Logistics

January 2025 Forecast

Stable occupier demand

With a stable economic backdrop, we expect occupier activity in 2025 to remain consistent with the levels seen in 2024. The retail sector will likely be particularly active with upgrading assets to enhance operations. Given steady occupier demand and reductions to the development pipeline, the UK vacancy rate will continue to stabilise throughout 2025.

Mid-year review

• Industrial and logistics demand has been steady throughout the first half of the year, with the e-commerce penetration rate returning to its pre-pandemic trend level. Demand from retail occupiers has remained strong this year, contributing 31% of take-up in the 12-months to Q2 2025. We anticipate take-up will remain steady throughout H2 2025, with 9.9m sq ft of space under offer in the UK.
• The UK vacancy rate increased in the first quarter of the year, due to rising secondhand availability. This comes as occupiers look to consolidate their real estate footprint into prime locations and assets. Speculative space under construction is expected to fall in H2, due to a high level of completions. As a result, it is likely the vacancy rate will increase throughout the remainder of the year, as this new space becomes ready to occupy.

January 2025 Forecast

Continued rental growth, albeit at a slower rate

Prime rents will continue to grow, albeit at a more modest pace than seen in recent years. However, incentive packages may also grow given the amount of available stock in the market. The trend of flight to quality is expected to continue as caution surrounding assets’ obsolescence grows.

Mid-year review

• In line with expectations, prime rental performance across the UK is still positive, but is segmented across the regions and more modest than previous years. Rental growth throughout H1 2025 was strongest in the northern regions of the UK, however prime rents increased year-on-year across all regions except the Inner South East.
• Headline prime rents are expected to continue growing throughout the remainder of the year across all UK regions as take-up stabilises to normalised post-pandemic levels. However, as the amount of available space has risen, there has also been a rise in incentives in most regions.

January 2025 Forecast

Increased investment volumes

Investment volumes are expected to rise in 2025. Building on a healthy market for smaller assets, there will also be increased demand for larger lot sizes. As a result, yield compression is expected to become more consistent throughout the UK regions.

Mid-year review

• Investment volumes in H1 2025 totalled £2.5bn, which was lower than H1 2024 (£2.7bn), with conditions remaining challenging for investors due to geopolitical uncertainty. Matching our early expectations for larger transactions, portfolio transactions accounted for 46% of volumes in H1, accompanied by some large individual asset sales. However, as more larger lot sizes come to market throughout the year, investors have more options and are likely to be increasingly selective.
• Investment volumes are likely to grow in H2, as industrial and logistics was the preferred sector by investors targeting the UK in 2025, according to our European Investor Intentions Survey. However, as elevated long-term interest rates are forecast, yields are expected to remain stable in 2025, with yield compression to be pushed into next year.

Figure 7: UK logistics take-up, millions sq ft

Figure 8: UK logistics availability, millions sq ft