Rising take-up and slowing development starts push European logistics vacancy down to 5.7%, spurring further rental growth for best-in-class assets in supply-constrained markets, whilst investors recalibrate to a higher cost of capital.
European Economic Overview
Economic resilience amid tighter financing
Europe’s economy has faced rising bond yields and weaker equity markets this autumn, but tighter funding has not yet caused widespread disruption. The European Central Bank’s (ECB) September projections place euro area growth at 0.9% in 2026 and 1.4% in 2027, supported by recovering real incomes, resilient employment, and defence and infrastructure spending. Limited financial stress across the Eurozone (EZ), including France, Italy and Belgium, offers some reassurance. Stronger bank and corporate balance sheets, alongside those of EZ institutions, provide more protection than during the sovereign debt crisis. Bank default insurance costs remain well below crisis levels, and higher-risk corporate borrowing costs have risen only modestly.
Inflation, however, is less reassuring. The ECB expects 3.0% in 2026 and 2.5% in 2027, so weaker growth does not necessarily imply lower interest rates. Funding pressures also differ: French borrowing costs remain elevated, while Italian government bond yields have eased somewhat. The main risks remain a persistent energy shock and uncertainty over France’s budget. The ECB assumes energy pressures will ease; prolonged disruption would weaken growth, sustain inflation and potentially raise sovereign borrowing costs. France’s ten-year government bond yield rose by 20 basis points (bps) in a single day in late September, one of the ten largest daily increases since the euro’s launch. Sudden repricing could force leveraged government bond investors to cut positions or cash-constrained corporate bond funds to sell assets to meet redemptions. These are potential sources of disruption, not evidence of a broader crisis.
For industrial and logistics (I&L), the immediate consequence is more demanding financing rather than a breakdown in credit availability. Relocation and fit-out costs can deter moves that offer operational benefits, making the decision to stay or relocate more difficult. Investors face a parallel challenge: balancing income against funding costs without assuming cheaper debt. Building suitability and delivery capability therefore matter more than broad economic momentum.
European occupier market
Take-up and occupier demand
European take-up totals 21.3 million sq m for the first three quarters of 2026, up 16.2% versus the same period last year. Q3 alone added 7.6 million sq m, up 13.4% year on year but down 3% quarter on quarter. However, while the aggregate figure is largely positive, it still masks an uneven recovery.
At the market level, quarter-on-quarter performance (Q3 versus Q2 2026) was mixed. The strongest quarterly gains were in Valencia, where take-up surged 191% to 197,000 sq m, and Belgium, up 99% to 304,000 sq m. Dublin (+33%) and Romania (+28%) followed, while the Netherlands grew 13% to 768,000 sq m. Germany, the largest market by volume, rose 8% to 2.0 million sq m; the Czech Republic rose 5%, followed by Italy, which edged up 4% to 781,000 sq m, driven by Milan (+51% to 185,000 sq m), and Barcelona also rose 4%. Budapest was broadly stable (+3%), and Poland rose a more modest 2% to 1.28 million sq m, though take-up was 51% higher year on year, helped by a 173% jump in the Warsaw Suburbs to 195,000 sq m. At the other end of the scale, Portugal recorded the steepest quarterly decline, dropping 36% to 107,000 sq m, led by a 63% fall in Lisbon. Similarly, France fell 49% to 582,000 sq m, after an exceptional Q2 result of 1.14 million sq m. Madrid slipped 2% quarter on quarter to 281,000 sq m, and the UK fell 14% to 670,000 sq m, with London and the South East down 61%.
The mixed take-up figures sit alongside positive expansion intentions, but also substantial portfolio rotation. Our European Logistics Census shows that 47% of occupiers expect to need more warehouse space over the next one to three years, while 54% expect to vacate at least one building. Growth and consolidation can therefore coexist. The key decision is whether to stay or relocate. Savills Dutch Logistics Trend Report highlights rising costs and margin pressure as reasons to favour fewer, purpose-built facilities over fragmented networks. We remain positive about the demand outlook, but take-up and net absorption may follow different paths.
Alongside portfolio consolidation, occupiers are reviewing sourcing, inventory locations and distribution coverage to strengthen supply-chain resilience amid geopolitical disruption, uncertain trade policy and energy and freight costs. Relocation costs, automation investment and internal approvals are delaying some requirements rather than cancelling them. Logistics providers are balancing expansion with estate rotation, retailers are focused on productivity and occupancy costs, and manufacturers remain cautious, though medium-term expansion remains on the agenda.
Among the take-up observed, third-party logistics providers (3PLs) have been the largest sector taking space. In the UK, they account for 39% of take-up in 2026. This 39% reflects growing demand from Chinese occupiers in e-commerce-led markets. Chinese occupiers leased 3.45 million sq ft, accounting for 18% of national take-up at the time of writing, exceeding full-year 2025 levels and the 2021 Covid peak. Continental activity is smaller and uneven, however: France has so far recorded 107,894 sq m, compared with 104,155 sq m in full-year 2025, with the take-up share rising to 5.0% from 3.1% in 2025. Dutch demand favours existing buildings; Romania’s Chinese-linked share has risen more modestly.
We believe this reflects the removal of the De Minimis reform and small-package incentives up to €150, alongside pressures on domestic automotive and electric-vehicle sales and US-China tariffs, which encourage bulk shipments through major ports to offset costs. Demand extends inland for storage and national fulfilment, while faster-moving goods support air-cargo-linked distribution and regional delivery. Low-value import reform could reinforce consolidated freight and domestic fulfilment if direct parcels become costlier or more complex, subject to timing and implementation. Gateway access, connectivity, flexible layouts and capacity for multiple customer contracts remain important, but supply varies in quality and size.
Vacancy, suitability and rental growth
On the supply side, our European (weighted) vacancy rate fell to 5.71% at the end of Q3 2026, down from 5.89% in Q2, but vacancy rates vary substantially: Dublin stands at 2.6% and Barcelona at 1.7%, while Budapest remains at 12.98% despite a quarterly fall of 180 bps. Among markets where vacancies declined, Italy fell to 4.0% from 4.6% in Q2 and 8.6% a year earlier; Barcelona to 1.7%; Valencia to 3.1%; the Netherlands to 6.5%; and Madrid to 8.8%. Paris-IDF was broadly unchanged at 7.5%, alongside Copenhagen at 4.5% and Oslo at 5.1%. Elsewhere, vacancies continued to rise: Lyon and Marseille reached 7.6% and 6.4%, respectively, while London and the South East increased from 9.51% to 10.04%. Looking ahead, a slowing speculative pipeline and a return to more positive net absorption should help vacancies taper across several markets in late 2026 and 2027.
This uneven vacancy picture also reflects a distinction between available and suitable space. Even where vacancy is rising, greater choice does not necessarily meet occupiers’ operational needs: 47% of Census occupiers are considering new buildings, 47% are building to suit, and just 19% are considering second-hand stock. Power is a particular constraint: 89% of respondents expect requirements to rise over the next three years, and 26% already lack capacity. Specifications matter too: 42% want eaves heights of 12–15 metres, and 33% seek 15–20 metres. These requirements are likely to increase as automation, racking, and economies of scale grow. More than half plan to increase AI investment, and 42% plan to increase warehouse automation investment. Ultimately, a vacant building may offer little practical choice if its power capacity or layout cannot support these plans.
The distinction between available and suitable space also matters for rents. With aggregate vacancy elevated, best-in-class, more suitable, future-proofed buildings are better placed to sustain rents, while weaker stock faces longer voids, higher incentives and upgrade/retrofitting costs. Market-wide growth nevertheless remains limited: the Savills European Prime Rent Index rose 0.5% year on year in Q3 2026. Quarterly growth was confined to only eight of 32 markets: Barcelona (+2.7%), Dublin (+1.7%), London and the South East (+1.2%), Dusseldorf (+1.1%), Munich (+0.9%), Madrid (+0.7%) and Oslo (+0.2%). Stockholm fell 1.9%, but other markets were broadly unchanged. Overall, slowing rental growth reflects consecutive years of rising vacancy and a return to pre-pandemic leasing volumes.
Development pipeline and future supply
To combat rising vacancy, the development pipeline has slowed. While European development pipelines rose 7% (in sq m terms) in Q3 2026 to 8.1 million sq m, our Savills development index remains 10% lower year on year and 32% below its Q3 2023 peak, marking the 11th consecutive quarter of year-on-year decline and reinforcing the longer-term contraction. Some of the 7% rise came from substantial additions in several markets over the quarter, notably Italy, whose pipeline grew 14% to 2.2 million sq m; the UK also rose from 708,000 sq m in Q2 to 902,000 sq m, up 7% year on year. Encouragingly, while construction activity has increased significantly in some markets, pre-letting activity is robust: 49% of Italy’s current-year pipeline is pre-let; in Madrid, 51%; in Barcelona, 85%, reducing the risk of new space remaining vacant but also intensifying competition for prime space.
The challenge is therefore not simply how much space is available, but whether development can deliver what occupiers need. Robust demand coexists with rising availability of lower-quality second-hand stock and limited best-in-class options as the flight to quality continues. Power, planning delays and construction costs constrain delivery, while a size mismatch may limit the suitability of schemes brought forward. The Census share of developers targeting mid-box rose from 38% in 2025 to 62% in 2026, while big-box fell from 60% to 50%. Occupier preferences show 42% favour big-box and 37% mid-box. Structural demand will not always translate quickly into lettings of conventional space, so the type of development brought forward matters as much as its volume.
European Investment Market
European I&L investment reached €9.7 billion in Q3 2026, up less than 1% year on year but down 16% on Q2. This takes total investment to €29.6 billion for the first nine months of 2026, 1.4% below 2025 and about 9% below the five-year average. The elevated cost of capital and uncertainty continue to slow capital deployment, with caution likely to persist in the short-to-medium term: only 34% of Census investors expect volumes to rise over the next 12 months, down from 57% in 2025, while 29% expect a decline, up from 7%.
Investment activity was as uneven as occupier demand. The UK led in Q3 with €3.4 billion (-1% year on year), followed by Germany (€1.3 billion, -17%). Italy (€772 million, +88%), Poland (€558 million, +212%), Norway (€376 million, +49%) and Finland (€300 million, +275%) strengthened, while France (€692 million, -9%) and Sweden (€518 million, -36%) weakened after strong first halves. The Netherlands (€567 million, -26%) and Belgium (€65 million, -86%) also fell.
Differences in available stock, particularly best-in-class assets, may partly explain this variation. The Census offers a clearer view of asset preferences: 81% of investors target prime logistics, up from 73% in 2025, favouring assets with a clear operational role and durable income as occupiers migrate to better-quality space. Leasing risk, insufficient power, weaker locations and upgrade costs face closer scrutiny; a prime location cannot compensate for an unsuitable building. Established, liquid markets remain favoured, but lease indexation, expiries, retention and reletting costs determine how much rental growth reaches investors.
Demand for completed prime buildings does not mean investors will fund new ones. Only 43% are considering speculative funding over the next 12 months, down from 51% in 2025. The share of developers planning more speculative delivery fell from 36% to 31%. Alongside the shift towards mid-box, this could leave larger requirements more reliant on pre-lets or build-to-suit, extending lead times even where demand exists. The funding problem is that financing caution remains, and prime yields are expected to move further.
Our EMEA average prime yield rose 6 bps to 5.33% in Q3 2026, up 10 bps year on year. By the end of Q3, 19 markets moved their prime yields out. Eleven were unchanged, while only Milan and Oslo saw contraction, 5 and 10 bps, respectively. Quarterly yield increases were largest in London, Brussels and Helsinki, each up 25 bps to 5.50%, 5.00% and 5.25%, respectively; Lyon rose 20 bps to 5.00%. Barcelona (4.80%), Rotterdam, Schiphol and Venlo (all 4.90%) moved out 15 bps. The German Big Six (4.60%), Madrid (5.05%), Lille (5.40%), Marseille (5.35%) and Stockholm (5.00%) rose 10 bps, and Paris rose 5 bps to 4.85%. Over the year, London (+50 bps) and Lille (+45 bps) rose the most, coinciding with higher government bond yields this autumn.
Without market-wide yield compression, returns are income-focused and depend as much on leases, review provisions, capital expenditure, and occupier retention or replacement costs as on rental growth. Secondary assets can offer opportunities where upgrades restore competitiveness. Otherwise, higher entry yields may simply reflect leasing and obsolescence risk. Restricted development funding could support income from suitable existing stock by limiting new prime supply, but it does not, in itself, justify broad yield compression.
Beyond Q3 2026, selectivity is likely to remain the defining theme: the recovery depends on suitable space, not simply more space. Occupiers still intend to expand, but portfolio rotation means take-up will not translate directly into net absorption. Chinese occupiers add demand, although the scale and timing vary by market. A thinning speculative pipeline may limit the supply of powered, adaptable buildings without removing vacancy from weaker stock. For investors, Q3 yield movements suggest repricing is not yet complete in several core markets, keeping the focus on acquisition price, durable income and the cost of keeping buildings relevant to occupiers.