European Logistics Market Rebounds as Investment Soars Amid ESG and Tech Demands

By Highvest Capital

In a notable turnaround from the economic headwinds of recent quarters, Europe’s logistics real estate sector is witnessing an unprecedented surge in both investment and occupancy ambitions. The latest findings—sourced from detailed research by Savills and complemented by insights from CBRE—underscore a market in transition, where robust investment volumes and rising occupier confidence are setting the stage for significant change.

Investment Volumes Break New Ground

Investment activity in logistics real estate has reached record highs in the first half of 2024. Total deal volumes climbed to €16.5 billion—an increase of 17% over the previous half-year and 24% higher than the corresponding period in 2023. For perspective, this figure dwarfs the pre-pandemic average of €10.7 billion recorded between 2013 and 2019. Notably, logistics assets commanded 22% of all European real estate investment volumes in H1 2024, a share that has never been seen before compared with a historical average of 12.5% from 2017 to 2020.

This remarkable uptick is emblematic of investors’ renewed appetite for stability in the logistics space. As European economic growth shows clear signs of improvement—following a period marked by unprecedented shocks and rapid policy shifts—investors are increasingly turning to high-quality, income-generating assets to hedge against volatility.

Occupier Sentiment and Expansion Plans

While leasing activity has been relatively subdued, occupier sentiment has rebounded significantly. In a survey of 642 key market players—comprising 78% occupiers, 9% investors, 5% developers, and 8% other stakeholders—53% now rate current business conditions as more favourable than they were a year ago, a striking increase from just 34% in the previous census.

Caution, however, remains a defining theme. Nearly 70% of occupiers have scaled back or delayed expansion plans amid economic uncertainties—with only 6% having abandoned their strategies entirely. Despite these measured approaches, there is clear momentum building: 29% of occupiers, representing an aggregate of 1.8 billion square meters, anticipate needing additional space within the next 12 months, with that expectation rising to 53% over a three-year horizon.

 As a result, vacancy rates remain low, and occupier take-up is poised to accelerate further in 2025, reinforcing the Dutch market’s reputation for resilience and robust long-term growth.

The Financials Behind Space Requirements

Occupiers show a marked preference for large “big-box” logistics units—58% favour spaces between 10,000 and 39,999 square meters—while 36% target mid-size units (5,000–9,999 square meters). A smaller fraction is exploring mega units (over 40,000 square meters) or urban logistics facilities. This strategic focus is driven by the imperative to optimize supply chains and manage escalating operational costs.

Cost pressures remain a critical concern. Escalating energy, labour, and rental costs weigh heavily on decision-making, especially for third-party logistics providers (3PLs), among whom over two-thirds report significant challenges from rising expenses. Specifically, 25% of respondents flagged difficulties in accessing skilled labour, while concerns about adequate power supply jumped from 13% in 2023 to 24% this year.

For Highvest Capital, these insights are more than just market indicators—they are a call to action.

ESG: The New Benchmark

Environmental, social, and governance (ESG) criteria have emerged as a critical pivot in the decision-making process. A substantial 69% of respondents identified more stringent ESG targets and regulations as a potential “game changer” for their operations. This sentiment is especially pronounced among 3PLs—82% view ESG compliance as essential compared to 70% of retailers and 65% of manufacturers.

In response, many occupiers have proactively retrofitted existing estates with energy-efficient upgrades: approximately 44% have implemented energy demand reduction measures, 36% have introduced waste reduction and recycling initiatives, and 28% have invested in renewable energy installations. Although the drive to install renewable energy technologies has slightly eased compared to 2023, the overall commitment to sustainable practices remains robust.

Technology Drives a New Era of Power Needs

Technological advancements are reshaping operational priorities across the logistics sector. Investments in automation and digital analytics are rising rapidly—with 37% of occupiers having upgraded to warehouse robotics and automation, 33% investing in predictive and optimization analytics, and 28% incorporating electric vehicles (EVs) into their fleets. Consequently, 68% of respondents now view increasing power requirements as a pivotal challenge—a trend likely to intensify with further technology adoption.

Shifting Strategies: Reshoring and Market Realignment

Amid technological and regulatory shifts, the notion of reshoring is gradually gaining traction. Although only 6% of respondents have firm plans to re-shore at present, 45% believe that re/nearshoring could be transformative in the long term. This slow-burning trend is poised to redefine supply chain strategies, particularly as firms seek to mitigate risks associated with global disruptions.

Investors remain optimistic about the market’s trajectory. Over half (52%) anticipate continued growth in investment volumes over the next 12 months, buoyed by favourable market conditions and the stability offered by core European markets. Yield forecasts for the end of next year are converging around 4.5–5% for 54.2% of investors, while a smaller contingent expects yields to reach between 5–6% or dip to 4–4.5%.

Dutch Market Spotlight

The Dutch logistics market remains a cornerstone of Europe’s real estate landscape. Strategic hubs such as Veghel and Eindhoven continue to drive activity, underpinned by persistent scarcity and strong demand for Grade A logistics space. A recent transaction in Veghel—a modern Grade A distribution centre built in 2019 with 32,250 sqm of leasable space—illustrates this trend. The facility, which boasts clear heights of over 12 meters and features advanced energy efficiency measures (including a BREEAM “Excellent” certification and nearly 80% renewable energy use), underscores the premium that occupiers are willing to pay in a market where development land is at a premium.

Planning restrictions and limited new development opportunities are exerting upward pressure on rental rates in the Netherlands. Additionally, challenges related to grid capacity and labour supply continue to prompt occupiers to seek properties that can accommodate high-powered technological upgrades and automation. As a result, vacancy rates remain low, and occupier take-up is poised to accelerate further in 2025, reinforcing the Dutch market’s reputation for resilience and robust long-term growth.

A Consolidated Outlook

The confluence of rising investment, cautious yet optimistic occupier sentiment, and the growing importance of ESG and technological enhancements is painting a complex yet promising picture for Europe’s logistics real estate market. With investors concentrating on core markets like Germany, France, Spain, and the Netherlands—where strategic hubs continue to thrive—the sector is well poised for further consolidation and growth.

As the European economic engine gathers momentum, market participants are preparing for a more active phase in leasing, development, and capital deployment. The transition from a period of post-pandemic recalibration to one of sustained growth appears to be underway, setting the stage for what could be a landmark year for the logistics real estate sector.

For Highvest Capital, these insights are more than just market indicators—they are a call to action. With robust financials and a strategic focus on sustainability and technology, the current market dynamics offer a compelling narrative for both investors and occupiers looking to secure a foothold in Europe’s most dynamic logistics hubs.

Sources: Savills and CBRE

Highvest Capital provides these insights as part of our ongoing commitment to delivering cutting-edge market intelligence for investors. For further analysis and tailored investment advice, please contact our research team.