European consumer economy defies expectations to help logistics market see 20% rise in take-up against the same period last year
Economic overview
Consumers show resilience to buoy the market… for now
As we head into the second half of the year, there is a feeling that the economy has fared better than expected given the conflict situation in the Middle East.
Yes, it is true that GDP forecasts have been downgraded, and also true that consumer confidence has suffered, but there remain many indicators fundamental to the health of the European logistics market that remain in good health.
The first being unemployment, which across the Eurozone reached a record low in May of 6.2% across the 21 member states. This may go some way to explaining perhaps the most surprising data point of the quarter, which is the resilience of consumer spending. Retail sales are on track to grow moderately in Q2. Part of that is a rise in food sales due to less eating out. But even spending on big-ticket items, such as cars, and discretionary items, are heading for moderate-to-solid gains. This is at odds with the sharp deterioration of consumer confidence in the aftermath of the US-Iran conflict.
Another interesting pattern emerges, which is particularly relevant for the logistics sector, if we look at retail sales volumes rather than retail sales values. Here we can see that, for selected markets, volumes are up 6% from the end of 2023. This suggests that more product is flowing through supply chains, which can only be good for warehouse demand.
As we have always mentioned in these commentaries, the health of the retail sector is crucial to the health of the European logistics market, with roughly two-thirds of occupier demand emanating from that sector in some shape or form.
The logistics sector has also benefitted, most likely due to precautionary inventory building, in terms of business output. This, of course, could also be driven by a stronger-than-expected impetus from the ramp-up in defence spending, which we estimate will have a 37 million sq m positive impact on the market over the next decade.
However, this may all be the calm before the storm. With hostilities between Iran and the US resuming and maritime traffic through the Strait of Hormuz reducing once more, it remains the case that the second half of the year could see a much different story play out.
Given that consumers seemingly chose to see through the conflict, perhaps viewing it as a short-lived problem, the resumption of hostilities is likely to see consumer confidence drop once more.
Consumers may not choose to look the other way this time around, however, as inflationary pressures ramp up in the autumn months, as the rise in energy prices materially starts to impact people as they start to heat their homes during the winter months. Indeed, European natural gas prices rose sharply in July and now exceed the peak reached in the immediate aftermath of the US-Iran conflict.
All of this presents a rather uncertain outlook for how the second half of the year will play out, particularly in relation to the Eurozone base rate, with the ECB particularly concerned about second-round inflation effects emerging later in the year that would require base rates to rise again.
Occupier market
Occupier demand: resilient, but increasingly selective
Across Europe, H1 2026 leasing activity reached 14.01 million sq m, up 20.5% year-on-year (YoY) but 5.3% below the five-year average. This indicates a recovering occupational market, although the more significant message remains one of polarisation rather than broad-based strength. Italy (+56.9% YoY) and Spain (+62.8% YoY) were among the standout performers, supported by manufacturing, nearshoring, and portfolio optimisation, while France rebounded sharply in Q2, with take-up rising 154% quarter-on-quarter (QoQ).
This reflects the broader occupier trends becoming more apparent across Europe. Businesses are prioritising supply-chain resilience over pure cost efficiency, creating demand for nearshoring, friendshoring, defence-related manufacturing, and improved logistics networks. Occupiers are also consolidating portfolios into fewer, larger, and more efficient facilities. This means take-up can stay resilient even when net absorption is more modest, because the market is increasingly driven by strategic network decisions rather than simple expansion.
Recent geopolitical disruptions in the Middle East have further strengthened these trends. Rising fuel, energy, freight, and insurance costs have increased operational uncertainty, causing some manufacturers, retailers, and third-party logistics providers to delay expansion plans, consolidate facilities, or prefer shorter and more flexible leasing agreements. Meanwhile, supply chain disruptions and longer shipping lead times are prompting occupiers to hold more inventory within Europe, diversify sourcing strategies, and shift from "just-in-time" to "just-in-case" supply chains. Consequently, the conflict is affecting the timing, specifications, and geographical distribution of occupier demand more than overall demand volumes, supporting needs for additional warehousing, port-centric facilities, and regional fulfilment hubs.
Performance across the larger markets should be interpreted carefully. The United Kingdom recorded an 8.0% YoY decline in H1 take-up, while the Netherlands (-4.0%) and Romania (-41.5%) also underperformed. By contrast, Germany (+23.3%), the Czech Republic (+13.0%) and Poland (+56.9%) returned to growth. The 12-month rolling take-up across EMEA increased by 31.7% YoY. This indicates that demand has recovered from an exceptional period but remains uneven. Overall, the occupier market stays active; it is just becoming more selective, more cost-conscious, and more focused on quality.
Flight to quality intensifies
This selectivity is most clearly demonstrated in vacancy numbers. By the end of Q2 2026, the EMEA weighted availability rate decreased to 6.7%. However, this conceals a highly fragmented landscape across Europe. Dublin (2.8%) remains notably supply-constrained, while parts of Iberia continue to experience limited availability of suitable stock. In these markets, tenants still face a shortage of modern options, especially where demand is driven by power, labour, automation or ESG considerations.
At the other end of the spectrum, London & the South East (9.0%), Madrid (9.0%), and Budapest (14.8%) are operating with much higher levels of availability. This reflects the legacy impact of speculative development carried out during the post-pandemic expansion cycle, as well as more cautious decision-making by occupiers. However, higher vacancy does not automatically mean occupiers have everything they need. Much of the available space is older, less operationally efficient, and less aligned with evolving corporate requirements.
That distinction is important because it explains why rental growth has slowed but not stopped. The Savills EMEA rental index increased by 0.6% YoY but decreased by 0.3% QoQ, indicating a market that no longer delivers significant rental increases but remains supported by a shortage of top-tier space. Oslo (+9.8%), Dublin (+7.4%), Frankfurt (+7.3%), Munich (+7.1%), Rome (+5.9%), Barcelona (+5.7%), Madrid (+5.4%) and Milan (+4.3%) reported some of the strongest annual gains, while incentives are becoming more relevant in markets with higher availability. The market is therefore becoming more two-tiered: prime, operationally critical buildings retain pricing power, whereas secondary assets face longer vacancies, higher incentives, and increased obsolescence risk.
Today's oversupply could become tomorrow's shortage
The supply story should also be examined from this angle. Although vacancy rates seem high in some markets today, the speculative pipeline is now contracting across much of EMEA. Increased construction costs, more difficult development financing, and weaker occupational prospects have greatly reduced speculative commencements. Apart from a few more active markets, new development increasingly depends on pre-letting or clear build-to-suit demand.
This creates a potential tension for the next phase of the cycle. The market may currently be digesting the last wave of speculative completions, but the reduction in new starts points to a future shortage of Grade A space. As occupiers consolidate into larger, better-located and more energy-efficient buildings, the gap between available space and suitable space is likely to widen. In that sense, the current vacancy is not necessarily a sign of long-term oversupply; it may indicate that Europe has too much of the wrong product and too little of the right one.
Structural demand drivers are expected to continue supporting absorption over the medium term. Nearshoring, defence-related manufacturing, automation, and AI-driven supply chain optimisation are all increasing the operational requirements on logistics real estate. The expanding European defence sector alone could generate significant additional demand for industrial and logistics space in the coming years, much of it specialised and linked to secure manufacturing, testing, storage, and supply chain resilience.
Investors prioritise income and certainty
The investment market is reacting to the same conditions but with an even greater focus on certainty. Industrial and logistics investment volumes have reached EUR 18.7 billion in H1 2026, remaining below the levels seen during the post-pandemic surge. Higher-for-longer interest rates, geopolitical uncertainty, and more expensive debt continue to influence investor behaviour, with capital favouring higher entry yields, secure income, and assets with a clear occupational purpose.
Liquidity has not vanished, but it has narrowed. Core capital remains active, though finite, and focuses on prime assets in the strongest locations. When an asset is sub-prime for multiple reasons – such as leasing risk, ESG shortfalls, weaker locations, or potential obsolescence – pricing adjusts swiftly. This creates a clearer divide between assets that demonstrate long-term relevance and those that require capital expenditure or depend on more optimistic rental growth assumptions.
Income-focused strategies stay the clearest area of activity. Net-lease assets, resilient multi-let estates, and prime logistics portfolios continue to attract demand, while markets offering index-linked leases and lower financing costs remain especially appealing compared to the UK. France was the standout country in H1, with Blackstone's acquisition of Proudreed's French portfolio helping lift volumes to EUR2.9 billion, a 67% YoY increase. More broadly, investors still favour prime assets in core locations, reinforcing the same flight-to-quality trend seen in the occupier market.
Capital markets outlook
Prime logistics yields have remained broadly stable across Europe, with the EMEA average at 5.27% in Q2 2026, just 4 basis points (bps) higher YoY. This suggests that the broad repricing cycle has largely run its course, although individual markets continue to move selectively. Madrid increased by 50 bps YoY to 5.05%, Bucharest by 20 bps to 7.40%, Lille by 35 bps to 5.30%, and the German Big Six by 10 bps to 4.50%. By contrast, markets including Amsterdam, Budapest, Copenhagen, Lisbon, and Warsaw remained unchanged over the quarter.
This is a market characterised by stability rather than compression. Investors are not necessarily waiting for distress, but they are demanding stronger evidence before underwriting growth. Secure income, asset quality, and operational relevance remain the dominant themes. Multi-let strategies continue to attract interest where supply is constrained, and reversionary potential is evident, but secondary risk is being priced more harshly than earlier in the cycle.
Looking ahead, the second half of 2026 is likely to remain selective rather than weak. Occupiers will continue to make strategic network decisions to enhance real estate's resilience, efficiency, or future capability. Investors will continue to deploy capital where income security and asset quality are clear. The European logistics sector thus remains fundamentally supported, but the market is becoming less forgiving. In this cycle phase, the best assets and locations should continue to outperform, while those that are operationally compromised will need to work much harder to attract both occupiers and capital.