A slowly improving but fragile economic situation should support the recovery in the investment market, while there are signs that the occupiers market may be reawakening
Introduction and Economic Overview:
The European manufacturing sector faced significant challenges due to high energy prices and rising labour costs last year. A slowdown in global trade further impacted exports, and concerns about the competitive viability of Europe’s manufacturing sector led many critics to argue that Europe’s push towards net zero added regulatory burdens, hindering recovery.
As we move into 2025, global trade headwinds persist. Donald Trump’s return to the US presidency has led to threats of aggressive tariffs. Oxford Economics has downwardly revised eurozone GDP growth forecasts to 0.9% for 2025, anticipating a 10% blanket tariff on EU imports by the US.
Despite these challenges, there are reasons for optimism. Strong wage growth has boosted real household disposable income, driving consumer expenditure and retail spending. The European Central Bank’s interest rate cuts in early 2025 will positively impact the consumer economy, potentially spurring a recovery in European manufacturing. The outlook for online retail is also positive, with significant revenue growth expected in 2025.
Occupier Market Highlights:
In Q4 2024, European logistics take-up reached 7.7 million sq m, a 26% increase from Q3 but 7% lower than Q4 2023. Despite this quarterly improvement, it was the weakest final quarter since the pandemic began. Total take-up for 2024 was 27.5 million sq m, down 7% from 2023 but 4% above the pre-pandemic average.
Market performance varied significantly. Portugal, Spain, and the Netherlands saw the largest annual increases in take-up, while the UK, Czech Republic, and Budapest experienced the steepest declines. Vacancy rates fell by 9 bps to 6.06%, with notable decreases in Budapest, Poland, and Barcelona. However, the Netherlands and the UK saw rising vacancy rates.
Rental growth slowed, with the Savills European Prime Rent Index increasing by just 0.3% in Q4. Annual growth remained positive at 2.3%. The market is shifting towards favouring occupiers, allowing for more favourable commercial terms.
Investment Market Insights:
In Q4 2024, investment volumes reached €12.0 billion, a 38% increase from Q3 and 18% higher than Q4 2023. This brought the total investment for 2024 to €37.9 billion, up 14% from 2023, making it the fifth strongest year on record.
Quarterly comparisons showed significant volatility, with Austria, Poland, and Norway seeing the largest annual increases. Germany, the Netherlands, and the UK also posted strong gains, while Ireland, Denmark, and Sweden experienced declines.
The industrial and logistics sectors accounted for 23% of total investment, second only to offices. The ECB's interest rate cuts in early 2025 are expected to stimulate the economy and put downward pressure on prime yields, which fell by 3 bps to 5.27% in Q4.
Prime yields tightened in Milan, Barcelona, and Madrid, with no outward movements across Europe. Investors are increasingly aligned on pricing, suggesting greater market certainty. Despite a cautious market, investment volumes are expected to grow by 10–15% in 2025.
Read the articles within Spotlight: European Logistics Outlook – Q4 2024 below.
