Has a subsequent year of shocks in the economy further delayed a recovery in the industrial and logistics sector?
European economic overview
Our Q2 Spotlight questioned whether the Trump administration's tariffs would derail a recovery in the European economy. With a trade deal between the EU agreed, it appears that economic growth across the euro area is largely back on track. IMF GDP forecasts, which were previously revised downwards in April 2025 from 1.0% to 0.8% have been upwardly revised to 1.2% for 2025. Quarterly GDP surprised on the upside in Q3, driven by a temporary surge in domestic demand and exports in France, even as Germany and Italy struggled.
The inflation picture is more positive; headline CPI eased to 2.1% in October, with inflation expected to decline below the ECB’s target rate of 2% in 2026, theoretically clearing the way for further interest rate cuts. Despite this, the ECB believes the euro area economy has left rates unchanged in October, citing a “robust labour market and solid private sector balance sheets”.
PMIs show a cautiously optimistic picture, with the October composite PMI hitting a 29-month high, driven by services. Unfortunately for the industrial and logistics (I&L) sector, manufacturing PMIs remain under pressure with German factory orders barely recovering after months of declines.
Finally, consumer credit conditions remain a significant weight on growth. The latest Bank Lending Survey shows standards have tightened further amongst firms, and while rates have fallen, loan demand remains relatively low. Fixed investment is expected to stagnate well into 2026, underscoring the disconnect between improving sentiment and weak financial flows. While household borrowing is holding up better, the overall credit environment remains subdued, limiting the scope for a meaningful acceleration in activity.
There are some positive signs for the I&L market; e-commerce penetration across Europe is expected to grow by 7% in 2025. This would bring total penetration to 20.1%, its highest level since the pandemic-era peak in 2021 at 20.9%. According to Prologis, online retail is three times more intensive on logistics space than traditional retail, and as such, growing e-commerce penetration points to growth in demand for logistics space.
Indeed, if we look at a measure of warehouse stock per capita relative to e-commerce penetration, we find a strong correlation of 0.77 between the two indicators across Europe. Indeed, the two countries with the highest warehouse stock per capita were the Netherlands and the UK, which also have the highest e-commerce penetration.
European occupier market
The third quarter of the year saw take-up rebound, totalling 7.5 million sq m, an increase of 24% quarter on quarter and 22% year on year. From a seasonal perspective, things are less positive,11% lower than the average Q3 over the last ten years.
This brought total take-up this year to 19.6 million sq m in the first three quarters of the year. This was a decline of 11% compared to the same period a year earlier, but 5% higher than the long-term Q3 average.
Looking ahead, occupiers seem set to take more space in 2026, with our European Logistics Census finding that 47% of occupiers intend to increase their footprints and only 4% expect to reduce their footprints.
Quarterly changes in take-up demonstrate the quarterly improvement. Just four markets saw quarterly declines: Budapest (-39.6%), France (-37.5%), Dublin (-10.5%) and Poland (-1.5%). Meanwhile, nine markets recorded increases, with the largest increases in the Czech Republic (+100.9%), Spain (81.8%) and the Netherlands (68.3%).
On an annual basis, the Czech Republic (+120.9%), Romania (85.9%) and Dublin (70.8%) have seen the strongest increase in take-up compared to Q3 2024. France (-23.2%), the Netherlands (-15.5%) and Spain (-1.5%) were the only markets to see annual declines.
After declining in 2024, our weighted average vacancy rate (WAVR) rebounded in the first half of the year, rising by 60 bps, from 6.4% to 7.0%. The third quarter of the year saw the WAVR fall by 20 bps to 6.8%.
This fall in the vacancy rate was primarily driven by decreases in large markets like the UK (-20 bps) and the Netherlands (-20 bps), with Barcelona (-70 bps) reporting the sharpest decline. Denmark (+40 bps) and Dublin (+30 bps) both saw increases, but these markets are relatively small and have less impact on the WAVR.
A mixture of weaker take-up and higher levels of speculative development has driven vacancy in the last three years. In tandem with an improvement in leasing activity, the pipeline appears to have continued to contract in Q3 2025. The Savills Development Pipeline Index indicates a downward trend in speculative development, with the four-quarter moving average peaking at 209.3 in Q4 2023 and falling steadily to 168.4 in Q3 2025, representing a 20% decline in the inflow of new stock. Despite this, our European Logistics Census points to more speculative development in 2026, with 36% of developers planning to speculatively develop more space, and a further 32% planning to maintain development at current levels.
After two quarters of solid rental growth, the Savills European Prime Rent Index appeared to run out of steam this quarter, edging up by just 0.1% over the last three months. Rental growth has remained stable in annual terms, increasing by 1.9% on average across Europe. Looking at historical trends, rental growth is now in line with where we would expect it to be relative to the current vacancy rate. Notably, there has been a trend of offering better incentives to maintain headline rents.
Investment volumes continued to moderate in Q3 2025, totalling approximately €8.7 billion, down 9% year-on-year from €9.6 billion in Q3 2024. With 79% of investors considering occupiers market conditions Important or Very Important—the most cited factor—and a relatively lacklustre start to the year, this is perhaps unsurprising.
Looking at the year so far, investment volumes total €27.9 billion, a 2% decline from €28.8 billion in the first three quarters of 2024 and approximately 20% below the five-year H1 average. Looking at the five-year pre-pandemic average, the first three quarters of the year averaged €22.9 billion between 2015 and 2019. While investment activity is certainly weaker than its pandemic-era levels, it has crucially remained well ahead of these levels.
On a quarterly basis, the largest increases in annual terms have been in Norway (+263%), Belgium (+123%) and Sweden (+120%). Notably, major markets like the Netherlands (86%), Germany (+23%) and Spain (+17%) have all seen growth in investment volumes relative to 2024. The markets seeing the greatest decreases were Denmark (-69%), Poland (-59%) and Ireland (-47%).
Despite the overall decline in real estate investment globally, the logistics sector maintained its resilience. In 2024, logistics accounted for 22% of total real estate investment, a slight decline from the last three years, which saw 24% of shares. That said, the sector continues to see significant interest amongst investors, underscoring the sector’s relative strength amid broader economic uncertainty.
Prime yields remained stable in Q3 2025, edging down just 1 bp. Dublin was the only notable mover, with a -10 bps decline.
Strategically, investors remain focused on core logistics markets, with capital concentrating in prime hubs that offer strong fundamentals and long-term stability. Risk appetite has become more selective, with reduced interest in speculative developments or fringe locations. Indeed, a clear preference is emerging for income-producing assets with resilient infrastructure and high-quality tenants. In particular, multi-let assets have seen significant depth of demand amongst bidders.
Urban logistics assets are gaining traction, driven by rising e-commerce demand and the need for efficient last-mile delivery. While cross-border investment remains active, geopolitical risks and tariff volatility are prompting more localised strategies. Forward funding deals are under greater scrutiny, with investors demanding clearer visibility on tenant commitments and construction timelines. Speculative development is generally less favoured unless backed by strong pre-let interest or exceptional location advantages.