Germany’s Bundestag on Mar 18 voted in favour of a significant fiscal package, which includes a €500 billion infrastructure and climate fund, and a broadening of the security-related issues exempted from the debt brake rule.
This move aligns with the broader European trend, as several countries, including France and the UK, ramp up infrastructure and defence spending in response to geopolitical tensions, energy security concerns, and the green transition. With Russia’s ongoing war in Ukraine and rising global competition in clean energy and technology, European governments are prioritising resilience and economic security.
These priorities and policies signal a wave of public spending that will drive growth in defence, renewable energy, transport, digital infrastructure sectors, and consequently the European capital markets.
Investors increasing allocation to Europe
The latest Investment Intentions Survey, conducted in conjunction with the European Association and Asian Association for Investors in Non-Listed Real Estate Vehicles and the Pension Real Estate Association, highlights a growing trend among institutional investors towards increasing their exposure to European real estate. According to the survey, allocation to European real estate is expected to grow 130 basis points in the next two years to reach close to 30%, up from 16% in 2024.
Similarly, Bank of America’s March survey reports a 27-percentage point increase in allocations to Eurozone stocks, the highest since July 2021, reflecting renewed confidence in the region’s economic prospects.
European REITs rebound after years of underperformance
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The listed real estate sector in Europe continues to gain momentum, with strong investor appetite for logistics and industrial assets. The FTSE EPRA Nareit Developed Europe Index, which tracks the performance of over 350 constituents comprising listed real estate companies and real estate investment trusts (REITs) globally, was up 2.8% year-to-date, driven by retail and industrial sector returns of 7.1% and 5.5%, respectively. Industrial and logistics REITs in Europe are still trading at a discount of about 10% to their net asset value, presenting attractive entry points for investors seeking potential upside.
With investor capital allocation to Europe rising and European REITs outperforming, 2025 is emerging as a pivotal year for European logistics investment.
Tailwinds for European logistics
Savills highlighted several macroeconomic and structural tailwinds that underpin the demand for European logistics in its latest European Logistics Outlook.
Firstly, demographic shifts and evolving consumer behaviour are fuelling the growth of e-commerce. As online shopping grows, so does the need for strategically located warehouse and distribution facilities to meet increasing delivery expectations.
Secondly, companies are actively restructuring and diversifying their supply chains in response to past disruptions, such as the Covid-19 pandemic and geopolitical tensions. This shift is boosting demand for logistics hubs across Europe, particularly in key transport corridors and nearshoring locations.
Investor confidence in the sector remains strong, evidenced by a 14% year-on-year increase in investment volumes, reaching €37.9 billion in 2024. This growth signals renewed institutional interest and a commitment to long-term capital deployment in European logistics.
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Lastly, market fundamentals remain robust, with declining vacancy rates in the latter half of 2024 and a slight decline in prime yields in Q4. This trend underscores sustained occupier demand and continued rental growth potential, reinforcing the sector’s attractiveness.
Attractive investment opportunities in European logistics
Well-connected logistics parks
The expansion of logistics hubs is creating opportunities in regional distribution centres, which are benefiting from nearshoring and the rise of e-commerce. As demand for faster and more efficient delivery services grows, strategically located hubs are becoming increasingly valuable assets. Investors looking to capitalise on this trend should consider well-connected logistics parks in key European transport corridors.
Smart warehouses
Automation, robotics, and AI-driven logistics solutions are enhancing operational efficiencies and reducing long-term costs. Warehouses with integrated smart systems, real-time inventory tracking, and AI-powered distribution networks are attracting strong institutional interest due to their ability to improve supply chain resilience and performance.
ESG-compliant logistics properties
The development of green warehouses, equipped with solar panels, energy-efficient insulation, and electric vehicle charging facilities, is gaining traction. Investors are increasingly seeking ESG-compliant assets that align with Europe’s decarbonisation goals. As regulatory pressures mount and corporate sustainability initiatives expand, environmentally friendly logistics properties are expected to yield stable, long-term returns.
In conclusion, with capital flows increasing towards European real estate and logistics infrastructure poised for strong growth, 2025 represents a strategic window for investors to capitalise on long-term opportunities. Strong macroeconomic conditions, supply chain diversification, and rising investor confidence are aligning to make Europe an attractive destination for logistics investment.
For investors seeking resilience and stable returns, the European logistics sector presents a well-supported and compelling case for investment.
The writer is chief executive officer and executive director at Stoneweg European REIT
