Prime headline rents in the logistics and industrial sector across European markets are showing signs of slowing their growth rates after a period of exceptional growth, according to data from Cushman & Wakefield.
In addition, investment volumes are down by 63% year-on-year for the 12 months to the end of Q2 2023, at €37.7bn (£32.8bn).
C&W said the slowing of activity can be attributed to investors awaiting market stabilisation of pricing following outward movement in interest rates and financing costs. The agent pointed to “some early signs of stabilisation in this regard”, although activity will take some time to return to the market.
Rental growth averaged 13.8% across European markets in the year to the end of Q2 2023, compared with 15.2% for the year to the end of Q4 2022.
However, researchers said the 13.8% growth rate sits markedly above the pre-pandemic five-year average rental growth of 2.5% per annum.
Take-up for European logistics and industrial space also slowed, to 358m sq ft in the 12 months to the end of Q2 of this year. This was down by 27% from 494m sq ft for the 12 months to the end of Q2 2022.
C&W said despite the slowdown in occupier activity, the market is still outperforming the pre-pandemic average annual take-up of 323m sq ft per year.
Sources of demand include businesses focused on nearshoring activities, notably in countries in Central and Eastern Europe, where take-up sits well above the pre-pandemic average.
In contrast, larger markets were more affected by the slowdown in demand, with the UK, Germany, Poland, France and the Netherlands all reporting significantly lower take-up in the year to the end of Q2 2023.
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 while 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 at C&W, said: “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 the 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.”
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