European Logistics Outlook 2026

The outlook across occupier markets is mixed but resilient, with manufacturing conditions varied, retail sales volumes forecast to return to positive growth in 2026, and continued momentum in ecommerce supporting demand. A broad-based occupier profile across retail, distribution and manufacturing, underpinned by powerful structural drivers such as supply chain modernisation and ESG adoption, continues to sustain demand for modern logistics facilities.

While economic risks remain, the overall trajectory of monetary policy remains broadly supportive. At the same time, investor sentiment remains positive, supported by robust liquidity and renewed transaction activity, with logistics maintaining a strong share of capital allocations.

Liquidity is improving but prudent asset selection will remain key

Transaction volumes in the first three quarters of 2025 are down 6% year on year and down 5% when compared with the ten-year average. However, they are 12% higher than in 2023 and higher than any pre-pandemic year on record, underscoring both liquidity and ongoing investor confidence.

MSCI’s Quarterly Index data show logistics as the second-best-performing major property type over the 12 months to September 2025, with total returns of 7.7%, closely behind retail (8.0%). Highlighting the continued resilience of the sector, Capital Economics forecasts the industrial sector to see returns outpacing those of offices and retail in the Eurozone over the next five years.

Our prime yield data suggest stabilisation across most markets, with some signs of compression in select locations, including the core Spanish markets. Prime yields are expected to remain broadly stable throughout 2026, with limited compression forecast across the core markets. Across 26 core markets, Capital Economics forecasts only modest compression to 2029, from an average of 5.26% in Q3 2025 to 5.17% in 2029.

Heightened entry yields and steady rental growth will remain central pillars underpinning asset performance through 2026, thereby increasing the need for prudent market and asset selection.

While there remains some ambiguity around pricing, as indicated by valuation gaps in the REIT market where asset values remain above trading prices, the recent repricing has created a compelling window for capital deployment.

Favourable supply and demand dynamics will support rental growth

Vacancy rates have increased over the past year, from an average of 5.2% to 6.5% in Q3 2025.

Rather than reflecting a systemic oversupply, these elevated vacancy rates represent a temporary spike, driven by limited cases of over-expansion or development indigestion in markets where development activity peaked around 2021/22.

Despite the uptick, vacancy rates remain low enough to support rental growth. In core hubs such as Germany and the Netherlands, vacancy rates remain particularly tight, underscoring the depth of demand and limited supply in established locations.

Belgium, the Netherlands and Germany all face relatively tight (sub-6%) vacancy rates, alongside limited speculative development pipelines, offering potential for stronger rental growth. While higher vacancy rates can be found in markets including Spain, Poland, France and the UK (c.6–9%), these markets are also facing restricted volumes of new space under speculative development.

Speculative development activity has cooled across Europe due to tighter financing conditions, uncertainty around pricing and a softening in occupier demand.

Meanwhile, demand is becoming increasingly focused on modern, high-specification facilities that offer enhanced operational efficiencies, accommodate automation equipment and support firms’ ESG and sustainability objectives. This has resulted in a bifurcation in asset performance: vacancy rates remain markedly higher for older, secondary stock, while a limited pipeline of new development should support rental growth for modern, well-specified facilities.

Capital Economics forecasts prime rental growth averaging 3.6% CAGR across the 26 core markets over the next five years, although there is significant variation between markets.

Demand from new ecommerce platforms

Online retail sales have grown significantly over the past fifteen years, and ecommerce growth has been a key driver of the industrial sector’s outperformance over this period.

Forrester forecasts online sales across the UK, Germany, France, Italy and Spain to reach €565 billion in 2029, accounting for nearly 21% of total retail sales. This represents a substantial increase from €389 billion in 2024.

As previous research demonstrates, each €1 billion of online sales requires approximately 108,000 sq m of warehouse space. If this relationship holds, the additional €176 billion in annual sales by 2029 will require approximately 19 million sq m of additional floorspace. However, automation is improving operational efficiencies and rising clear heights are boosting buildings’ cubic capacity. These factors may moderate total floorspace requirements needed to support future ecommerce growth.

Forrester’s forecast notes that two-thirds of ecommerce growth in the Europe-5 markets will come from increased online spending per buyer, while one-third will be driven by population growth. Marketplace-driven cross-border ecommerce and the growing market presence of Chinese ecommerce platforms such as AliExpress, SHEIN and Temu in Europe will also contribute to growth.

JD.com is positioning Europe as a key market within its global growth strategy. Its Joybuy platform has launched in the UK, France and Germany, targeting Amazon-style same- and next-day delivery. JD has already secured several large sites across the UK and the Continent, with further acquisitions expected in 2026 and beyond. As it expands beyond these initial markets, the company will need to scale both its fulfilment facilities and last-mile delivery networks.

Chinese ecommerce new entrants bring new operational requirements, while increased competition may add a new dimension to the European ecommerce market. This could lead to an arms race, as established firms compete to scale operations, improve cost efficiencies and modernise supply chain infrastructure.

Ecommerce growth remains a powerful structural driver of occupier demand and continues to underpin investor confidence in the sector. Sustained growth in online sales volumes, combined with new market entrants, should continue to support demand for ecommerce fulfilment facilities, particularly well-located assets in Benelux, northern Germany, Poland and the UK.

Defence budgets on the rise

The ongoing war in Ukraine, combined with rising geopolitical tensions and increased threats to critical infrastructure, is driving a renewed focus on defence and security across Europe. Defence expenditure has almost doubled in nominal terms over the past five years, or increased by 63% on an inflation-adjusted basis. Defence budgets for 2026 indicate this trend is set to continue.

Germany’s planned defence budget for 2026 is €108.2 billion, up from €86 billion in 2025. In France, defence spending is set to increase by €3.5 billion in 2026 to €53.7 billion, rising further to €56.9 billion in 2027. Meanwhile, Poland has approved a draft budget raising defence spending to 4.8% of GDP, or €46.9 billion (approximately PLN 200 billion).

Across Europe, the focus has shifted towards developing critical technologies and defence capabilities, strengthening the European arms industry and reducing reliance on non-EU suppliers. Rising defence budgets, alongside strategies prioritising local procurement, are expected to support manufacturing and related R&D activity within Europe.

Trade policies will continue to support nearshoring

The EU’s rules of origin, used to determine whether goods qualify as EU-made for preferential tariff treatment, are becoming increasingly stringent, particularly for electric vehicle batteries, with higher local value-added requirements and more processing required within the EU or its trade partners. This tightening regulatory framework is accelerating nearshoring and foreign direct investment, as manufacturers seek to safeguard market access. Chinese firms, in particular, are expanding or relocating production into Central and Eastern Europe to meet EU origin thresholds, mitigate tariff exposure and establish compliant local supply chains.

Chinese foreign direct investment is increasingly targeting European markets, most notably Hungary, particularly in electric vehicles and battery manufacturing. Hungary offers a favourable political environment, generous state subsidies, lower labour costs than Western Europe, a stable energy supply and serves as China’s strategic gateway to the EU market. This enables firms to bypass tariffs while building local supply chains. Key players such as CATL and BYD are developing major facilities, positioning Hungary as a leading EU destination for Chinese capital.

These developments are reinforcing demand for industrial land, logistics space and broader supply chain infrastructure. As production is reshored, large-scale manufacturing facilities must be supported by suppliers, logistics assets and distribution networks. This trend is particularly evident in Central and Eastern Europe, where manufacturers are building fully integrated local supply chains to enhance resilience and secure long-term market access.

The EU’s planned abolition of the de minimis threshold in 2028, removing customs duty exemptions for parcels valued below €150, is unlikely to drive changes in manufacturing, given its focus on lower-value goods. However, it is expected to further encourage supply chain localisation. Bulk shipping into Europe, followed by local fulfilment, will become increasingly attractive, supporting additional demand for fulfilment facilities.

Conclusion

Looking ahead to 2026 and beyond, the European logistics sector is underpinned by supportive structural, cyclical and policy-driven forces. While macroeconomic risks and pricing uncertainty persist, improving liquidity, stabilising yields and steady rental growth continue to reinforce the sector’s defensive and income-led appeal.

Occupier demand is being driven not only by the continued expansion of ecommerce and the entry of new global platforms, but also by rising defence investment, nearshoring trends and tighter trade regulations that are reshaping European supply chains.

Together, these forces are strengthening demand for modern, well-located logistics and industrial assets, particularly those aligned with automation, ESG standards and last-mile delivery requirements. As a result, opportunities remain compelling for investors able to combine prudent market selection with a focus on high-quality, future-proofed assets.