Data from the international advisory agency Cushman & Wakefield suggests that rents for prime warehouse spaces in Europe remain high. However, following a period of exceptional growth, the pace of increase has started to show signs of slowing.
Locations in the UK, Ireland, the Czech Republic, Hungary, Poland, and Germany have seen the highest growth in rental rates over the past five years. On average, rents for top logistics spaces have increased by 13.8% year-on-year, significantly above the five-year average of 2.5% pre-pandemic.
Tenant activity in the European warehouse market has dropped over the last 12 months, with demand totaling 33.3 million square meters.
The level of rents, in the context of high demand and limited supply, has reached record values in many European markets. Nevertheless, data from Cushman & Wakefield shows a slowdown in rent increases. In the 12 months leading up to the end of the second quarter of 2023, rents for prime logistics spaces in Europe grew by 13.8%, compared to a growth of 15.2% throughout 2022.
Demand for warehouse space in Europe fell to 33.3 million square meters in the 12 months leading up to the end of the second quarter of 2023, 27% below the 45.9 million square meters rented in the 12 months ending in the second quarter of 2022. Despite tenant activity slowing down, it still exceeds the pre-pandemic average of 30 million square meters annually.
Usually, rising rents are seen as a barometer of success for property owners, while tenants aim to keep rents low and increase margins. Tension in the market has increased as landlords grapple with the pressure of rising labor, fuel and utility costs. However, as inflation levels fall, we foresee further rent rate stabilization, along with an increase in the number of new development projects, which will temporarily increase vacancy rates.
Demand is primarily driven by companies focused on nearshoring development, particularly in Central and Eastern European countries, where tenant activity remains significantly above the pre-pandemic average.
On larger markets, a slowdown in demand is perceptible, with Germany, Poland, France, the UK, and the Netherlands seeing a considerable drop in tenant activity up until the end of the second quarter of 2023.
The volume of investment was 63% lower year-on-year over the 12 months leading up to the end of the second quarter of 2023, totaling 37.7 billion euros. This significant drop in capital market activity might be a result of investors waiting for market prices to stabilize following interest rate and financing cost drops. Though there are some early signs of improvement, a return to high investment activity may take some time.
Despite rent increases over the past months, the local warehouse market remains an attractive place for tenants and investors. As evidence, Poland ranks third in terms of warehouse space volume in the EU with the total volume set to approach 35 million square meters by the middle of next year considering current construction. Polish market demand is still driven by logistics operators and e-commerce companies (47% of net demand in H1 2023), however, we note an increasing participation of manufacturing companies, assembly plants, and the automotive sector (27% of new lease agreements in H1 2023). We do not foresee a further sharp increase in vacancy rates, which should stabilize at 5-8%,” comments Damian Kołata, Director of the Industrial & Logistics Department in Poland and Director of E-Commerce in the CEE region at Cushman & Wakefield.
