Exclusive: European logistics development faces ‘squeeze point’, GARBE warns

European logistics development could reach a “squeeze point” as high land, construction and financing costs make new projects increasingly difficult to deliver at rents the market can support, according to GARBE Industrial.

A further decline in new logistics construction could ultimately leave the market short of suitable space and trigger stronger rental growth than currently forecast, Tobias Kassner, head of research and member of the executive board at GARBE Industrial, told a GARBE PYRAMID 2026 webinar on 3 September organised in association with Real Asset Media.

Data presented by GARBE, drawing on Savills and other market sources, shows that European logistics take-up has stabilised while new-build activity has continued to fall. Logistics space under construction declined from around 23 million sq m in 2021 to around 14 million sq m in 2026, while vacancy appears to have passed its peak.

Kassner said take-up in the first half of 2026 compared favourably with the previous year, although volumes remained below the exceptional levels reached at the peak of the last cycle. Annual take-up returning to between 25 million and 30 million sq m would represent a stable market, he added.

Separately, CBRE data presented by GARBE shows that take-up exceeded new supply in the second quarter of 2026 for the first time since 2022, with net completions minus net absorption turning negative.

“Since the take-up is stable and the construction pipeline is drying up, it looks like this will continue to be in place,” Kassner said.

GARBE used Hamburg as a worked example to highlight the gap between development costs and achievable rents. In the Hamburg model, land costs amount to €800 per sq m of buildable area and construction costs €625 per sq m, while soft costs, financing, contingencies and tenant incentives add €160 per sq m. That produces a total development cost of €1,585 per sq m.

GARBE calculates an achievable effective rent of €8.46 per sq m, compared with the €9.43 per sq m required to make development viable including the necessary risk premium. The resulting shortfall is around 10%, giving the Hamburg model a coverage ratio of around 90%.

“So, the required rent for new build development is often not viable anymore,” Kassner said.

He added that in many markets the rent required to make a project viable exceeds what can currently be achieved, even after allowing for forecast rental growth.

GARBE cautioned that the Hamburg calculation is a model and that land costs and rents vary by location, meaning it cannot be concluded that development is unprofitable across the market. However, it said undercoverage identified across many markets highlights the challenges facing logistics development. If the gap persists, Kassner expects development activity to fall further.

“As long as this shortfall is in place and there’s no correction being seen, we will see at some point in the future a point, we call it the squeeze point, where the new build activity will even drop more than we’re already seeing because the threshold we need for the rental level is not sufficient anymore,” he said.

If neither costs nor rents adjust sufficiently to restore development viability, he said new-build activity will continue to decline, tightening the supply of logistics space.

GARBE currently forecasts relatively moderate rental growth over the next five years. Prime logistics rents are forecast to increase by 11.78% in the UK between the second quarter of 2026 and the second quarter of 2031 and by 10.16% in Germany. Austria is forecast to rise 10.17%, Spain 9.59% and the Netherlands 8.94%.

A more severe shortage of new supply, however, creates upside risk to those forecasts.

“Based on the demand side, this could lead to a bigger surge in rental levels than we are forecasting right now,” Kassner said.

GARBE sees another possible path in which lower costs or higher rents restore development viability. Otherwise, reduced new supply could increase competition for existing stock and push up rents.

It stressed that the squeeze-point analysis highlights a possible scenario rather than a firm forecast. However, stable demand, declining construction and the gap between achievable and required rents highlight the growing constraints on new logistics development.