Despite a frozen investment market in H1 2023 as a result of inflation and interest rate adjustments, the European logistics real estate market is finding a stable basis and emerging from decompression.
This emerges from Garbe Research’s Garbe Pyramid Map, which analyzed prime rents and prime net initial yields for the 123 most important logistics real estate submarkets in 23 European countries.
After strong price corrections in late 2022, the dynamic slowed in Q1 and Q2, indicating that the long-anticipated price stability sought by investors could be achieved by Q3 or Q4.
Logistics take-up declined as well due to the economic situation but also because (new-build) rental units are in short supply. In most logistics regions, demand for space far exceeds the available supply of land and rental units. Prime rents kept soaring during Q1 before slowing down in Q2.
Rent increases in H1 were particularly lively in the sub-markets of the UK, most notably in London (+€4.60/m2), London-Heathrow (+€2.00/m2) and Glasgow (+€1.00/m2). In western Germany, several submarkets stood out, including Cologne (+€1.10/m2), Dortmund (+€1.00/m2), Düsseldorf (+€0.80 /m2), and Munich (+€0.80/m2).
Compared to H1 2022, transactions were down by nearly two thirds, resulting in the softening of prime net initial yields, with different dynamics across Europe.
Prime net initial yields in markets like Rotterdam-Maasvlakte and Arnhem / Nijmegen gained 80 basis points since year-end 2022. In some of the eastern European capitals (Warsaw, Vilnius, Prague), the yield growth amounted to 70 basis points, while certain submarkets in Poland, Germany and the Netherlands saw increases of 60 basis points.
Many logistics regions saw moderate decompression rates or with a stable trend, including secondary markets in the UK, the Nordics, Austria and Italy (e. g. Bristol, Leeds, Bergen, Innsbruck, Turin) as well as selected capitals (Oslo, Stockholm).
The most expensive markets are still found in Germany, with prime net initial yields increasing by 30 to 60 basis points, and ranging from 4.0% (Berlin, Munich) to 5.9% (Saarbrücken).
Garbe forecasts that the strain on markets will ease by the end of the year, assuming that current trends continue. Demand for space has remained robust in 2023, although total net absorption by year-end will be significantly lower than in previous years.
