinavian countries, Europe, and Asia. The new trend ? Giant scale gives way to an audacious creative rise for some, while others are eager for environmental integration...

There they were, all suited up in black, roaming about the interior of the hall and out in the street, glued to their mobile phones, loudly and unabashedly negotiating a property deal on the other side of the planet or confirming top-secret meetings to take place in more discrete locations, whether in a private salon or perhaps aboard a yacht docked nearby. It was a veritable "Emperor's Market" fast becoming an investors' El Dorado (5,406 of them were welcomed this year) for financing a luxurious residence of Pharaonic proportions or the second level of work on a Third Millenium technological park. Jules Verne is as current as ever, nowhere near being passé.

In total there were 21,415 participants, 2,277 of whom were exhibitor companies from 74 nations, a 21% jump in attendance from 2005. MIPIM 2006 was easily the not-to-miss international property show of growing prosperity, becoming, like the GSM, one of Cannes' top trade shows. This assured success once again has brought up a crucial issue which could put its future at risk : the shortage of transport and hotel logistics, obliging many participants to go as far as Menton to find lodging. A positive point, however : the doubling of stand surface favoured by the extension of a supplementary 2000m2 of exhibit space (for a total surface area of 20,743m2).

The Russian Federation, to its credit, jumped at the chance to strengthen their presence (165 companies, three times more than last year), rivalling the Middle East in ostentatious splendour. The two nations practically took over the whole pavilion, with their 320m2 of stands. As for the major European cities, they stressed originality and unity. Scandinavia managed to assemble 77 Swedish and 63 Danish exhibitors together in one wing. Asia, finally making remarkable headway with impressive projects that reach for new heights, with towers and skyscrapers in Hong Kong and Singapore, ultra-designed luxury hotels for restoring Thailand's image and attracting more moneyed clientele, a more institutional presence for Japan and Korea, and very ambitious projects for China, especially ones in Shanghai, the nation's economic epicentre, including mixed residential-office centres within a new-generation technological park : the Caohejing Hi Tech Park.

The future is being built in the East

The city of Dubai is not only one of the Middle East's biggest promoters, it is also renowned for its excessive real estate projects. Among the most spectacular is "The Villa" a unique residential complex concept with Andalusian influences that extends over nearly 270 hectares. It is being developed by the promoter Dubai International Properties and the "City of Arabia" and shall be finished in 2008. This urban community of nearly 2 million sq.meters in the heart of new Dubai mixes residential with commercial. It also contains a "Jurassic Park" whose proportions rival the scenes from the Spielberg film, with no less than 100 full-scale animated dinosaurs. Moreover, 370,000m2 of commercial, residential and touristic projects are planned for the centre of Dubai, in Business Bay, Arabian Bay and in the International Production Zone. Last but not least are ETA Star Property Developers' Jumeirah Palm Crescent, a prestigious hotel complex at Palm Island, and the "Dubai Princess", the world's highest residential tower, situated in the Dubai marina.

The East is indeed flourishing, especially Eastern Europe, who strongly are standing ground against the sprawling Russian Federation, uniting a pool of builders, investors and local groups. They have done an impressive job : image-filled walls, animated maps, and replaying screenings of future projects that are underway. Priority goes to the creation of community centres on the outskirts of cities, an indispensable step towards solidifying the establishment of foreign corporations. Plans for giant hypermarkets with merchant galleries and apartment complexes around Moscow, Saint Petersburg and the Krasnodar Krai area are already in the works. Officials and promoters are betting on excellent productivity rates in order to seduce an investors seeking easy and fast profit. Other emerging Eastern markets that run in this vein are Bratislava (Slovakia), Kiev (Ukraine), and the Polish cities of Warsaw, Posnan, Wroclaw and Cracow, all currently flourishing.

Experts consider these markets as not yet mature and thus at risk, but very promising nevertheless, especially in Russia, Turkey, Romania, Bulgaria and the Baltic states, all poised to become quite privileged hunting grounds for the most opportunistic investors.

Asia bets on the superiority of its technological parks

Further eastward, the discreet yet amazingly efficient continent of Asia is opening up rapidly. Their credo ? Excellence ! The Caohejing Park in southwest Shanghai is one of the top examples. Created in 1986 for assembling several clusters specialised in innovative technologies and materials, biotechnology, aeronautics, space research and pharmaceutical laboratories, the park currently has 1500 high-tech companies, 470 of which are foreign companies. In fact, 40 of the foreign companies are listed as the biggest international small and medium-sized companies. "Out of all of the 2000 parks in China, Caohejing ranks fourth in the country for its size and is also China's top scientific and technological centre in terms of the quality of the companies it's hosting," explained Richard Shen, Managing Director of the Department of Affairs. The site also intends to be a model of environmental integration. Criss-crossed by a river, the park unites 30kms of residential villas surrounding an artificial lake on one side and corporate offices scattered over an exceptional natural environment on the other. This colossal project of expansion (2 million m2) should be ready in ten years. The promoter is currently seeking architects and developers in order to refine his residential concept as well as a pool of investors to participate in the project's co-financing to the tune of 20 million euro.

Northern Europe's aim for sustainable development

To the exact contrary of these expansionist projects, Northern Europe is taking to concepts of environmental integration, with pure lines and lasting composite materials. Most importantly they'd like to improve what already exists. Belgian promoter IVG Real Estate won last year's MIPIM award for the "Renovated Office Building" category, with a project transforming the Madou Plaza Tower, erected in 1965, into a modern office complex with a 12-floor atrium that includes the latest energy-saving techniques (double-paned windows, cool ceilings, optimised-function elevators). France's Lafarge company, the world leader in construction materials, is turning heads with its multifunctional "Hypergreen" tower developed by architect Jacques Ferrier specifically with the environment in mind. The tower's net-like exterior covering functions to harness sunlight, wind and climate. The northern side allows for more sunlight while the southern side is protected from overheated by a sunshield. Air is also directed towards the rooftop windmills, optimising ventilation for this structure supporting 3000m2 of photovoltaic cells.

A new record in 2005 for the European investment market

Whether it's the debut of a promising turn or a fleeting speculative bubble, the pervading pessimism ended up dampening investments in the major cities of Europe based on the less classic sectors like suburban housing, business complexes, medical-staffed retirement homes and hotels, and leisure and services (cinemas, parking lots, etc.) to the detriment of the everyday malls and gallerias.

The growing shortage of offers does induce ballooning prices but it also leads to a selection of projects where the qualitative takes precedence (property complexes, environment and transport) and thus sends a fresh breath of creativity into property, commercial and residential projects, destined to make them tomorrow's most profitable assets. The downside is that investors' insatiable appetites are lowering rent profits, which have now stabilised to between 4 and 5%, as compared to 7% three years ago. Experts thus await an imminent convergence of rates on a European scale to balance out the property markets. The shortage should finally be compensated by the upcoming adoption of the third constituent of the SIIC (Listed Property Investment Companies) statute in the framework of the amended finance law for 2005 which favours building externalisation ventures. The law allows the property companies to lower their taxes according to the surplus at 16, 5% instead of 33.3%, if they sell their property assets to a listed estate with SIIC status or a SCPI (Civil Property Placement Company). This hailed reform should let them recuperate liquidities, to reinvest elsewhere and above all, to boost a market on the verge of saturation from 2006 and into 2007.

"Nearly all cities have benefit from the influx of capital, notably the German markets, which have at last started growing again," stressed Atisreal. Frankfurt had the biggest amount of growth in Europe. Dusseldorf, Hamburg and Berlin also recorded a record number of transactions, with an over 200 million euro increase in southeast Berlin's Treptow area alone. But the spoils go once again to London and Paris, who had the majority of investment in 2005, representing 63% of a market estimated to be worth over 50 billion euro.

Paris and London: highest returns in the service sector

For the second consecutive year, Paris has beat London (itself placed just above Tokyo) in world ranking for most profitable cities in terms of corporate property placement (2/3 of 2005's projects were financed by foreign investment). Property experts acknowledge the area's healthy market, whose office vacancy rate does not exceed 5-6%, contrary to 20% in Dublin. According to the Jones Lang LaSalle office, Paris is also a top reference in the matter, positioning itself just ahead of Tokyo and just behind London with 2.165 million m2 rented in 2005, despite a limited amount of growth. Its assets? Excellent regulations for favourable high-end ("prime" in the words of sector professionals) office spaces. These regulations are much more attractive than the draconian restrictions imposed upon all new downtown construction by thinning out the supply boosting their quality of attraction. Rents should not lower in 2006. If the perspective proves to be less heartening for workers, it is reassuring for the investors who put 15.7 billion euro into France's 2005 property market, 11.6 billion of which went to the region around and including Paris. They will be even more present in 2006. As for London, they have the advantage, contrary to their rival, of available development space in the heart of the city, especially near the Mayfair area. The British capital alone has invested 20 billion euro into development. Two strong and open markets, where risks seem minimal.

The Côte d'Azur has the wind in its sails

Winner of the 2006 National Business Property Prize by Financial Times' FDI magazine for its project "400 Promenade des Anglais" near Nice Airport, the Maritime Alps has come out on top in France once again. This new model aura seems to have a boosting effect.

Team Côte d'Azur, the county's economic development agency, and the CANCA (the Greater Nice Cote d'Azur Community) presented their ambitious "Nice Airport Business Districts" project at this years MIPIM show. The plan is to develop 350,000m2 of property in order to create a new business centre oriented around airport activity. The deal extends over three sites. First is 200,000m2 of space at the Nice Meridia residential quarter. Then there is 100,000m2 at the airport's International Business Centre, an integration of offices, shops, services and hotels to stimulate the workforce from neighbouring Var County. Thirdly is the 195,000m2 Nice Arenas space, aiming to attract international companies, both small and medium-scale (headquarters and exporting companies). The programme starts with two leader projects : Azurea (25000m2) and Nice Plaza (15,133m2 of office space and 330 parking places), destined to be finished at the end of 2007, acquired at the show's closing by the German company CGS for 40 million euro. While Nice invested in the western part of the Maritime Alps County, Sophia Antipolis confirmed its leadership in the east with a number of developing projects, producing over 60% of the transactions for 2006. As much for the workers' residential part as for the business properties part. The park covering 2400hectares still has 600,000m2 to develop (for 1,800,000m2 in developed surfaces and 1,200,000 in built sites) and also has a significant amount of tertiary assets, meaning 70,000m2 of office space available for 6000m2 rented in 2006. Jean-Pierre Mascarelli, Team Côte d'Azur's president, stresses the efforts undertaken, "The Mixed Union of Sophia Antipolis hasn't created a new commercial zone in a decade. We are witnessing a spectacular rebound. Yes, Sophia Antipolis is back !"

Under the aegis of Atis-Real Auguste Thouard, three important transactions made since the year 2000 over the park : 3,859m2 of office space at Sophia Antipolis' community agglomeration (La Casa) to be built in the former technical centre of Europe de Digital this September 2006. To this will be added a 1826m2 office extension within HP's site for Amadeus; lastly, 915m2 of office space at Chemin de Saint-Claude where the Antibes city hall will establish its infrastructure and improvement network. "These three transactions represent over 25% of the surfaces placed annually in the sector," confirmed Renaud Savignard, Associate Director of Atis-Real Auguste Thouard, who happily added the news of "the acceleration of new employee housing thanks to attractive conditions." Two programmes were launched for the development of this zone : the creation of a veritable social centre integrating golf courses, upscale residences, leisure activities and local commerce over 11,000m2 of space. And the newly approved STIC Campus project will be implemented right nearby, meaning nearly 20,000m2 dedicated to higher education. These initiatives complete last February's official launching of the plan for 78 individual villas for workers in the same sector, expected to be finished in July of 2007. this operation will be finalised thanks to the joint efforts of the promoter Symisa, of Parloniam and Nouveau Logis Azur, who also made a piece of land available with an already set transfer price and offered advantageous financial conditions to the employees, meaning 39 places for a rental loan for social purposes. "This exemplary community action led by both professionals and elected officials proves that as soon as there is some willingness we can respond to the many demands of Sophia Antipolis companies in a concrete and reactive way, with enticing prices. This is how we could slowly resolve the housing issue," explained Maritime Alps County prefect Pierre Breuil. A renting initiative judged as rather insufficient for property professionals who decreed this state of emergency !

Paradox : Employee housing in 2006 is a serious issue!

Christian Estrosi, who presented the MIPIM show alongside Bernard Brochand, Cannes' Deputy Mayor and delegated Minister of Local Development, rejoiced "this voluntarist and attractive property policy here in the PACA Region, strengthened by the ambitiousness of these competitivity centres of worldwide influence that are also supported by the government." To his credit, among the 67 registered centres, two new ones have appeared since March 6 of this year, Mov'eo and Orpheme at Sophia Antipolis, meaning 7 established competitivity centres in which the Maritime Alps County is heavily invested. Confident in this dynamic he confirmed his parallel wish to accelerate the rehabilitation of downtown areas by opting for an incentive policy for property owners' liberation of unused vacant housing spaces; a train of measures that according to him will even "make territories grow in 2006", especially his, Maritime Alps County.

Far from sharing his optimism, the Cote d'Azur Observatory of Housing Property, led by the Nice Cote d'Azur Chamber of Commerce, presented its own results for 2005 last March 23 at Sophia Antipolis' Ceram, as well as its 2006 forecast, which is more than alarming for workers. The most worrying signs : the exhaustion of stocks on the market for newly sold housing within seven months, as compared with twelve in 2004, thus leaving even less time for their renewal. Result : 3500 places available, and only at prohibitive prices (about 540 euro per m2 per habitant according to the geographic sector), meaning a 118% rise in five years, with disastrous consequences for the workforce. A young householder who, in 1999, could afford 41m2 of space can now only get a 21m2 studio. As for the individual residence market, it has become inaccessible for a salaried couple, who are now obliged to earn four times minimum wage in order to own a 67m2 property (whether villa or apartment) and 6.6 times minimum wage to get 97m2.

The older house market isn't any better off. The 13,000 places on the market follow the curve of those that are brand new (a 93% price increase over five years). Young salaried workers are not capable of accessing property and all this despite a significant drop in rates and duration of loans from financial establishments (3.65% and 30 years average versus 15 years in 1999). An aggravated situation in 2006 according to experts, who estimate there are 2000 places lacking in Maritime Alps County alone, notably in terms of rentals. This phenomenon worries top decision-makers, who see their population of mature executives shrink at the expense of now more attractive regions, as Jean-Philippe Goudeau, Director of Thales (Thomson Microsonics) at Sophia Antipolis attests : "Fifteen years ago we numbered 1200, now its 750. Our 30-40 year old employees, discouraged by this chronic inflation, ask to be moved to Brest or Bordeaux or Nantes. Although 20% of them have invested in the Var, they are weary of costly daily commutes and imagine leaving the region ; our subsidiary employees refuse to transfer here. To sum it all up, the situation has become very preoccupying for us and could, in the short term, jeopardize our establishment."

Even though nobody is gambling on denouncing the weak utilisation of the zero rate loan (8% on average in 06 County as compared with 35% overall in France), elected officials are arguing for 1500 new examples of social housing per year, that's more than the national average. "The situation cannot last," concludes Dominique Esteve, "Housing is a major political point. It must be at the centre of an innovative and long-term policy in order to make the market more fluid and to balance out supply and demand. This is an urgent call we're making to local decision-makers, especially the politicians!”. A concrete challenge to display the urgency that, after the LGV, is the next battle horse for the Cote d'Azur as the 2007 Presidential elections approach !