Take-up normalises across European industrial & logistics market
According to Savills latest European Logistics Outlook, take-up of industrial & logistics space across the continent totalled 28.8 million sq m in 2023, signifying a decline of 24% when compared to 2022. However, despite this slowdown take-up remained 9% above the five-year pre-pandemic average, suggesting higher levels of activity relative to the previous decade even as occupier demand has cooled off in the past two years.
Savills notes that the final quarter of 2023 saw the highest level of space leased with a total of 8.1 million sq m. Although this is a decline of 7% on Q4 2022 there remains reasons to be positive. The occupier market looks to have stabilised in the last three quarters and is now on an upward trajectory with the second half of the year 17% up when compared with H1, according to the international real estate advisor.
On a country-by-country level, Romania (+595%), Portugal (+196%) and Belgium (+42%) saw the greatest outperformance in relation to their pre-pandemic averages. In contrast, Savills saw figures in the Netherlands (-22%), Germany (-12%) and the UK (-7%) decline.
In terms of take-up, Belgium (+9%) and Dublin (+5%) were the only two markets to see annual growth, with the former recording record levels of take-up in 2023. Those countries that saw a notable fall included the Czech Republic (-38%), the UK (-38%) and Germany (-29%).
Andrew Blennerhassett, associate in Savills European industrial & logistics research team, comments: “There have been considerable shifts in take-up relative to the five-year average. Those markets that traditionally make up the bulk of European demand, such as the UK, Germany and the Netherlands have all seen their figures fall. Conversely, smaller markets like Italy and Belgium, as well as peripheral markets like Romania and Budapest are seeing an increase in activity, albeit from a very low base.”
When it comes to supply, Savills has seen the average vacancy rate across Europe rise by 205bps to 5.37% in the final quarter of 2023. Whilst this will inevitably put pressure on rental growth, there still remains significant variation across Europe’s markets at both the national and city levels. Also, it is important to note there has been a slowdown in construction, with the increase in vacancy rates decelerating sharply in Q4, increasing by just 11bps, 83% lower than the previous three quarters.
At present, markets like Dublin and Denmark remain acutely undersupplied, with vacancy rates of 1.7% and 2.2% respectively. Madrid and the Netherlands have seen the sharpest increases, with the latter illustrating the variance between cities. For instance, the 210bps increase in Schipol (8.8%) has driven the growth in the national figure. In contrast, the vacancy rate in Venlo has only risen by 80bps to 1.6%.
Looking at the investment market, European industrial and logistics transaction volumes for 2023 totalled €27.5bn, a decline of 51% year-on-year highlighting the sharp fall in activity. Despite this, Savills saw an increase of 13% between the first and second half of the year as investor sentiment improved.
On a quarterly basis, the largest markets in Europe have seen some of the greatest declines, including the UK (-34%), Netherlands (-65%) and France (-71%). At the same time, some of the smaller markets have seen strong performances in 2023, with Denmark (+273%), Ireland (+157%) and Norway (+73%) all seeing significant year-on-year increases.
Marcus de Minckwitz, head of EMEA industrial & logistics at Savills, adds: “Despite the fact that we are seeing the spread between prime and secondary yields continue to widen, there will still be numerous opportunities for investors in 2024. With interest rates expected to trend downwards, investors face less risk and whilst last year the pricing expectation gap between vendors and purchasers was a major obstacle in the investment market, we do expect this to shrink moving forward.
“What’s clear is that the ‘wait-and-see’ approach is no longer a sustainable strategy and for this reason we anticipate that there will be an increase of assets purchased with leveraged finance in 2024. While borrowing costs are expected to decline, they are unlikely to return to the levels seen in 2019. This means that stronger than average rental growth will be necessary to justify investment and development decisions in many markets. With this in mind, the logistics market appears to be well-positioned in terms of its fundamentals.”
