Commercial Quarterly Examiner – industrial market update Q2 2025

At the end of Q2 internet sales as a proportion of all retailing increased to 27.2% from 26.8% in Q1.

It has been tracking in a range between 25% and 28% since the end of the last pandemic lockdown in Q1 2022.

E-commerce sales represent 19.5% of the worldwide retail market. Although e-commerce currently represents 47% of the Chinese market, it accounts for 16% of US retail sales and 14% in France and Germany. The UK is a mature e-commerce market where internet sales penetration has plateaued. Consequently, the demand for logistics space in the UK has stabilised and future growth will either be organic or driven by the need to modernise supply chains.

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

• The development pipeline has been declining as construction costs increase.
• The uptake of logistics space is decreasing due to a mismatch between the supply of mainly secondary space and the demand from operators for topspec space.

Availability of logistics stock to let has been increasing across London, the South East and Rest of the UK since 2023. In Q2 2025 availability increased by just 0.6% in London but by 5.0% in the Rest of the UK and 9.8% in the South East. Across the UK the take-up of all industrial space decreased quarter-on quarter in Q1 2025 by -11.1%. However, the demand for logistics space fell by a more modest -9.5% to 13.9 million sf. Yet preliminary figures for Q2 suggest take-up was lower again, at 11.8 million sf, down -14.8% quarter-on-quarter.

Agency teams suggest that there is currently a mismatch between a supply of mainly secondary space and the demand from operators for top-rated green buildings with an A or A+ EPC rating. Despite falling take-up, there remains a market for the best specified new space. This is exemplified by Panattoni concluding a lease of an 885,000 sf logistics facility at Panattoni Park Avonmouth to GXO Logistics. The building achieved BREEAM ‘Excellent’ and EPC A ratings and was delivered to Net Zero Carbon standards in construction.

Market rental value (MRV) growth is slowing in London but increasing in the largest centres in the rest of the UK. In the year to June, London MRV growth decreased to 3.8% from 5.3% y-o-y in March. South East y-o-y MRV growth increased very slightly to 7.3% in June from 7.2% in March; and y-o-y MRV growth across the Big 6 regional centres rose to 6.1% in June from 5.6% in March. In Leeds 12m growth was 7.8% and in Southampton it reached 9.0%.

The amount of logistics space under construction has been declining since the end of 2022 and decreased by a further -3.4% in Q2 to 36.5 million sf from 37.8 million sf in Q1 2025. Northampton remains the centre of logistics development activity with 7.1 million sf of space being built representing 19.5% of new supply. The demand in this market is clear – in February 2024 Yusen Logistics pre-let 1.191 million sf of sustainable warehouse space at SEGRO Logistics Park, Northampton, a 600-acre industrial and logistics park, benefitting from a 35-acre Strategic Rail Freight Interchange. The unit is fully automated and provides storage for 236,000 pallets. It is expected to be fully operational this summer. Yusen Logistics are a global supply chain logistics company.

Investment view

• Industrial investment performance remains strong, but investment volumes are decreasing.
• The main investment activity in Q2 centred around corporate M&A activity.

The South East and Big 6 regional cities continue to outperform other segments of the industrial investment market. In Q2 y-o-y total returns amounted to 8.7% in London. Across the Big 6 regional cities, y-o-y total returns increased to 13.0% in June from 12.5% in March; and in the South East y-o-y returns increased to 13.5% in Q2 from 13.2% a quarter earlier. In Manchester 12m total returns increased to 17.2% in Q2 from 15.4% in Q1. Yields remain stable so this performance is driven entirely by MRV growth and income.

Industrial investment volumes decreased q-on-q in Q1 2025 by 50.0% to £806 million from 1,606 million in Q4 2024. Preliminary estimates indicate that investment further decreased to £473 million in Q2 2025 compared to the ten year quarterly average of £1,474 million. This may reflect investor caution or a lack of assets available on or off market.

London again attracted the largest slice of inward investment in the year to March amounting to £257 million but this was a 63% fall from £696 million invested in Q4 2024. Nevertheless, London’s total industrial investment in the first quarter was almost four times the £66 million targeted at Birmingham, the next most popular centre for investors.

Whether motivated by crystalising gains or portfolio re-balancing, Barings rotated out of the Rest of UK market by selling four assets providing 809,000 sf of logistics space in Bristol, Daventry, Warrington, and Nottingham to a joint venture between Copley Point Capital and Sixth Street in an off-market transaction reputed to be worth £100 million. It subsequently acquired the Access portfolio of four urban logistics properties in providing 747,000 sf in Basingstoke, Bracknell, Welwyn and Milton Keynes for £145.2 million.

Corporate transactions are the most efficient way to access scale and were the largest investment story in the second quarter. Blackstone, the world’s largest alternative asset manager with a global real estate portfolio of $596 billion, won a bidding battle with Tritax Big Box for Warehouse REIT. The target company has a focus on multi-let warehouses. It has 60 estates with 6.9 million sf, 409 occupiers and a rent roll of £42.5 million. Its March 2025 portfolio valuation was £805.4 million and NAV after adjusting for debt and liabilities was £544 million.

Blackstone’s successful bid, subject to shareholder approval, is worth £489 million. REIT valuations typically offer a discount to NAV reflecting investor concerns regarding uncertainty in the direct real estate market and the prospects for rental growth, refinancing risks and a portfolio discount.

In a second example from the M&A world, London Metric completed a cash and shares offer for Urban Logistics REIT focused on last mile logistics with 130 assets, 9.7 million sf of warehousing and a September 2024 portfolio value of £1.14 billion. The market valued Urban Logistics at a 30% discount to NAV of £746 million. London Metric paid £699 million reflecting a 23% premium to the closing share price.