Savills analysis looked at yield movements and rental growth to identify those markets with the greatest potential for yields to tighten. Markets that have demonstrated sustained positive rental growth in the post-pandemic era are likely to garner significant interest from investors. As well as the Netherlands and France, this includes locations such as the Czech Republic, Belgium, Denmark and Dublin where the vacancy rate remains below 3%. These locations have all seen rental growth in excess of 10% over the period between Q1 2022 and Q3 2023 and are likely to see rents continue to rise in 2024.

Marcus de Minckwitz, head of EMEA industrial & logistics at Savills, comments: “With the current cycle of tightening monetary policy seemingly coming to an end investors are now left wondering, what next? With no changes to interest rates in the first quarter of 2024, rental growth will likely become the key determinant in the trajectory of real estate valuation in the interim. Robust rental growth throughout economic uncertainty is indicative of the tighter supply-side dynamics that have driven the investment case for logistics in Europe over the past decade.”

From an occupational perspective, Savills has identified two key drivers for demand in 2024, including stabilising growth amongst ecommerce operators and a continued trend towards onshoring amongst manufacturers.

This return to ecommerce growth would be a significant tailwind for occupier demand in the logistic sector, stabilising existing footprints and leading to a decline in grey space coming to the market. Savills has looked at the projected ecommerce growth between 2023 and 2028 and has pinpointed Italy, Austria, Ireland, Germany and Spain as key areas for growth over the next four years.

Notably, amongst these markets Milan, Barcelona and Hamburg could be an excellent value opportunity in terms of yields and rents and expected eCommerce growth. In contrast, Dublin has not seen a significant shift in prime yields, but has seen strong rental growth of 16% and is likely to perform well. What’s more, markets like Madrid are well positioned structurally with strong eCommerce growth forecasts, but have not yet seen significant rental growth because of the market’s high vacancy rates (7.85%). This suggests it will absorb excess supply more swiftly.

Looking at on-shoring, Savills maintains that this will be a long-term trend over the next decade. Whilst it could lead to a tangible boost in take-up over the period, the firm does not believe it will result in the same explosive growth that the proliferation of online shopping led to over the past 10 years.

Andrew Blennerhassett, associate in the EMEA industrial & logistics research team at Savills, adds: “While the market is set to improve in 2024, many challenges remain. Borrowing costs will fall, but they’re unlikely to return to 2019 levels and stronger than average rental growth will be needed to justify investing and development decisions in many markets. Crucially, the logistics market remains well positioned in terms of its fundamentals. While vacancy has risen across Europe in the last year, we believe that the worst of these increases has passed as speculative development pipelines continue to contract. With this in mind, investors are likely to be more discerning about location this year, with places where vacancy rates remain relatively low, garnering more interest from investors.”

To read the full report, please visit: https://www.savills.com/research_articles/255800/356316-0