European Logistics Market Update Q4 2023

In our latest analysis of the industrial and logistics market, we examine occupier demand, rental performance, investment market and yields across Europe.

February 23, 2024
  • Lisa Graham
  • Alexandra Tornow
  • Raphaele Naud
Europe’s occupational logistics market returned to pre-pandemic activity levels during 2023. Meanwhile, investment in the sector remained subdued despite prices stabilising during the latter half of the year.

Following encouraging signs of improving leasing activity in Q3 2023, activity slowed during the last quarter of 2023 below expectations due to occupier caution. Full-year 2023 take-up volumes that totalled nearly 24.5 million sqm, were 26% down YoY, yet still the fourth strongest year historically.

A rise in speculative completions last year just when occupational demand fell back to pre-pandemic levels, resulted in higher vacancy rates in a growing number of markets. Still at just over 4%, far from an oversupply of space, higher vacancy levels for Europe’s logistics sector can be interpreted as enhanced flexibility for tenants.

Top 3 key trends in 2023:
  1. Leasing activity - Occupier caution along with availability of suitable supply continue to impede leasing activity. At the same time, growth in advanced manufacturing, EV and battery production, and pharmaceuticals fueled record levels of take up from manufacturers in 2023. De-risking supply chains contending with worsening geopolitical and climate conditions, is accelerating re-and nearshoring activity.

  2. Supply- Expensive financing conditions led to declines in both built-to-suit and speculative space under construction. The latter fell to less than 7.9 million sqm by end Q4 which was the lowest level since the end of 2021.

  3. Rents- Weighted European average prime rental growth softened to 7.8% YoY in Q4, down from 15.6% YoY in 2022 but above 5-year average of 5.9% in 2018-2022.

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“2023 had been a challenging year in the industrial investment market with a relatively low level of transactions. However, increasing pricing clarity at the end of the year left signs of improving market sentiment. While 2024 will continue to face its challenges, a combination of falling inflation, likely interest rate reductions and continued rental growth in strong locations will encourage greater investment activity this year. We expect ESG considerations and value-add opportunities to remain at the forefront of investor decision-making.”

Tom Waite
Director Industrial & Logistics Investment, EMEA Capital Market


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