As capital value growth returns, underlying occupier demand by sector and by city is going to re-emerge as a performance driver. One sector where the opportunity set is expected to grow further is logistics, where the demand story took a hit in 2023, but our indicator points to a broad and sustained pick up in occupier demand in 2024 and 2025 on the back of supply chain restructuring and expansion of online capacities among e-commerce players and traditional retailers (Exhibit 1).

Similarly, the rise in digitalization is also driving demand for physical data center space on the back of growing needs linked to such factors as AI adoption, streaming and cloud computing - despite rising efficiency in the sector that partially reduces demand for physical data center space. Forecasts point to a significant data center supply shortfall across Europe's major markets, linked to constraints around land and power availability (Exhibit 1), which opens up opportunities to develop new stock with the right operating partner that is able to help overcome supply constraints.

At the same time as sector differences are playing out, geographical diversification is becoming more important again. In the years before the downturn, low interest rates and moderate economic growth across Europe had led to relatively uniform performance across cities at lower absolute return levels (Exhibit 2).

In 2023, as values fell in adjustment to rising rates and faltering economic growth, differences in city performance increased significantly back to levels recorded pre-2015. As uncertainty around occupier market performance persists going into the next upswing, relative returns across European cities will vary significantly and opportunities will arise more selectively in pockets of growth by city.