Investment in the third quarter of 2024 reached its highest point this year, totalling €9.3 billion. This was an increase of 12% compared to the previous quarter and 23% higher than one year earlier. This is the second-highest level of investment in European logistics assets since the market reached a trough in Q1 2023.

So far this year, investment volumes have totalled €26.1bn an increase of 14% compared to the same period in 2023. This puts investment volumes solidly on track to surpass €36bn, as we predicted at the end of Q2. Indeed, just €10bn is needed to reach this figure, a level reached by every Q4 over the last seven years.

Time-based comparisons in smaller markets have remained highly volatile this quarter. Portugal has seen the largest annual growth, increasing by 2300%, but this is comparing the €1.5m invested in Q3 2023 to €36m in Q3 2024, driven by Q3 2023’s stagnant quarter. Romania’s annual comparison exhibits the same pattern, with investment volumes increasing by 1018%. Notably, fourteen out of eighteen countries have seen annual increases in investment volumes.

Of the core European markets the UK is the standout, growing by 50% year-on-year with the €3.1bn invested into the market representing a third of all investment this quarter. This is important as Europe typically follows trends in the UK on a lag, which suggests we may see a broader recovery next year.

In terms of investment share, the industrial and logistics sectors accounted for 25% of investment in the first three quarters of the year. After increasing sharply between 2018 and 2022, from 13% to 24%, logistics has successfully retained its share of investment even as the investment volumes have declined.

The ECB continued to cut interest rates in Q3 and Q4 2024, with 25 bps cuts in September and October, bringing the total cut in base rates to 75 bps this year. Indeed, we saw the first quarterly decline in average prime yields since the start of 2022 in Q2 2024 in response. The average prime yield across Europe remained stable in Q3 2024 at 5.30%. Savills is seeing a return of core capital targeting best-in-class assets which we expect to bring in prime yield evidence in core markets.

There is still significant variation across Europe with some markets seeing continued increases in prime yields, even as others start to decline. Yields tightened in Barcelona (-25 bps) and Stockholm (-20 bps). Prime yields moved out in Lisbon (+46 bps) and Vienna (+15 bps) with these movements more or less offsetting each other when aggregated to the European level.

While investment volumes have undeniably started to improve, we would caveat that the market is characterised by a high level of caution. Investors remain focused on the trajectory of take-up and net absorption, and the underperformance in these metrics is hampering a stronger increase in investment volumes. Well-located, long-income assets, underwritten by strong tenant covenants are garnering significant interest. In addition to this, ESG credentials and availability of power remain a top priority for investors.

While this is all broadly positive, some headwinds remain, global capital raised by real estate funds in Q3 dropped by 25% compared to the same period in 2023, marking the lowest level in a decade. The challenging environment has delayed fundraising processes and led to many funds settling for less than desired. The reality is that while the economy has improved, there is still a great deal of uncertainty. Additionally, geopolitical factors like the US election will have weighed on investor sentiment. Lower fundraising will inevitably reduce the weight of capital seeking to invest in logistics assets, having a deflationary effect on pricing and volumes. With that said, the economy has continued to improve in Q4 2024, and we now have greater certainty in terms of the direction of US politics, which has sparked a sharp increase in the stock market.

_{Read the articles within Spotlight: European Logistics Outlook – Q3 2024 below.}