After yet another turbulent year for the European economy, many will breathe a sigh of relief, with the prospect of a slightly better year ahead. With inflation easing across the Eurozone and the UK, interest rates continuing to fall, and industrial output showing signs of recovery.

The Eurozone economy expanded by 0.3% quarter-on-quarter in Q4 2025, maintaining the same pace as Q3. This brought annual GDP growth to 1.5% for the year, according to Eurostat. While not robust, this steady growth reflects resilience in the face of global uncertainty and tightening financial conditions earlier in the cycle. Economic growth was driven by the Netherlands and Iberian economies, with Ireland remaining an outlier in terms of GDP growth. Other core European markets (France, Germany, Italy) saw lethargic growth as interest rates and weak industrial output suppressed demand. One key standout among the major European Industrial and Logistics markets is Poland, which is set to continue to see strong economic growth over the next three years.

Inflation has continued to moderate, finally falling below the European Central Bank’s target rate of 2%, from 2.0% in December to 1.7% in January. The decline was largely driven by falling energy prices (–4.1% YoY), while services inflation remained elevated at 3.2%. In response, the ECB has held its deposit facility rate steady at 2.0% and the main refinancing rate at 2.15%.

Forecasters expect the labour market in 2026 to remain steady, with unemployment near historic lows and wage growth slowly moderating. Stable employment and wage growth should support greater consumption this year, though cyclical headwinds remain. This should, all things being equal, drive retail sales growth in 2026. Indeed, Oxford Economics expects real retail sales to grow by 1.76% and 1.83% in 2025 and 2026, respectively. This is well ahead of the ten-year average growth rate of 1.53% per annum. Growth in retail sales should drive demand from retail occupiers this year and beyond as more goods move through the economy.

Looking ahead, Oxford Economics is forecasting economic growth of 1.1% in 2026, 10bps higher than 2025. Notably, Germany’s manufacturing sector outperformed expectations in December, reinforcing narratives of a renaissance in the Eurozone’s industrial engine this year. Indeed, as German fiscal stimulus through infrastructure and defence spending starts to be implemented in 2026, we expect to see Germany’s manufacturing sector lead a recovery in the wider European manufacturing sector.

Occupier Market: With oversupply risks fading, will 2026 see a return to falling vacancy rates?

The final quarter of the year saw take-up continue to gain momentum, totalling 8.3 million sq m, an increase of 14% quarter-on-quarter and 1% year-on-year. From a seasonal perspective, leasing volumes were 2% lower than the average Q4 over the last 10 years.

This brought total take-up in 2025 to 28.1 million sq m, 7% lower than 2024, but 8% higher than the pre-pandemic (2015-2019) average. This was the weakest result since the start of the pandemic. Notably, weak take-up resulted from a very slow start to the year; H1 take-up was at its lowest level since 2015. The second half of the year was markedly better, with take-up rising by 26% compared to H1; indeed, compared to the second half of 2024, take-up rose by 10% and was 19% higher than the pre-pandemic average (2015-2019).

This is in line with what we predicted in response to the Trump administration's tariffs: an initial cooling effect on take-up. The market quickly recovered as occupiers came to terms with the changes and acclimatised to the new ‘normal’. Looking ahead, Savills house view is for a similar level of take-up in 2026, with our regional teams predicting incremental improvements in leasing volumes this year.

Changes in take-up demonstrate the improvement in the second half of the year compared to the first. Nine markets saw a quarterly increase, with the strongest growth in: the Czech Republic (+106%), Romania (59%), Dublin (58%) and Italy (49%). Just five markets recorded decreases, with Belgium (-45%), Spain (-37%) and Budapest (-28%). Crucially, Germany, which accounts for the largest share of take-up, saw an increase of 26% in the second half of the year, driven by an uptick in Chinese eCommerce occupiers.

Looking at the year as a whole, peripheral and smaller markets like Dublin (81%), Romania (48%), and the Czech Republic (34%) saw the strongest growth. In terms of the largest markets in Europe, the UK (+15%), Germany (+13%) and Italy (+8%) saw the strongest growth. In contrast, the Netherlands (-45%), Portugal (-38%) and Belgium (-21%) saw the steepest declines in take-up, although notably in the case of the Netherlands and Portugal, take-up is being constrained by a lack of suitable supply rather than a lack of demand, highlighting structural supply-side limitations rather than weakening occupier interest.

A range of occupier types is currently active across Europe: Online retail is seeing a resurgence, driven by the entrance of Chinese players. In many markets like the UK and France, we have seen growing activity from grocery retailers after a period of relatively low activity. We’re also seeing a substantial uptick from defence occupiers, which corresponds to what we predicted last year in our defence report.

Our weighted measure of European vacancy rates shows that vacancy rates have risen by 60bps since Q4 2024, but have remained more or less level since Q2 2025. Looking at the larger markets that have the greatest impact on the weighted vacancy rate: The UK market saw vacancy rates increase by 60bps between Q4 2024 and Q2 2025, but have remained stable. The Netherlands has seen its vacancy rate rise by 140bps over the last year, but has not seen the same deceleration. Meanwhile, vacancy rates in Poland increased from 7.2% in 2024, peaking at 8.2% in Q1 2025 and then declining to 7.1% in Q4 2025.

In the final quarter of the year, the largest decreases were in Barcelona (-90bps), Poland (-80bps) and Portugal (-67bps). Meanwhile, the Netherlands (+86bps), Madrid (+52bps), and the Czech Republic (+43bps) saw the greatest increases in vacancy rates.

Our Savills Development Pipeline Index continues to show a downward trend for construction activity across Europe. A four-quarter moving average of the index shows a decrease of 7% year-on-year and 2% quarter-on-quarter. Notably, this is a significantly slower response to market conditions than what we have observed in the UK, where the speculative development pipeline has contracted by 57% over the last four quarters and by 26% in Q4 alone. That said, it’s also possible this reflects the tight supply dynamics in some subnational core markets, with development becoming more focused on regions with more favourable supply/demand balances. While developers continue to indicate that they would like to increase the amount of speculative development they engage in, our UK Future Space census indicates that 67% of investors are unwilling to fund speculative development over the next twelve months. Assuming a similar attitude among European investors, we would expect the European development pipeline to start to realign with the UK in 2026.

The Savills European Prime Rent Index showed that rental growth stagnated for a second consecutive quarter in Q4 2025, edging up by just 0.1% over the last three months, the same rate observed in Q3 2025. Average rental growth across Europe has remained stable in annual terms, increasing by 1.9%. Looking at historical trends, rental growth is now in line with where we would expect it to be relative to the current vacancy rate.

Our recent Experts’ View report suggests that demand for industrial and logistics space will remain resilient in 2026, with potential for incremental improvements in some markets. Indeed, despite continued cyclical headwinds, secular trends like growing eCommerce penetration, nearshoring, defence, and data-centre driven demand should continue to boost take-up. In combination with lower pipeline development, we may start to see more downward pressure on vacancy rates and potential for rental growth to reaccelerate over the course of the year.

Investment Market: A strong push in Q4 leaves investment volumes at their highest levels outside of the pandemic years

As predicted, the final quarter of the year saw heightened investment activity with European logistics investment volumes reaching €13.6bn, an increase of 40% compared to the previous quarter and in line with the same period a year earlier. This brought total investment volumes in 2025 to €43.2 billion, up 3% year-on-year and the strongest year excluding the pandemic.

On a quarterly basis, the largest increases in Q4, relative to Q3 2025 have been in Portugal (+360%), Belgium (+251%) and Sweden (+119%). Notably, Italy (+82%) and France (+30%) saw growth in investment volumes relative to 2024, with these larger markets accounting for a more significant share of investment volumes. The markets seeing the greatest decreases were Germany (-59%), Spain (-57%) and Austria (-51%).

Looking at the year as a whole, smaller markets like the Czech Republic (213%), Portugal (+114%) and Austria (+99%) saw the strongest growth. Of the larger core markets, Poland (+25%), Italy (+24%) and the UK (+13%) outperformed and drove investment volume growth in 2025. Germany continued to underperform, falling by 34% compared to 2025.

While industrial and logistics assets performed well over the course of the year, the sector's share of overall investment volumes has normalised from its pandemic-era heights when investors began reallocating to the sector. Industrial and logistics accounted for 22% of total investment into European real estate in 2025, down 1pp from a year earlier and 2pp from the series peak in 2022 and 2023, respectively. Driving this shift has been a recovery in demand for offices and above average investment into PBSA assets, where a large portfolio sale drove a strong year.

Prime yields edge up by 2bps in Q4 2025, ending the year at an average of 5.25% across Europe. After rapidly increasing post-pandemic, as interest rates moved out and asset prices fell, average prime yields have stabilised over the last year.
Since Q4 2024, the average prime yield has tightened by just 3bps. There has been some variation over the course of the year in select markets, yields tightened most in Brussels (-30bps), Copenhagen (-25bps) and Helsinki (-25bps). Only three markets have registered increases, including London (+25bps), Oslo (+10bps) and Amsterdam(+5bps).

Lender appetite and liquidity remain strong, as allocations towards commercial real estate lending continue to rise. Sentiment in the debt market suggests improving confidence, with competition on pricing and structure to win mandates, tightening margins, increasing LTVs and pushing lenders towards more flexible covenant packages. With existing lending facilities being extended, the appetite for new lending opportunities is growing as lenders look to increase their exposure to the sector. Similar to trends we have observed among investors, best-in-class assets are viewed favourably, particularly for well-located assets with strong ESG credentials or repositioning strategies.

Our Experts’ View Report predicts three key themes for 2026:

Firstly, core institutional investors are re-emerging after a period of inactivity. Global fundraising for commercial real estate in 2025 regained momentum, with US$55bn raised in the final quarter of the year, bringing total volumes to US$222bn. This is a 29% increase on 2024 and represents the first annual increase in fundraising levels since 2021. This supports renewed confidence in stable, income-producing logistics assets in prime locations, which are built to institutional specification.

Secondly, the divergence between prime and secondary yields is widening. Prices for prime warehouses are firming up, with yields compressing, while secondary asset yields are expected to remain flat or soften. This trend is leading to a broader yield spread between prime and secondary assets.

Finally, we would expect to see an increased focus on income in investor decision-making. Multi-let assets have seen a substantial uptick in demand over the last 18 months, with the diversified income streams from these assets considered a significant bonus. With net lenders becoming more competitive, we have seen increased demand for credit net-lease assets, where long lease lengths and strong covenants can provide stable incomes for investors.