Chapter 4
Logistics
European Real Estate Market Outlook 2025
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Leasing activity is expected to increase, particularly in the latter half of 2025. Vacancy rates should stabilise in 2025 as expansion plans are realised and the delivery of new space continues to be low. New market dynamics and a shift in the balance of power to tenants will lead to slower rental growth than in previous years.
Key Takeaways
- Demand has fluctuated at lower levels relative to recent years, but a clearer macroeconomic landscape should unlock some postponed occupier expansion plans. Leasing activity is expected to pick up from current levels, particularly in the second half of 2025.
- Despite a significant slowdown in the delivery of new stock, the average European vacancy rate increased during the first three quarters of 2024, though it is expected to stabilise during 2025. This new market equilibrium gives tenants more negotiating power, especially outside the prime segment and core locations.
- Building selection is becoming a key factor as occupiers have more options available and start to implement strategies to future-proof their supply chains. This includes ensuring that their warehouses’ specifications are fit for current and future needs.
New market dynamics emerging
Expansion expected to return in 2025
Demand remained subdued through 2024, with take-up falling below the level seen in 2019. Additionally, a larger than usual portion of take-up came from consolidation projects or relocations to better facilities. These are deals which typically generate lower or no net absorption as they also involve space being vacated.
With an improved economic environment in Europe, occupiers will be able to act on their expansion plans. This will generate higher net absorption, particularly during H2 2025 when interest rate cuts and rising real incomes should support GDP growth, primarily via private consumption. Increasing consumer demand will also fuel the renewed strength of the omnichannel retail sector.
Balance of power will continue to lie with tenants
Despite a significant decrease in new completed space, the average vacancy rate increased by 77bps during the first three quarters of 2024, to 4.4%. By Q3, the pace of increase had already slowed, with further stabilisation expected in 2025 although significant reduction is unlikely.
This means the sector has switched from a landlord’s to a tenant’s market. This should facilitate the activation in 2025 of several occupiers’ expansion plans that had been postponed due to market conditions.
Figure 10: European logistics take-up
Figure 11: Vacancy and completions as a % of total stock
Nearshoring, trade policies, and obsolescence are key trends to watch
The Red Sea crisis has caused another wave of supply chain disruptions, resulting in the prioritisation of nearshoring discussions. Nearshoring has not occurred in Europe to the extent seen elsewhere in the world, for example in Mexico and Vietnam, but we are increasingly seeing examples in the region.
2025 could be a significant year for nearshoring in Europe, with a potential to increase leasing activity. The process will be shaped by developments in the conflict in Ukraine, and by any occupiers’ decisions to further explore non-CEE markets for nearshoring, such as in Southern Europe.
European industrial and logistics occupiers will be closely monitoring the implementation of any proposed trade policies by the incoming Trump administration in the U.S. Developments are not expected early in 2025, but discussions could already affect strategic decisions from global occupiers.
Finally, the sector is starting to acknowledge the potential risk of warehouse obsolescence, which has been masked for years by tight vacancy and strong demand. Occupiers now have greater choice and will be exercising it, prioritising warehouses which offer them operational gains or savings. Additionally, the gradual shift to sustainable real estate will also be evident during expansion and relocation discussions, with high demand for sustainable warehouses and a limited supply of compliant facilities. We also anticipate a continuation of the flight-to-quality trend observed in 2024.
Prime rents to move with inflation
Market conditions expected to lead to slower rental growth
The new supply-demand backdrop has clearly impacted rents, as tenants have greater negotiating power in a better-supplied market. Due to the aforementioned flight-to-quality, and the efficiency and operational gains offered, the prime segment of the market is slightly more protected than the rest of the market. Under our baseline scenario, in 2025 prime rents are forecast to increase by 1.8%, on average, for the top European logistics locations. This would result in inflation-adjusted rents remaining stable during 2025.
However, macroeconomic performance aligned with either our upside or downside scenarios, explored in our Economic Outlook, will have a significant impact on the sector. In our upside scenario, real rental growth will return, as rental growth exceeds inflation. Under our downside scenario, average real prime rental growth will move into negative territory for the first time in over ten years.
Figure 12: Top European logistics locations prime rental change forecast (% p.a.)
Contacts
Alex Ozga
Associate Director, European Industrial & Logistics and Retail Research
Jack Cox
Managing Director, Head of European Industrial & Logistics Capital Markets
Mark Cartlich
Senior Director, Head of European Industrial & Logistics Strategy
