The European logistics market is on track for another record year, as investment volumes and take-up activity are already in excess of five-year averages at the half-year point.
With an unprecedented amount of capital in the sector, investment into European logistics reached €22.5 bn during H1 2021, according to new data provided by broker Savills. This investment volume is 64% of the - record volume - of deals registered for all of 2020, and represents a 60% increase on the five-year first-half average.
The UK is the most popular investment destination, accounting for 37% of the overall H1 deal volumes. Ireland, Spain and the Netherlands were other markets that performed above their five-year averages, Savills' report shows.
Capital targeting the sector equates to just over 20% of the total amount invested in European real estate so far this year, compared with around 10% historically. Savills analysis of new capital raised by funds shows that 39% of the volume of new funds raised this year has been allocated to logistics - more than any other commercial sector.
The easing of travel restrictions has boosted inward investment from US buyers, while private individuals are cashing in on the aggressive yield compression that has been underway during the last 24 months.
Take-up hits new record high
Over the same period, European logistics take-up reached 18.7m m2 in H1 2021, also 63% above the half-year average. Germany (+28%), Netherlands (+64%) and Poland (+102%) performed the strongest against their five-year H1 averages.
In the UK, take-up for the first half of 2021 was 82% above the long-term average, driven by demand for units from online retailers.
The record volumes of deals and leasing activity is the result of five years of growth in 18 months, as Covid-19 accelerated structural changes that led to a huge expansion of online retail. Leasing activity, combined with constraints on available land, means vacancy rates across Europe continue to creep downwards.
European vacancy rates have fallen by an average of 80 basis points over the past 12 months to 4.6%. This has been helped by higher levels of take-up in Spain, while Czech Republic (2.4%) Denmark (2.6%), Barcelona (3.3%), Oslo (3.8%) and Helsinki (4.3%) remain the most undersupplied markets.
Prime rents have therefore risen by an average of 2% over the past 12 months, led by Lisbon (20%) and the Warsaw suburbs (16%). Savills anticipates that rental growth will accelerate again over the next 12-18 months due to an undersupply of properties.
The record low vacancy rates, and the promise of rental growth, means yields are continuing to compress further into the 3% to 4% range across most core European markets.
'The drivers of low supply and high demand in the occupational market show no sign of changing in the medium term, which in turn will allow investors to underwrite their acquisitions with increasing rental growth assumptions,' commented Marcus De Minckwitz, head of EMEA industrial and logistics.