Looser monetary policy is fanning the embers of Europe’s industrial and logistics markets
Contents
- Introduction
- UK: Grade A supply, Grade A location, Grade A utilities.
- Spain: Location, location, location
- Netherlands: Persistent scarcity and rising take-up
- Italy: Stability amid high demand
- Czech Republic: Stable rents supported by onshoring trends
- Germany: Moderate rental growth amid cautious demand
- Poland: Full steam ahead
- Conclusion
Introduction
As we move into 2025, the market fundamentals in Europe’s industrial and logistics (I&L) market paint a mixed picture. On the one hand, leasing activity has remained muted, with processes taking longer and occupiers frequently kicking for touch. On the other hand, Q3 2024 saw average vacancy rates across Europe decline for the first time in two years. Indeed, over the last two years, weaker demand and higher supply have taken much of the fire out of rental growth in Europe, which was flat in Q3 2024. If this represents the peak for vacancy rates, as we suspect it is, the opening half of 2025 could be the last opportunity for occupiers to shop around before the market finally thaws as Europe’s economic engine gets into gear as a result of looser monetary policy.
Various factors will drive occupier activity in 2025. Improving economic conditions should improve occupier sentiment, something we observed in our 2024 European Logistics Census, which showed that more than half of occupiers (53%) believed that current business conditions were more favourable than twelve months ago, compared to just 41% in 2023.
Meanwhile, other drivers of demand for new space that were put on hold during the recent period of economic uncertainty will now become a greater priority. Growing concerns over the cost and supply of labour are increasingly pushing occupiers towards greater warehouse automation. Closely linked to this, advances in digitalisation and AI promise greater efficiency and cost reductions for occupiers willing to implement these solutions. Notably, investment in technology is likely to become more viable in 2025 as looser monetary policy lowers borrowing costs. Consequentially, occupiers are increasingly aware of the need to secure adequate power supplies, whether through the grid or on-site generation, to meet the demands of new technology.
Finally, the spectre of the net-zero energy transition looms ever closer for occupiers. This year, for the first time, “Changes to ESG regulations” were considered the biggest potential game-changer, ranked important or very important by 69% of sampled occupiers in our 2024 European Logistics Census.
These factors will drive occupiers to secure modern warehousing in the short-to-medium term. Supply has risen in the last two years as the volume of speculative development and second-hand space returning to the market outstripped take-up. In the UK, we’re now seeing signs that while net absorption remains negative, the supply of Grade A space as a proportion of overall supply is starting to fall. The savvy occupier will note that overall warehouse stock remains high. Still, we may be entering a period in which occupiers shed outdated Grade B stock and move into modern Grade A units which also achieve net zero/ESG goals. As such, the aggregate vacancy rate does not need to fall for a quick decline in the supply of suitable units.
We expect demand in the UK will continue to be shaped by strategic reorganisation and cautious growth in 2025, reflected by the uncertainty that comes with the Autumn Budget of 2024 and the effect this will have on businesses. Occupiers are focusing on optimising their supply chains, reducing costs and improving efficiencies. Demand for Grade A units remains strong and Built-to-Suit, whilst being as challenging as ever, can dovetail with occupiers’ strategic priorities through bespoke solutions to specific requirements if time allows. The main fundamentals of the location being a key factor will remain consistent however throughout all of this.
ESG remains a significant priority for occupiers but labour and utility supply and future availability, this is further shaping occupational locational decisions. Stricter immigration rules and ongoing issues expanding grid capacity mean this is unlikely to change in the near term.
Rising supply in the last 18 months suggests that market conditions could favour occupiers and we may see an uptick in owner-occupier transactions this year, particularly for bespoke opportunities.
We expect the market to broadly remain steady with a gradual improvement in capital markets and investment volumes increasing the viability of more bespoke build to suit opportunities and, in turn, giving occupier more confidence of delivery, therefore operational requirements being met.
In Spain, location will be key in 2025. We expect a resurgence in rents, particularly in Valencia and Barcelona. Occupiers remain focused on areas within 60 kilometres of either Valenciaport or the Port of Barcelona, with supply here remaining tight. Demand is projected to continue growing this year, with some tenders concluding by mid-2025. However, new logistics projects in Valencia won’t be delivered until late 2025 or early 2026, which could further tighten the market.
Spanish occupiers are increasingly prioritising well-located stock in proximity to highways and populated areas to adequate labour supply and efficient logistics. ESG (environmental, social, and governance) certifications are shifting from a nice-to-have to a must-have for new warehouses, particularly for 3PLs (third-party logistics providers), who face pressure from their customer bases.
Ironically for a country famous for its polders, the quote by Mark Twain: “Buy land, they’re not making it anymore”, feels particularly appropriate for the Netherlands. Growing demand will push further increases in take-up in 2025, while a scarcity of both standing stock and development land suppresses vacancy rates. Market scarcity will persist due to planning restrictions on new developments, ongoing power supply issues and challenges in labour supply influenced by stricter immigration rules.
Occupiers in the Netherlands are adjusting to higher prices, which had previously slowed down processes. There is a high degree of diversity amongst the occupiers driving demand, and we are aware of active requirements from the pharmaceutical sector, local and international 3PLs, and Chinese e-commerce and solar panel industries. Despite these challenges, the market is expected to remain stable, with rents holding steady after significant increases over the past two years.
We anticipate that take-up in Italy will remain stable in 2025, with figures comparable to 2024. Crucially, this puts the market on track to outperform the last decade’s average even as other markets struggle. Stricter ESG targets have driven occupiers to decarbonise their warehouses in addition to transportation, there are benefits of course, with lower fuel costs driving greater efficiency amongst proactive occupiers.
With demand remaining high in core locations, occupiers are working to optimise their usage density and, in some cases, subleasing space to achieve their requirements. With rents remaining high, we expect owner-occupier strategies to dominate the market and account for a greater share of take-up than in previous years. The most active sectors include grocery (food), pharmaceuticals, and cosmetics. We expect rents to remain stable, with potential increases in niche markets like Firenze, Padova, and Alto Brennero.
The Czech Republic will continue to benefit from onshoring and nearshoring next year, with stable rental growth forecast into 2025. We expect to see take-up stabilise, with the market absorbing the supply of speculatively developed stock completed over the past year. Like much of Europe, labour supply is a critical factor for occupiers, with the country boasting one of the tightest labour markets in the EU.
As ESG considerations become more pronounced, occupiers are gravitating towards stock with solar panels, heat pumps, and electric vehicle chargers. Nearshoring appears to have boosted the manufacturing sector and remains a significant demand driver. Towards the end of 2025, the Ústí nad Labem region may see increased activity due to its proximity to the construction of the TSMC gigafactory in Dresden.
Germany’s I&L market is projected to remain stable with some potential for a recovery in 2025, heavily influenced by the broader economic environment. Core locations like Berlin, Munich and Hamburg should see moderate rental growth, driven by limited available space and higher demand.
Looking at Germany more broadly, demand was subdued in 2024, with occupiers optimising and accommodating new business within their existing footprints. While second-hand space continues to return to the market, the flow of grey space has declined compared to 2023. The market is expected to stabilise, with large take-up deals remaining limited due to economic uncertainties and high construction costs.
Poland’s logistics market is poised for significant growth in 2025, driven by its strategic location and robust economic environment. Positioned at the crossroads of Western Europe’s developed markets and Eastern Europe’s emerging economies, Poland offers a compelling investment opportunity. The country’s infrastructure has been substantially improved through EU-funded development, making it an efficient hub for road freight to Germany. This has attracted multinational corporations looking to nearshore their operations, further boosting demand for logistics space.
The consumer economy has also soared, with household disposable income climbing by 31.2% over the last decade, driving growth in personal consumption. eCommerce is set to expand significantly, with a forecast growth of 25% by 2029. As a result, Poland’s logistics sector is expected to see increased occupier demand, particularly in well-located areas near major transport hubs. The market’s resilience and strategic advantages make it a key player in the European logistics landscape.
Conclusion
The European I&L market is set for a transformative year. Despite recent subdued leasing activity, the decline in vacancy rates and stabilisation of rental growth suggest a potential market revival. Economic improvements and technological advancements, such as warehouse automation and AI, are anticipated to boost occupier activity. Additionally, the focus on ESG regulations and the demand for modern, efficient warehousing will influence market dynamics. Each European market presents distinct opportunities and challenges, ranging from strategic reorganisation and cautious growth to persistent scarcity and rising demand.
The Savills EMEA Industrial & Logistics Occupier teams are in regular dialogue and advising new and existing global occupiers and overall expect the market to navigate these factors, with occupiers aiming to optimise operations and secure suitable spaces to meet evolving needs. While the market’s wheels have spun over the last year, we would expect to see greater traction in 2025 as the recovery accelerates.