Commercial Quarterly Examiner – industrial market update Q1 2025

The main driver of growth for industrial and logistics property has been demand from operators
servicing consumers increasing use of online shopping.

Before Covid, internet sales represented 19.8% of all retailing in the UK. This grew to 37.5% during the second lockdown in early 2022. At the end of Q1 the internet accounts for 26.8% of retail sales. A situation
that has been stable for at least the last two years.

The industrial market is segmented between Logistics being 50,000+ sf of warehouse space; smaller Light Industrial units for local distribution, and smaller scale manufacturing and repair workshops; and Specialised space
for large scale manufacturing, R&D, Cold Storage and data centres. Most of the UK’s stock of industrial space belongs to the logistics segment (66%) whilst 26% is Specialised and less than 10% Light Industrial.

Occupational view
Availability of Logistics stock to let increased across the South East and Rest of the UK in Q1 2025 but fell slightly in London. Across the UK the take-up of all industrial space increased quarter-on quarter in Q4 2024 by 5.1%. However, the demand for logistics space fell by-2.3% to 13.8 million sf. In Q1 2025 preliminary figures suggest that the takeup
of logistics space decreased by -31.3% to 9.5 million sf. The increased demand for green buildings with an A or A+ EPC rating from operators and a fall in the availability of such stock has created a “bottleneck” in the
occupier market.

In the year to March, market rental values have grown by more than 5% in London and & 5% in the South East. Across the Big 6 regional centres rental values increased by 5.6% y-on-y with growth peaking in Leeds at 7.9% and Bristol at 6.7%.

Logistics occupiers leased 54 million sf of space in the year to March. There was 13.4 million sf of space representing 25% of total take-up let in the Logistics Triangle centred on the West Midlands and within a four-hour drive of 90% of the British population.

The amount of space under construction decreased by 6.5% in Q1 2025 to 37.7 million sf from 40.3 million sf in the last quarter of 2024. Northampton, where 6.3 million sf of space representing 16.6% of total construction activity, remains the centre of development activity. Many of the largest schemes under construction have been pre-let including Lidl’s Distribution Centre in Belvedere and Microsoft’s 9.5 acre three storey data centre facility in Park Royal. Microsoft are also working with the Harworth Group on the re-development of a former coal fired power station site at Skelton Grange, Leeds which will provide a further 800,000 sf data centre.

Investment view
The South East and Big 6 regional cities outperformed other segments of the industrial investment market including London in the year to March as total returns reached 13.2%. Manchester industrial increased to 15.4% in Q1 2025 from 14.3% in Q4 2024.

Industrial investment volumes increased q-on-q in Q4 2024 by 47.0% to £1.1 billion. However, preliminary estimates indicate that investment decreased to £573 million in Q1 2025 under shooting the ten year quarterly
average of £7666.7 million.

London attracted the largest slice of inward investment in the year to March amounting to £1.8 billion. This was more than three times the amount of money targeted at Northampton, the next most popular centre
for investors.

In January 2025, Valor Real Estate Partners and QuadReal Property Group acquired Tesco’s last-mile distribution centre at Dolphin Park in Purfleet, Essex, for approximately £130 million. This 630,000 sf facility is leased to Tesco
with nine years remaining on the lease. Strategically located near the M25 corridor, Dartford Crossing, and major ports like Tilbury and London Gateway, the centre serves as a crucial hub for Tesco’s food supply chain, supporting around 550 stores across London and the southeast. The facility operates 24/7, handling approximately 800 truck movements daily and employing about 1,200 staff. This transaction represents the largest single-let last-mile logistics deal in the UK since 2022.

In February 2025, Tritax Big Box REIT acquired the 650,000 sf Sainsbury’s distribution centre in Haydock, Merseyside, for £75 million in an off-market transaction. The deal reflects a net initial yield of 6.0%. Strategically located near Junction 23 of the M6, between Liverpool and Manchester, the cross-dock facility features both chilled and ambient storage spaces. It is currently leased to Sainsbury’s until 2038, with an uncapped Retail Price Index (RPI) rent review scheduled for 2028.