Falling vacancy rates and rising investment volumes are bright spots in Europe’s Logistics market, even as leasing activity remains in the doldrums.
Introduction and Economic Overview:
.jpg)
In Q3 2024, the eurozone's GDP grew by 0.4% from the previous quarter, while inflation slightly exceeded expectations, reaching 2.0% in October. Despite forecasts of weaker GDP growth for Q4, the European Central Bank (ECB) is likely to cut interest rates by 25–50 bps in December. Core inflation remained steady at 2.7%, with services inflation at 3.9%. Lower interest rates are expected to boost disposable incomes and business investment, driving logistics demand and supporting market recovery. However, Donald Trump's second term as US president introduces uncertainty, with potential tariffs on key trading partners and unpredictable foreign policy. These factors could impact international trade flows, potentially leading to a resurgence in inflation and affecting interest rate reductions.
Occupier Market Highlights:
Europe's logistics real estate market experienced a notable decline in activity, with take-up falling to 6.0 million sq m, a 20% drop from the previous quarter and 22% lower than Q3 2023. Despite this, the year-to-date (YTD) take-up reached 19.8 million sq m, just 8% below the same period in 2023 and 3% above the pre-pandemic average. Projections for Q4 suggest a take-up of 7–8 million sq m, bringing the annual total close to 28 million sq m. The average vacancy rate across Europe decreased for the first time since 2022, dropping by 13 bps to 5.86%, although it remains 73 bps higher than a year ago. Rental growth has slowed, with the Savills European Prime Rent Index showing no quarterly growth for the first time since 2017, though annual growth remains positive at 3.8%. Average rents increased by 2.2% compared to the end of 2023, with significant annual growth in Lisbon, Brussels, and London.
Investment Market Insights:
Investment volumes reached €9.3 billion in Q3 2024, marking the highest point this year and a 12% increase from the previous quarter. This brings the YTD total to €26.1 billion, a 14% rise compared to the same period in 2023, though still 21% below the five-year average. Investment volumes are on track to surpass €36 billion by year-end, a target consistently met in Q4 over the past seven years. Prime yields across Europe remained stable at 5.30% in Q3 2024, following a decline in Q2, the first since early 2022. Despite the upward trend in investment volumes, the market remains cautious. Investors are focused on take-up and net absorption rates, with well-located, long-income assets and strong tenant covenants attracting significant interest. ESG credentials and power availability are also top priorities. However, global capital raised by real estate funds dropped by 25% in Q3 2024, the lowest in a decade, due to economic uncertainty and geopolitical factors. This reduction in capital is expected to have a deflationary effect on pricing and volumes, despite recent economic improvements and increased market certainty.
Read the articles within Spotlight: European Logistics Outlook – Q3 2024 below.
