Global political and economic events over the past 18 months, including conflicts, tariffs and rates decisions, have presented major challenges for businesses.
This includes occupiers of UK warehouses, with strategies being adapted quarter-to-quarter depending on policy. Amid the disruption, however, a handful of well-known occupiers have landed major deals, with supermarkets, ecommerce firms and third-party logistics firms all taking space.
Experts highlight that defence-related firms will also soon become a tailwind for the market, while data centre operators continue their rise to prominence, both promising to add more momentum to the leasing landscape.
With the end of the third quarter approaching, industrial and logistics property experts discuss the major trends of the year and how it is shaping up.
Growing grey space
Grant Lonsdale, CoStar senior director of market analytics, says sector-wide take-up in the UK reached around 32 million square feet in the first half of the year, down 28% from a year earlier and 36% below the five-year first-half average.
He says there are a myriad of factors behind the slowdown, including elevated operating costs, not helped by last year’s Autumn Budget, pervasive economic uncertainty and geopolitical tensions.
Third-party logistics remain the biggest drivers of leasing activity despite cutting back on space overall, with a 37% share of big-box take-up between January and June. GXO's 885,000-square-foot letting at Panattoni's Avonmouth 885 and ID Logistics' 550,000-square-foot deal at Sherburn 500 in Yorkshire, both to service Amazon contracts, were among the largest.
Lonsdale notes that one of the most visible trends of the year so far has been the handing back of space by occupiers. He says: "The national industrial vacancy rate has risen sharply over the past couple of years to stand at 5.5%, its highest level in more than a decade.
"Net absorption has been negative by 22.5 million square feet over the past 12 months, the sector's worst outturn since 2009. Developers have meanwhile added 20.6 million square feet of new stock to the market during the past year, around half of which remained available in mid-2025."
The analyst argues that distribution centre closures by retailers and 3PLs have contributed to the recent softness, with The Range closing a 220,000-square-foot warehouse in Rugby and both GXO and DHL exiting older facilities in a bid to streamline their operations and cut carbon emissions.
A surge in demand from Chinese firms then arrives at a good time, as the likes of JD.com, Supersmart and Top Cloud Logistics are shown to have taken circa 2.1 million square feet in the year to July, in expansionary moves. A number of live requirements mean Chinese retailers may be in line for a record take-up year, Lonsdale argues.
He adds that industrial occupiers will be keep an eye on the politico-economic story in the remaining months of the year as they look to complete deals, with any additional costs caused by any policy changes likely make them "pause for thought", in what could threaten annual take-up levels.
"While expected growth in economic output and retail sales presents upsides to the demand outlook, recent increases to employers' national insurance contributions and the living wage, as well as a hike in business rates for some larger warehouses, are putting additional pressure on occupiers."
Supermarket sweep
Waitrose’s 360,000-square-foot letting of Mountpark Bristol 360 in Avonmouth and Tesco’s 621,000-square-foot deal at Aylesford 750 were two of the larger deals completed by supermarkets in the first half of the year.
Others have since launched significant development projects, with Marks & Spencer confirming last month that it is partnering with Prologis to develop a circa 1.3 million-square-foot national distribution centre.
Tritax Management’s head of research Henry Stratton tells CoStar News that there are two major reasons why supermarkets, which often occupy older warehouses, have been one of the more active tenant groups in the first half of the year.
“One, there is a need to upgrade their building quality standards, particularly around the cold storage element because high-power uses create significant cost, given the energy in this country, and the need to look for more efficient space, purpose-built cold stores in there that is better able to operate for them.
“Secondly, those companies bringing more technology into their supply chains in a way that probably they haven’t done a huge amount of in the past. So, you have a huge number of factors now for the big food operators which is driving them to really evolve their networks.”
Stratton argues labour and power are the key factors influencing the decision making of warehouse occupiers, with Tritax recording high levels of renewals linked to retaining labour. “If we do see further evolution of the electric HGV market, power is going up the radar for a lot of companies,” he says.
Data centres are another type of industrial development that promise to be energy-hungry, with Stratton predicting they will be a major form of land use over the next few years, comparing them with the emergence of film studios a few years ago.
The group itself confirmed during the summer that it had secured a second data centre opportunity, adding to its Manor Farm development in Heathrow, London, where it plans to develop one of the UK's largest data centres.
But he notes data centres don't come without difficultly. "I think there are a number of challenges which will impact the evolution of this sector of the market, the most noticeable of which is obtaining power, and the second one is land constraints.
"It’s another additional user of space, it’s deemed as critical national infrastructure and it’s B8 in terms of planning, which is the same as logistics. So, in the locations where these data centres are needed, it is now a very attractive option if you have the significant levels of power that are required to go with that land application.”
Stratton expects defence-related take-up to increase over the last few months of the year after government announcements to ramp up spending in this area, which is says will potentially involve major third-party logistics and manufacturing firms.
"I think as we go through the rest of the year, the expectation on our side is that we’ll probably see fairly similar levels of overall market activity as we saw last year, up a little bit in the first half.
"There is just under 10 million square feet under offer at the middle of the year, which is a good guide as to what is likely to come over the short-term. That would push us to a low 20 million take-up for the year which would be consistent with where we were last year.!
Chinese influence
“I think we’ve had a really positive first half,” says Richard Evans, Cushman & Wakefield international partner and head of UK logistics and industrial. “Broadly speaking, performance has beaten expectation”.
Evans says the logistics sector has been “waiting for numbers to improve” for the last 18 months following the end of the Covid lettings boom. He says the numbers have now returned to pre-pandemic levels, noting that figures from July and August are “promising and positive”.
“Demand seems healthy, there was a bit of an uptick in supply we saw at the end of our half-year numbers, but equally we saw a record number of buildings being under offer. That would suggest that there isn’t too much concern in that regard.
“There has also been a bit of a downtick in the volume of speculative development that is coming through. Starts on site over the next six to nine months will be relatively conservative and will help to keep the market in balance, clearly rental growth has slowed."
Evans says the agency has been closely monitoring deal velocity, arguing that the emergence of Chinese firms on the UK logistics stage has helped to improve this and add much-needed “impetus” into the market.
He expects Chinese firms to continue to affect UK warehouse take-up in the coming months, either through letting warehouses directly or by 3PLs taking space to carry out contracts for businesses from East Asia.
“The tariff regime that the US have put out over the last four or five months does appear to be having an impact. I do think that a number of Chinese operators will look at Western Europe probably ahead of the US now, which is probably different to what it was 12 months ago.
“It is positive news in terms of new market drivers, it is positive news for our sector in the UK and Western Europe, and it has the potential that we might see a broader spectrum of sector down from East Asia over the medium-term.”
Evans adds that there has been less rowing back of commitments to sustainability from the UK industrial and logistics sector after it was predicted that the country could follow the US' government lead on ESG, which has slipped down the pecking order under Donald Trump.
“It hasn’t impacted on our sector in the UK. When we are talking to businesses, they note the fact that note the bigger picture and it is something that they also feel it is something that will remain important to them in terms of the impact in our sector, in real estate.
“Many are doing it because they believe in and many more doing it because they believe it is important to retain value, it’s critical to retaining value in the investment that they are making in the real estate.”
He adds: "Overall, this year could be another step up on last year and really positive for ongoing sentiment, particularly if we do see further base rate cuts and a bit more geopolitical stability after the seismic shots we’ve had, one after another, over the last four or five years."
Crucial Autumn Budget
According to Robert Taylor, DTRE’s head of research, big-box demand remained resilient during the first half of the year despite uncertainty in the occupier market caused by global politico-economic events, such as tariffs.
He argues that while manufacturers have been busier this year than in recent times, and with increased spending in the defence sector to cone, they are not yet a major driver of deals over 100,000 square feet.
“The biggest deals have been GXO, Iron Mountain… it’s been retailers like M&S, or retailers reorganising supply chains, and it’s been 3PLs, it’s not been manufacturers, everyone keeps hanging their hat on that.
“I think the rest of the year will be similar… in terms of net absorption, I don’t think we are going to see a great move, it’s people going from older, more tired units to newer units and then there will be an overhang of second-hand stock."
He adds that rental growth has cooled from where it was around a year ago, something which he says may force landlords to “take the deal in front of them” during the rest of the year, and points out that there is 60 million square feet of empty UK sheds.
While the DTRE research chief says Trump’s tariffs did create a market reaction, he highlights that plenty of big-box lettings continued to happen during the quarter of ‘Liberation Day’, with demand across investment staying strong too during that time.
He says the next four months could be more testing, with Rachel Reeves set to deliver her Autumn Budget on 26 November. She is widely expected to announce measures that will tackle government debt.
Taylor predicts the late Autumn Budget could act as a handbrake to deals in the final months of the year, which he says are already taking longer, with DTRE data suggesting the average time for a transaction to complete is around 100 days.
He also suggests that the ongoing vendor and purchaser mis-match on pricing could play a role in the number of investment deals that conclude this year, despite a large amount of capital held by investment groups waiting in the wings.
“There is going to be a lot of political noise that is going to be turned up in the background that is going to act as a handbrake or a speed bump to both the occupational and the investment market because what Rachel Reeves does or says.
"By delaying, delaying, delaying that budget, it just gives the investor community another reason to delay. There seemingly isn’t any great pressure on anybody to do deals…and that is where we are at."
Amazon awakens
Jon Strang, managing director of Cain’s European real estate equity team, says the industry felt “pretty good” at the beginning of the year, with momentum returning to the market at the end of 2024 after numerous disruptive global events.
But Strang, like others, notes that ‘Liberation Day’ measures “threw a spanner in the works”, creating uncertainty in the market when recovery was the horizon. “Uncertainty is almost worse than decline," he says. "At least with decline, it's quantifiable… but when there's a big question mark and uncertainty, you just don't know how bad it can be.”
Strang believes competition for warehouse accommodation, despite there being “quite a lot of supply”, will spur on the leasing market in the final months of this year, also flagging the opportunities surrounding Chinese firms, Amazon and the defence sector.
Amazon has already been involved in two of the largest deals in the UK market so far this year in Bristol and Yorkshire, and is understood to be hunting for multiple, additional warehouses in the UK, while also searching in France and Germany.
Strang suggests that Amazon’s re-emergence is an indicator of a sooner-than-expected recovery for the market, which could encourage other companies to take-up warehouse accommodation in the UK.
“That, I think, is a leading factor for everyone else, Amazon moves first and then everyone moves. It is something that we are keeping our eye on, that at some point the rest of the pack comes in and I think it's quite interesting the timing of it, if this wave of demand comes back.”
He adds that events, such as the UK-US trade deal that was agreed in June, could also help to bring back the optimism that was felt in the market during the early months of the year, prompting occupiers to revisit deals.
“Deals that were put on pause, that should have happened in the first half of the year but didn't, [and that were] always going to happen in the second half of the year, are now turning up. You're getting both come at once and hopefully that creates an even greater pressure on that built-up latent demand, and then the demand that was always going to come to in the second half.
"Let's see, maybe that's me just being way too optimistic but, if I look at all of our assets right now, we're in active dialogue on most of them with multiple tenants and that is a world away from six months ago.
"Three months ago, it was looking pretty bleak, now I would say it is looking a lot more positive and I think that the outlook is starting to look up again.”
Emile Poort, co-head of investment management and head of investment management logistics, Patrizia, says occupier demand showed early recovery in the first half of the year, increasing 2% year-on-year, although this was still below long-term averages.
He said demand across Europe was largely for Grade A, ESG-compliant properties with ecommerce growth and supply chain recalibration helping demand to rebound, like experts have seen in the UK.
"Leasing activity proved more resilient than anticipated in the UK and Germany, especially for automation-ready and urban infill stock, while the Netherlands remained more selective," he said.
He adds that the gap between buyer and seller pricing expectations in the logistics sector has narrowed significantly over the past twelve months, putting this down to stabilising interest rates, "giving both sides more confidence".
Poort expects to see continued rental growth in undersupplied urban hubs such as the UK, Germany and Spain during the rest of the year, alongside further yield compression into next year.
"ESG and energy efficiency have become baseline requirements for both occupiers and investors, with increasing attention on assets that can integrate on-site renewables or retrofit potential.
"Occupiers are demanding more tech-enabled, power-intensive facilities due to automation and AI adoption, making proximity to transport nodes and reliable grid access critical. In short, it’s ‘location, location, electrification'."
He adds: "E-commerce growth and logistics provider consolidation are set to continue driving demand, particularly in urban hubs where supply remains tight. While risks remain from geopolitical tensions, tenant decision delays and FX volatility, overall, the market outlook is constructive.
Daniel Tomaselli, manager, global real estate research, Principal Asset Management, agrees that the industrial market, including the UK, experienced its fair share of challenges and opportunities in the first half of the year, arguing that the sector was the "most exposed to global trade dislocation".
But he argues the logistics sector was resilient, with occupancy levels and leasing activity remaining healthy, while transaction levels recovered some ground compared to the year prior.
Tomaselli adds that conditions for warehouse development have shifted notably over the past year, with the supply pipeline diminishing. "Development activity has slowed across most markets, with total logistics completions falling by around 20% in 2024 - the first annual decline in more than a decade," he says.
"This correction reflects a mix of elevated financing costs, tighter construction regulations, and greater selectivity among developers. Forward-looking indicators point to further moderation.
"Indeed, development starts suggest project deliveries will decline further by the end of 2025. The slowdown is broad-based across warehouse size categories, but the impact is likely to be most pronounced in core logistics hubs, where both land availability and planning constraints are increasingly binding."
Looking ahead to the end of the year, the property research expert says medium-term inflation expectations and falling borrowing costs in Europe provide optimism, along with government pledges to increase fiscal spending for infrastructure and defence projects.
He adds: "Industrial and logistics assets located near major hubs and defence-aerospace clusters should be the primary beneficiary of this shift. Thus, in the absence of external shocks, we expect momentum to improve over the winter and into 2026."
Lacking quality
Businesses renting mid-box industrial units tend to more sensitive to the impact of inflation, labour shortages and funding, according to CoStar's Lonsdale, meaning take-up has been subdued in this area of the market with recent economic and political disruption.
But persistently low levels of speculative development remains a positive for this area of the market, keeping a lid on vacancy. "The median months on market for warehouses of this size stands around seven months, compared with 11 months for big boxes," he says.
"Although void periods have been drifting upwards, they remain below 2019 levels. When units in the best-located urban industrial estates become available, they are often backfilled relatively quickly."
Mark Kelly, head of asset management at urban logistics property specialist Argo Real Estate, says many went into 2025 expecting a much more accretive, improved year, but it has not turned out to be the case.
"There is this kind of impasse, like there is in other sectors, like offices, where occupier demand exists, but a lot of the time, the right occupier for that demand doesn't exist," he adds.
Kelly argues the biggest problem in the urban logistics market is a lack of quality stock for occupiers, prompting occupiers to look in the areas surrounding their usual warehouses. Rising rents have also affected this, but vacancy of land is a major sticking point to the lack of supply, he adds.
"Where people have managed to buy decent chunks of land, because build costs are so expensive, they have turned towards bigger buildings... building possibly one or two mid-boxes. What we see now is that none of this smaller kit is being built, but more mid-boxes."
Kelly stresses the occupier demand is there to warrant development, with occupiers looking for smaller, higher quality units. Strong demand, he says, gives him optimism for the rest of the year.
"Where you have the right-sized product in the right location, and the right quality of product, particularly in today's world with the right ESG standards, that actually there is robust demand and we've not seen any hindrance in terms of getting deals done and getting the rents we want."