There is plenty of optimism in the UK industrial and logistics sector, with interest rates coming down and green shoots beginning to emerge. As debt markets continue to open, it is set to prompt further growth throughout the remainder of 2025. This opportunity is not without challenges, however – including lingering economic uncertainty, choosing the right investments, and stubborn vacancy rates in some areas.
Below, we pick out five key issues facing the UK industrial and logistics sector
Economic uncertainty
In recent months, US President Donald Trump has introduced a raft of import tariffs that have upended global trade conventions and prompted significant market turmoil. The uncertainty has hit consumer confidence (opens a new window) in the UK and EU, despite limited US imports from these jurisdictions. Certain sectors – such as retail – are likely to feel a disproportionate impact. Against the backdrop of a recovering economy, this could add disinflationary pressure, increasing the likelihood of future interest rate cuts.
The consequences for industrial and logistics are likely to be mixed. In the absence of stability, some occupiers may be tempted to pause decision making, hindering take-up of vacant units. On the other hand, uncertainty encourages stockpiling; with future trade relations becoming harder to predict, this could translate into a so-called ‘V-shaped’ take-up response, reminiscent of the spike in trading volume preceding key Brexit deadlines.
As occupiers seek to reduce their exposure to US volatility, they may also turn to alternative markets, including China. This could prompt an acceleration of Chinese expansion into the UK and EU, driving fresh demand for storage facilities. Indeed, certain market participants are already observing a re-stabilisation, with take-up of excess supply from previous years helping to drive rental growth.
A tricky development pipeline
A slow development pipeline continues to trouble the UK industrial and logistics market. Savills reports that speculative development announcements (opens a new window) have slowed, approaching pre-pandemic levels. High interest rates, inflation, and geopolitical challenges are some of the factors deterring potential investors.
As a result, many investors and developers are taking a cautious approach, waiting for signs of improvement before committing to new space, and holding on to existing space for as long as possible. Others are targeting existing stock, with expensive fitouts proving a more reliable way to hit return targets. This can be a quicker solution, too: after leasing, it can take up to two years for a new development to come online.
In London, developments are still likely to perform well in the medium-term, with certain areas still struggling from undersupply.
The prime vs. secondary market dilemma
Real estate company Savills recently reported a growing gap between prime and secondary rents (opens a new window) in the industrial and logistics sector. Between 2015-2024, prime rents saw growth of 69%, reaching £11 per sq. ft. This compares to just 54% growth for secondary rents, to £8.60.
There is a big reason for this: ESG. Driven by regulatory and consumer pressure, the race to net zero is a rising concern among occupiers. This is driving demand for prime, best-in-class industrial and logistics space. Occupier concerns include the carbon intensity of buildings, and access to a renewable energy supply. For investors, ability to satisfy these requirements can be a major asset.
But premium isn’t always better. Cost pressures are forcing a growing number of occupiers to reassess their needs, with many drawn to the lower rents on offer in the secondary market. Such is the case for urban infill assets – hard to refurbish, and therefore less likely to offer the highest ESG credentials. Yet, these units are proving popular – consistent with a broader trend, in which pockets of the market are seeing cheaper stock leased at a faster rate.
Regional discrepancies
Demand for industrial and logistics space is steadily rising across the UK. According to the Savills Requirements Index, Q1 2025 saw a continued rise in requirements – following an 11.3% rise (opens a new window) in Q4 2024. The number of available units remains stable, except for the 300-400k sq. ft size band, where there is significant oversupply. This reflects several factors, including the legacy impacts of Brexit-related onshoring, the growth in demand for new forms of development, including data centre and purpose-built residential schemes, and the rise of ecommerce.
London remains a unique case study. Without room for larger developments exceeding 500k sq. ft, the capital is heavily undersupplied at the big box level. However, London remains lucrative for investors in smaller sites, within significant undersupply and strong demand. Meanwhile, industry in the South East and South West is likely to profit most from the UK Government’s plans to increase defence spending (opens a new window).
There is also growing divergence between UK and EU markets. For investors, this is principally a matter of interest rates. In June, the European Central Bank cut the bloc’s interest rate to 2% - less than half that of the UK’s 4.25%, set in May. But some differences run deeper. France, for example, boasts stronger occupation rates than those in the UK. Meanwhile, EU governments continue to show strong support for building new assets, exerting positive pressure on real estate yields.
The risk of vacant properties
Vacancy is a growing problem for the industrial and logistic market in the UK. The vacancy rate exceeded 7.5% in 2025 – the fourth year of successive increase, according to Savills. This coincides with rising supply, which the figure of 63.4m sq. ft of total supply not seen since the wake of the 2007 global financial crisis.
For investors, the problem of vacancies goes beyond simple missed profits. Vacant properties carry greater risks: including a higher frequency of unauthorised access, fly tipping, and vandalism. Should fire or escape of water occur, they can be harder to identify without personnel on site – a fact that underlines the benefit of having even some units occupied, if others remain vacant. Vacant properties also bring additional costs. If damage is suffered, fixing it can take time. New tenants looking to reoccupy the site may face delays in doing so, further hindering profits. Meanwhile, labour costs for on-site security can be expensive, especially for large-scale assets.
Despite this, there are signs of optimism, with rental growth continuing to outperform historic vacancy trends. And while higher vacancy rates will inevitably hit profits, the market has a long way to grow before rental growth turns negative.
For more information, reach out to a member of our team.
Further insights are available via our Real Estate (opens a new window) page.
Some of the contents of this article were originally delivered in a seminar entitled ‘The road ahead: what to expect in the industrial and logistics market in the next 12 months?’ The seminar was hosted by Lockton on Wednesday 04 June 2025.
