European Logistics Supply Drops to Lowest Level
The latest research from global real estate advisor, CBRE, shows that the supply of European logistics space has dropped to a new low, with average vacancy rates across the region sitting just under 2.3%, a decrease of 50bps year-on-year.
The low availability levels are restraining the number of units that can be offered to occupiers and have left many requirements unmet. Despite a slower quarter, take-up year-to-date totalled 19.56m sqm as at Q3 2022. This represents a 2.2% decrease on the same period last year, when take-up reached 20m sqm, showing that occupational demand has remained robust, particularly in the production and manufacturing sectors.
The imbalance between supply and demand continues to put pressure on rents, with several locations reporting further increases in their prime rents during Q3. Amsterdam saw a 25% increase in prime rents compared to Q3 2021. This was followed by Lyon, Bristol and Copenhagen, which saw increases of 13%, 12% and 8% respectively.
Many locations across Europe are facing historically low vacancy levels and the supply response is being hindered by high borrowing costs, increasing construction costs and higher exit yields. Collectively, these factors make some developments unviable for now and are resulting in higher occupational costs, both through rental growth as well as indexation.
Over the past two years we have seen numerous record-breaking quarters and as such, we did not expect this extraordinary trend to be maintained. Demand fundamentals for logistics are still better positioned than other commercial real estate sectors in Europe, but we are starting to see some caution from occupiers due to the macroeconomic backdrop.