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By Dominique Thibault
As the indispensable trade fair for investors, property developers, builders, and municipalities, this year’s MIPIM (held from March 13-16 at the Palais des Festivals in Cannes) was truly impressive, with 26,131 visitors and 24,000 square meters of exhibition space. A Riviera mega-event for the world real estate market, this year’s MIPIM featured tourism, sustainable development, and futuristic Towers of Babel that defied the laws of equilibrium.
MIPIM attendance was up 16 percent over 2006, leaving little doubt that the real estate sector is engaging in an orgy of construction, resulting in investments on all fronts. France had a strong presence at the show, with the second largest number of exhibitors (1381) just behind Britain (1783).
The trend in 2007: more diversified tourism real estate products, particularly in Europe, owing to the advent of new countries such as Bulgaria and Cyprus. Dubai set the tone at last year’s show with its ultra-tall high rise buildings – a concept that has been highly successful. New York has now launched five imposing skyscraper projects, veritable phoenixes in the wake of September 11. Daniel Liebeskind’s Tower of Freedom at Ground Zero integrates new anti-terrorism security features. The building raises its torch proudly to a height of 541 meters – 1776 feet, thus paying homage to the year in which the US declared independence from Britain. Russia and Poland are also taking up the high-rise challenge with, respectively, Federation Tower in Moscow (448 meters) and Zlota Tower 44 in Warsaw (192 meters), which will contain 250 apartments.
France also plans to make its mark in this heavenward competition with the “lighthouse” Unibail tower, which at 300 meters will dwarf its neighbors in the high-rise La Défense district. Not to be outdone, Dubai is currently constructing the world’s tallest skyscraper, right in the heart of the city – Burj Dubai, a more than 700 meter tall luxury residential complex featuring private marinas, as well as a massive mall at the ground level, thus rounding out a series of outsized projects such as the Victorian city Palisades. The latter community will be located in the middle of the desert only 20 minutes from Dubai, and in 2010 will be home to more than 55,000 people. Paradoxically, in emulation of the city of London, the time has come for totally translucent high environmental quality (HEQ) ecological towers.
Merely embryonic in 2006, this year the environmental dimension of sustainable development was much more present at MIPIM: several presentations were dedicated to the subject; the Green Building prize for a building “designed, built, renovated managed, or reused in an ecological and sustainable fashion” was inaugurated, and Dongtan (near Shanghai) – the “world’s first ecological city” – was unveiled. This eco-city, which will be located on Chongming island and is being realized by the London-based architectural firm Arup, will have 15,000 inhabitants in 2010, and 80,000 by 2040. The city will aim for zero transportation-based carbon emissions, a two-thirds reduction in energy consumption, and energy supplied by local renewable resources, namely biomass, organic waste recycling, windpower, and solar power.
Dongtan’s eco-architecture restricts buildings to eight stories. Wherever possible, facades will face either the shade or direct sunlight, and rooftop gardens will be planted so as to optimize insulation, resulting in lower energy consumption for heating and air conditioning. And if all goes according to plan, Dongtanians will be quasi-self sufficient in terms of food, thanks to the organic farms that will be realized in the environs of the city. “Dongtan will be not just a bedroom community, but also a place where people earn their living,” says Li Zhinghong, vice president of the development company SIIC Dongtan. The Chinese are also counting on Dongtan to attract advanced medical research institutes and high-tech light-industry.
France has gotten into the act with the dragonfly-like Tour Generali in the heart of the La Défense district. With its 50 floors rising all in one piece to a height of 318 meters, the tower will provide (in 2011) 90,000 square meters of space for offices, showrooms, lounges, auditorium, clubs, catering services, restaurants, cafes, and daycare centers, and will integrate latest-generation energy reduction technologies. The semi-transparent facade, half brickwork and half windows, allows for the regulation of thermal input. Natural ventilation will be used at night to keep the interior air fresh and cool, thus reducing air conditioning use during the day. The building’s main spire will have windpower plants arrayed vertically for electricity, and hot water for the offices will be provided by solar panels. Thus equipped, the building will avoid the release of 3500 tons of CO2 per year, which is 70 percent less than a conventional office skyscraper. Having scored this major success, the building’s architects Valode & Pistre are planning to give China a run for its money by creating Akademia City in the heart of Yekaterinburg, Russia’s third largest city. Akademia will be home to 350,000 people in an approximately 13 million square meter area.
A genuinely world-class show
Despite the steep ticket price (nearly 1500 euros), MIPIM’s attendance grows with each passing year, and this time around was 800 percent higher than in 1990. And no effort is spared to keep investors happy. Attendees could entertain their guests in style on any one of 80 private yachts provided by the show. There were 150 cocktail receptions daily, and no fewer than 58 private jets arrived during the four days of the event. The show’s hostesses all look like supermodels, and the atmosphere is the summum of glamour and excitement. “MIPIM is all about image,” notes Henri Faure, president of Atis Real France.
As the international showcase for BNP Paribas Immobilier, Atis Real is the only provider that has been advertising via a large red banner suspended from the facade of the Carlton. Each year, the size of the booths along with the number of pavilions and advertising signs provides a quick guide to the new giants of the international real estate market.
Indisputably 2007 was a halcyon year for the Russia Federation (most notably the city of Kazan), Central and Eastern Europe, Sweden and Denmark, and the Middle East, which apart from Dubai strengthened its presence this year with the much noted advent of the United Arab Emirates City of Abu Dhabi, Qatar, Kuwait, Oman, Saudi Arabia, and Bahrein.
Another new development is the quiet but promising emergence of Latin America, via the presence of Brazil and Mexico. Asia also made progress this year, with India and Singapore in attendance. The popularity of so called speed matching – an innovative method (inspired by speed dating) that brings together international investors with developers, city authorities and property consultants – helped to nearly double MIPIM transactions compared to 2004. Their value is said to have reached EUR 227 billion.
Expansion eastward and increased transactions with Asian countries have heightened the strategic importance of East-West flows and maritime ports. The performance of the European commercial real estate market was satisfactory in 2006, and is marked by growing interest on the part of investors, low rates of return, and rising rent prices. The industrial-park market is also maintaining its growth trend.
The French logistics market registered 2.2 million square meters of satisfied demand, slightly more than half of which was accounted for by the Paris metropolitan area. Despite expansion into Eastern Europe, competition remained stiff on this market, with a high level of activity in the Paris region and in most French regional markets. Rents were stable (EUR 38-56 per square meter/year) in major urban centers, although the steady demand for large modern warehouses contributed to a decline in rates of return. The commercial real estate market in 2006 was strongly affected by the dynamism of industrial park activity, combined with overall rental price stability. The overall national market remains promising, with sustained demand in cities with more than 50,000 inhabitants.
According to a study of the European office space market realized by Atis Real, in 2006 office rental transactions registered their best performance in six years, reaching 10.9 million square meters, up 15 % from 2005, when the figure was 9.2 million square meters.
2006 also saw a relatively high number of large transactions, many of them for marketing buildings that were under construction. Over the course of the year, commercial real estate investments in 18 European cities reached EUR 17 billion, a 35 % increase over 2005. This outstanding performance is attributable to the abundance of capital available and the dynamism of commercial real estate markets, which were buoyed by economic growth.
Large German cities mainly attracted American and British investors, who were anticipating increased office rents in their markets. And indeed, German office rents rose a whopping 119 %, with the remainder of the European market lagging far behind at “only” 18 %.
The advent of new buildings on the market may result in the stabilization of vacancy rates, or even an increase in these rates in some cities. Over the past two years, vacancy rates have increased substantially in Central London (24.4 %), Madrid (20 %), Barcelona (9.1 %) and the Paris region (8.1 %). Rents for prime office space, as well as average rents in central office districts, are set to increase in most markets. In the markets with the lowest vacancy rates, rents may rise substantially if the products available do not meet customers’ requirements, or may remain stable if economic growth is slower than anticipated.
The French real estate markets are following the European trend, most notably in the investment and office markets, which were particularly active in 2006. Substantial investments and record levels for satisfied demand (2,800,000 square meters) have made the Paris regional market one of the most dynamic in Europe. As in 2005, demand for large spaces reveals the need, on the part of large corporate groups and government agencies, to streamline their locations, consolidate their dispersed teams, and achieve greater flexibility.
The proportion of transactions involving more than 4000 square meters of space in 2006 increased relative to the prior year. Rates of return were down from 2005 levels in nearly all French cities except for Marseille and Lille. This evolution is attributable to tensions that were felt on European real estate markets, mainly owing to the abundance of capital looking for investments, a shortage of properties, and rivalry between investors.
2007: scarcity ahead
“Properties are becoming ever scarcer for workshops, factories, the tertiary sector, and warehouses,” notes Didier Malherbe, deputy managing director of the real estate services provider CB Richard Ellis (CBRE). With demand on the rise, scarcity would seem be in the offing. Nonetheless, commercial real estate investments beat all records in 2006, reaching EUR 23.1 billion, according to CBRE – a 47 % jump in only one year. Investments in logistics and light-industrial facilities increased 8 %.
In the warehouse sector, companies are looking high and low for available space, which according to Atis Real decreased by 15 percent in France between December 2005 and December 2006, with an additional decline expected for the first half of 2007. Rents are stable for the present, ranging from EUR 44-55 per square meter. A robust economy, and particularly strong consumer demand for imported products, is stimulating this market. Over the past decade, demand has evolved in such a way as to adapt to the numerous regulations and industrial evolutions. Freight forwarders want either large-scale platforms in which to store imports, or smaller local buildings for e-commerce consignments. As a result, 25 % of the products available in the Paris region are obsolete and require modernization.
Scarcity is even more of a problem for industrial spaces, where there is a major lack of suitable products. And the mushrooming number of startups is spurring demand. These young companies want spaces that come equipped with telecommunication networks and that provide local services. To meet this demand, specialized property developers are investing in industrial park projects. Lyon registered investments in more than 350,000 square meters of space in 2006 versus 320,000 in logistics projects. These products, whose rate of return is higher than for offices, attract large investors. The products are being realized, but companies will have to pay through the nose for them – up to EUR 120 square meter for rentals.
Rental markets and European investments could potentially be weighed down by uncertainty regarding the US economy, the North American real estate market, and the slowdown in Chinese investments. Following strong performances in 2006, growth is expected to slow in 2007 in most Eastern and Western European countries.
The growth slowdown on the French real estate market is expected to be less severe in early 2006 than in the remainder of the euro zone. 2007 may well be marked by upward pressures on industrial park rents, while rents are likely to decline in shopping centers and major shopping thoroughfares. The French market, with its stable rental prices, remains very competitive on the European logistics market, and a substantial 2.5 million square meters of space are currently available. The investment market in 2007 will continue to be extremely dynamic owing to the shortage of products and growing demand on the part of Australian, Spanish, and American investors for properties in the Paris region.
As one of the largest world capitals represented at MIPIM, the Paris stand was located at center stage of the imposing Paris region pavilion, and was adjacent to the La Défense stand with its new majestic towers – symbols of urban renewal and a foretaste of the large scale activities envisaged for the 2012 Olympics. Bernard Bled, director of EPAD (the authority that manages the La Défense district) noted that “This was an ideal time to revitalize this district, which will mark the fiftieth anniversary of its founding in 2008.” A promising market that is proving profitable in the French Riviera.
The Alpes-Maritimes region, number 2 in the French real estate investment sector: reality or mirage?
“The Paris market appears to be on the brink of a major change owing to the cost of real estate, among other reasons. Increasing numbers of companies are thinking about relocating some of their activities, and the Riviera has numerous features that appeal to these stakeholders,” notes Renaud Savignard, deputy general manager of the Nice-based real estate agency Atis Real. In 2006, the Alpes-Maritimes department registered EUR 443 million in real estate investments. The region is currently constructing, in a business district, one of the largest inventories of tertiary real estate in France (apart from Paris), namely 350,000 square meters of office space that meets international standards and will be completed within the next decade. Alpes-Maritimes ranks fifth in France in terms of workforce productivity, and has a GDP to employment ratio amounting to EUR 75,553, versus the French average of EUR 68,963 – plus one of France’s lowest local tax rates. In 2006, 24 companies decided to implement strategic activity centers in the Alpes-Maritime department, thus creating a total of nearly 460 new jobs.
However, while the region’s tertiary market is growing steadily, Mr. Savignard feels that its “two flagships are taking completely different routes. Sophia Antipolis is, more than ever, going the investment demand route (34,000 square meters in 2006, double the amount of transactions in 2003). This technology center is all the more appealing because it has a large number of spaces available at very reasonable prices and is absorbing 49 percent of the demand, versus 39 percent for Nice, whose products are fragmented and aging. The city’s availability levels are still about the same as in past years, but this will change in the near future when the 34,000 square meters at Arénas become available. The city is nonetheless preparing to deliver nearly 55,000 square meters of office space to the western part of Nice between 2008 and 2010, which is a major undertaking that is sure to get things moving at a rapid clip.”