European Logistics Market - May 2024

Market fundamentals remain healthy

• Take-up decreased by 25% in Q1 2024 across the leading European countries. The manufacturing sector still feels the effect of weak demand and exports have been slowing down.
• Market fundamentals remain healthy with vacancy rates below 5% in most countries. The lack of new developments remains supportive of rental growth in prime sectors although weaker demand offsets its momentum.

Yield decompression is drawing to a close

• Industrial and logistics investment hit a low point in Q1 2024, decreasing by 4% in Europe as a whole compared to Q1 2023. Yet, the volume of investment rose in a number of individual countries, an encouraging trend for the rest of the year.
• Yield decompression is effectively drawing to a close and stabilisation was recorded in most countries during the first quarter 2024. This should unlock investment activity in 2024.

The global economic activity strengthens

• Economic activity in the Eurozone is expected to gradually pick up over the course of 2024, buoyed by improving household purchasing power and falling interest rates.
• Consequently, the upside risk to the European economy lies with domestic demand.  Downside risks to growth in the Eurozone are mainly in the industrial sector, where export activity reduced over winter. 

Inflation remains on a downward trend

• Inflation continues to decline in the euro area, expected to fall temporarily below 2% in the second quarter. On a year-on-year basis, the harmonised index of prices in the euro area fell by 0.2 points to 2.4% in March. 
• The consensus expects the ECB to start reducing rates in June, bringing the deposit rate back to 3.75% by the end of the year.

Strong potential of growth for online sales

Online accounts for 11% of total retail sales in Europe. There are great differences between countries though, with northern European countries tending to have greater share. Changing shopping habits is a structural demand driver for warehousing space. As online shopping grows, so does reverse logistics, increasing the space needed.
 

The choice of location remains paramount

As retailers develop omni-channel solutions, the choice of location for last mile delivery along with regional delivery network is of fundamental importance. The main challenge faced with both is land availability.