The investment case for European manufacturing real estate

MANUFACTURING AS A GROWTH ENGINE

European manufacturing is entering a new growth phase, driven by structural shifts in technology, energy transition, and supply-chain reconfiguration. Oxford Economics forecasts 14.7% growth in manufacturing GVA across the Eurozone over the next decade, led by high-value sectors such as pharmaceuticals and biotech, aerospace and defence, advanced manufacturing, EVs, and net-zero supply chain production. These subsectors are increasingly shaping demand for modern, power-ready industrial and R&D facilities across key European corridors.

Some near-term challenges and threats to growth exist, with economic conditions, inflation and global trade disruptions are having an impact on the short-term prospects for some manufacturing subsectors. However, the manufacturing sector requires a long-term view. Firms invest heavily in their operations for the long term, and investors must match these time horizons.

RENTAL GROWTH AND A “STICKY” TENANT BASE

Rental growth in the manufacturing and production sector has closely tracked that of warehousing and logistics, consistently outperforming the all-sector average. According to MSCI’s Quarterly European Index, rents rose by 5.3% in the year to June 2025, and has averaged 5.0% per annum over the past decade. This compares with a ten-year average of 2.1% across all sectors and 4.9% in warehouse and distribution.

Manufacturing real estate benefits from a “sticky” occupier base, as tenants typically invest heavily in bespoke facilities, equipment, and local workforces. These long-term operational commitments translate into longer leases, lower churn, and a more stable income stream for landlords. The capital intensity of these operations also supports index-linked or fixed-uplift leases, providing predictable, inflation-protected returns.

SALE-AND-LEASEBACK OPPORTUNITIES

Rising capital costs and tightening debt markets are prompting some manufacturers to unlock liquidity through sale-and-leaseback transactions. This trend is particularly evident among automotive, aerospace, and engineering occupiers in Germany, Central Europe, France, and Italy.

Sale-and-leasebacks accounted for c.5% of all production and R&D transactions in early 2025, maintaining a significant share despite reduced overall deal volume. With manufacturing firms typically facing weighted average costs of capital exceeding 12%, leasebacks at 7–8% yields are accretive to cashflow, providing capital to fund an expansion or pivoting of operations, automation, or equipment upgrades.

Upcoming debt maturities and refinancing pressures are expected to fuel further deal flow, particularly in the EV supply chain and defence industries. For investors, these arrangements provide long, contracted income streams with tenants reaffirming their commitment to their site and operations, ideal for core and core-plus net lease strategies.

ALIGNMENT WITH TRIPLE-NET AND LONG-INCOME STRATEGIES

Manufacturing real estate aligns closely with triple-net lease or long-income strategies, offering:

• Predictable, inflation-linked rental growth
• Minimal landlord capex, as tenants maintain and invest in their facilities
• Strong credit covenants from established manufacturers in strategic sectors
• Lower vacancy risk due to bespoke fit-outs and tenant investment

This structure appeals to a growing pool of institutional and private investors seeking bond-like income in an environment of elevated interest rates and volatile equity markets.

STRATEGIC GEOGRAPHY AND DEVELOPMENT OUTLOOK

Investment opportunities cluster in Europe’s key manufacturing corridors:
Germany – Bavaria, Baden-Württemberg, Saxony (EVs, electronics, defence)
France – Toulouse–Nantes–Atlantic (aerospace, renewables, defence)
CEE – Poland, Czechia, Hungary (automotive, batteries, advanced components)
Iberia & Benelux – Energy-intensive and green hydrogen production, leveraging lower power costs and port access

Beyond core acquisitions, value-add and development plays exist in port-linked, grid-ready, or brownfield sites where modernisation and ESG upgrades can drive tenant demand.

CONCLUSION

Europe’s manufacturing real estate market offers a compelling blend of growth, resilience, and long-term income potential. Structural industrial growth, nearshoring trends, and policy support are driving new demand, while sale-and-leaseback dynamics and long leases present attractive entry points for investors pursuing triple-net and long-income strategies.

With rental growth mirroring logistics but with a more embedded occupier base, the sector provides a defensive yet scalable opportunity for investors seeking predictable returns and exposure to Europe’s reindustrialisation story.