AEW has published its latest research paper: “Broad-Based Logistics Demand Offers Resilience Against Tariffs”.
Hans Vrensen, Head of Research & Strategy Europe at AEW, comments: “There have been several recent reductions and pauses in threatened tariffs from the US, and the negotiations appear to be ‘on-off’ in nature, which has triggered a spike in trade policy uncertainty. We expect that this will lead many European logistics occupiers to further increase their operational focus from just-in-time to just-in-case. Our current belief is therefore that Europe’s core logistics markets have limited vulnerability to US trade tariffs and that there is even a strong likelihood that the tariff uncertainty may trigger an increased demand for European logistics space, as we saw during Covid. However, the report does show above-average vulnerability in the European logistics markets of Ireland, Switzerland, CEE and certain Nordic sub-regions. The diversified base of logistics space users should offer solid resilience in terms of future take-up, albeit with rental growth moderating in line with slower economic activity in the short term due to the tariff uncertainty. We do not expect any major inward yield shift in the sector, meaning rental growth and active asset management will be the key drivers for investor returns. Forecasted 2025-29 returns for the European prime logistics sector are 7.9 percent p.a, making it the second most attractive sector behind prime offices, with CEE and UK being the most compelling at 10.9 percent and 10.4 percent, respectively.”
Highlights:
Despite the most recent reductions and pauses, tariffs triggered a spike in trade policy uncertainty. This is expected to push up supply chain pressures. European logistics occupiers are likely to further deepen their operational focus from just-in-time to just-in-case to ensure continuity. This might trigger a higher demand for logistics space.
Vulnerability to new US tariffs is limited for core Europe. Based on the Oxford Economics’ global industry tariff vulnerability index we expect Ireland, Switzerland, CEE and Nordic sub-regions to have above average vulnerability.
E-commerce remains a central theme in logistics take-up. However, a closer look at take-up confirms a broader-based support for take-up across sectors, as shown below. This diversified base of logistics space users should offer resilience in future take-up regardless of the ultimate impact of tariffs.
Our prime 2025-29 rental growth forecasts of 1.9 percent p.a. across our 37 covered European logistics markets are down due to slower economic growth, weaker take up and higher vacancy rates. As new supply is expected to moderate, the year-end 2024 European average vacancy rate of 5.1 percent is projected to come down gradually to 3.7 percent by 2029.
As in other sectors, higher interest rates pushed prime logistics yields from 3.7 percent to 5.3 percent. After the 2022-24 repricings and our revised base case with less bond yield tightening, prime logistics yields across all markets are expected to move in by only 30 bps by 2029. This means current income and rental growth will be key for returns.
As a result, total returns across European logistics markets are estimated at 7.9 percent p.a. for 2025-29 in our Mar-25 base case, making it the second most attractive sector after offices. CEE and UK logistics markets are expected to have the highest total returns at 10.9 percent p.a. and 10.4 percent p.a., respectively.
Despite a recent pause, manager sentiment towards logistics has steadily improved since 2022. Logistics volumes are expected to increase to €50 billion in 2025, up 19 percent from 2024 levels. At 23 percent of cross-sector 2024 volumes, logistics realised the highest share of total volumes on record.
