European industrial and logistics leasing and investment activity fell in the 12-month period from the end of H1 2022 to the end of H1 2023, according to data from Cushman & Wakefield.
The €37.7bn of investment deals recorded for the 12-month period was 63% lower than in the same period a year prior and the 33.3 million sq m of leasing deals was down 27% on the previous period, although this figure was still above the pre-pandemic average annual take-up of 30 million sq m.
Germany, Poland, France, the UK and the Netherlands all reported significantly lower take-up in the year to the end of Q2 2023.
Rental levels reached record highs in many European markets, with prime logistics rental growth averaging 13.8%. Although Cushman & Wakefield said headline rents “remain robust” the rate of increase was showing signs of slowing following a period of “exceptional growth”.
Tim Crighton, head of logistics and industrial EMEA at Cushman & Wakefield, said: “Typically, rental growth is seen as the barometer of success for real estate asset owners, while tenants aspire to keep rents low and grow margins. This commercial tension has heightened as tenants battle with upward pressure from rising costs such as fuel, utilities, and labour. However, as inflation levels regulate, we would expect to see further scrutiny of rents.
“Looking forward, we have an increasing development pipeline, however in the short term, we would anticipate this to result in an increased vacancy rate. Of course, this will create more choice and competitive pricing for occupiers, but as a bigger picture it signifies a return to more balanced activity after experiencing a supply-constrained market for an extended period.
“It is this return to more balanced activity that we in turn see across the asset class, as whilst rental levels will soften it is still expected to not only grow, but outperform other real estate asset classes. This once again demonstrates the great resilience we have seen in the first half of 2023 with take-up and demand for logistics and industrial space continuing to outperform pre-pandemic levels.”
Sally Bruer, head of EMEA logistics and industrial research and insight, added: “Business confidence will remain under pressure, with a challenging economic climate of financial instability and inflationary increases still looming over businesses and consumers alike. As we head towards year end, however, we anticipate that occupier take-up will rebalance at levels more akin to those seen pre-Covid.
“This slowdown in demand means that developers are considering their speculative development pipelines, which we believe will contribute to a continuation of constrained availability. Our view is that this, in turn, means ongoing rental growth – a testament to the sector’s strong fundamentals.”
