European logistics letting market 2024: lack of new project developments continues to drive up rents in top segments

The European logistics letting market is largely robust despite weak economic growth. At the beginning of the year, the GDP forecast in the eurozone was raised to +0.8% for 2024, following growth of +0.5% in 2023. Nevertheless, the cost sensitivity of users in the still weak economy is having a dampening effect on expansion, with the result that the market recorded a year-on-year decline of 5% in the first half of 2024. Due to moderate demand, the start of the year was rather subdued in most countries. However, the fundamentals remain intact despite rising supply in some countries. This is the result of an analysis by BNP Paribas Real Estate

In Germany, the situation brightened in the second quarter of 2024 after a subdued start to the year, particularly outside the major logistics centres. However, the weak economy continues to have a dampening effect on demand. In addition, there is still a lack of available space in some markets, which in turn is reflected positively in rental prices.

In the UK, the market bottomed out in the second quarter of 2023 and has been on the upswing again since then. Take-up increased in the first half of 2024, in particular due to high demand from the food and beverage industry and continued demand for logistics space, especially in the Midlands. After two years of growth, supply is now stabilising - although there is still a lack of speculative project developments.

In France, the cooling of the market in the first half of 2024 was no surprise due to the ongoing economic weakness. While demand in the greater Paris area, Marseille and Lyon fell significantly and the number of lettings was well below average, almost half of the total result was realised in Lille and Orléans. Overall, building space is becoming scarce, with some markets experiencing a persistent supply shortage. The vacancy rate in France stood at 4.1% at mid-year.

In the Netherlands, as in most other European countries, the first half of the year was also subdued. The high property prices and construction costs are having an inhibiting effect on new project developments, and the low supply continues to drive up rental prices.

After a weak start to the year, the market in Spain recovered in the second quarter of 2024 and achieved solid take-up - particularly in Madrid and Valencia. Vacancy rates fell in Barcelona and Madrid, while supply remains tight in Valencia. Prime rents stabilised in Barcelona and Valencia and increased in Madrid.

The letting market in Poland also picked up after a subdued start to the year. The vacancy rate remained unchanged at around 8% and prime rents stabilised. One noticeable trend is the sharp decline in the proportion of speculative new-build projects. However, the take-up of 1.6 million m² represents an increase of 20% compared to the first half of 2023, which puts Poland in third place in Europe.

In Europe, the vacancy rate has risen to an average of 5.9% in the past 12 months due to subdued demand. However, the lack of new construction projects due to increasing land regulation could continue to drive rental price growth in the top segments.

Prime rents rose by 5.2% year-on-year across all 49 markets in 22 countries. Rents continue to rise in some cities, but overall the market slowdown led to moderate rental growth of just 0.9% in the second quarter (compared to the first quarter). Logistics tenants are still prepared to pay higher rents for the conversion of existing buildings to sustainable energy sources. This could not only lead to further potential for rent increases in the future, but could also prompt owners of existing buildings to carry out energy-efficient refurbishments.

"Despite the moderate market development, we are still seeing areas with rising rents, and many global investors have a strong interest in the European logistics markets," says Craig Maguire, Head of European Logistics at BNP Paribas Real Estate.

Logistics investment market: first signs of improvement

The investment volume in the logistics segment in Europe rose by 6% to €16 billion in the first half of 2024. There are many indications that the market bottomed out in 2023 and will gradually increase over the course of 2024, largely due to an improvement in financing conditions. The reduction in key interest rates that has now taken place should lead to more large deals and favour the return of pan-European portfolios. Even if sales processes are currently taking a little longer, demand is increasing, particularly in Germany, France, the Netherlands and Sweden, and this trend is expected to spread to other countries by the end of the year. Nevertheless, BNP Paribas Real Estate initially expects investment volumes for 2024 as a whole to be significantly lower than in previous years and does not anticipate a noticeable recovery until 2025.

The logistics investment market in the UK also got off to a subdued start in 2024, which is primarily due to the short supply of first-class properties and the general economic uncertainties. The stabilisation of the net prime yield at 4.5% should help to stimulate investment activity and initiate a recovery.

In Germany, the market picked up significantly in the first half of the year, as the pricing phase has largely come to an end due to the change in the interest rate environment and demand is picking up again. The prime yield in the most important logistics locations remained stable at 4.25%.

In France, the logistics segment performed well in contrast to retail and office and recorded a significant increase in the first half of the year. Prime yields remained constant at 4.75% in the 2nd quarter.

In the Netherlands, the market recorded a steady increase in the first half of the year and is benefiting from the fact that the situation on the capital market is easing and the supply of core properties is expanding. The prime yield stabilised at 4.9%.

In Spain, the logistics investment volume remained robust and is just below the ten-year average. As in the other most important European markets, the prime yield stabilised at 5.25%.

In Poland, the transaction volume increased in the course of the second quarter as sentiment brightened and will therefore probably be seen as a turning point in retrospect. The prime yield is 6 %.

Prime yields in the logistics segment stabilise in Europe

Interest rate pressure and the associated rising yields on long-term government bonds have gradually improved again. The rise in prime yields in the logistics segment observed over the past two years also appears to have come to an end. They are therefore likely to stabilise further by the end of 2024 and fall again slightly from 2025. In Europe, BNP Paribas Real Estate expects an average decline in yields of around minus 10 basis points per year over the next three years.

"The fundamentals for the European logistics markets remain relatively good. The outlook for logistics investment is therefore positive, especially from 2025 onwards, when we enter a new cycle," concludes Craig Maguire.

Source BNP Paribas Real Estate - Logistics market Europe Q2 2024 - Rents - Yields

Press contact:
Chantal Schaum - Tel: +49 (0)69-298 99-948, Mobile: +49 (0)174-903 85 77, chantal.schaum@bnpparibas.com
Viktoria Kühn - Tel: +49 (0)69-298 99-946, Mobile: +49 (0)173-968 60 86, viktoria.kuehn@bnpparibas.com

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