Commercial Quarterly Examiner – industrial market update Q3 2025

Internet sales penetration of the UK retail market has stabilised and tracking in a range between 26%
and 28% since the end of the pandemic.

At the end of Q3 internet sales as a proportion of all retailing increased to 28.0% from 27.6% in Q2.

Output for the Transport and Storage industry decreased in the three months to the end of August by -0.37% but grew by 2.46% in the 3 months to May. The sector has grown by 4.05% in the last 12 months and by 12.6% since the onset of the pandemic in February 2020 compared to growth of 5.5% from the whole economy.

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

• Rental market softens as take-up decreases and availability continues to increase despite a reduction in the development pipeline. Nevertheless, leading investors remain committed to progressing major logistics projects.
• The new Uniform Business Rate effective from April 2026 is likely to increase total occupancy costs for logistics business occupiers.

Availability of logistics stock to let has been increasing across London, the South East and Rest of the UK since 2023. In Q3 2025 availability increased by 2.2% in London and by 2.0% in the Rest of the UK and 3.1% in the South East.

Across the UK the take-up of all industrial space decreased quarter-on quarter in Q2 by -1.8% whilst the demand for logistics space rose by a modest 0.3% to 14.6 million sf. Preliminary figures for Q3 suggest that all industrial take-up
was lower still, at 12.4 million sf, down -28.5% quarter-on-quarter.

Occupiers are aware that the next iteration of the Uniform Business Rate will come into effect in April 2026 based on April 2024 valuations. Since the previous valuation date of April 2021 all industrial rental values have risen by 29%
and some locations have seen larger increases. London MRV’s are 37% higher, Manchester 35% and Milton Keynes 45%. Occupiers mindful of a likely steep increase in total occupancy costs will want to avoid bidding up rents if at all possible.

It is not therefore a surprise that, market rental value (MRV) growth is trending downwards across most key distribution centres. In the year to September, London MRV growth increased by a barely perceptible 5 bps to 3.88% from 3.85% y-o-y in June. South East y-o-y MRV growth decreased to 6.7% in June from 7.3% in June; and y-o-y MRV growth across the Big 6 regional centres fell to 5.4% in September from 6.1% in June. In Birmingham 12m growth was 5.4% but in Manchester it increased to 6.5% from 6.2% in Q2.

The amount of logistics space under construction has been declining since 2022 and decreased nationally by a further -6.9% in Q3 to 32.1 million sf from 34.5 million sf in Q2. Regionally, the Logistics Triangle dominates the development pipeline. This area in the East and West Midlands, within four hours driving distance of 90% of the
British population, has 11.1 million sf under construction. The majority of this pipeline space is in and around Northampton where the amount of construction activity fell by -4.9% from 7.9 million sf to 7.5 million sf. in Q3.

Panattoni has expanded its UK pipeline with two new logistics sites in Northamptonshire and Worksop, Nottinghamshire. The first site in Northamptonshire five miles west of M1 junction 15A has consent for three units of
223,000, 362,000, and 412,000 sf each. The second site in Worksop, is 1.25 miles from the A1 and 10 miles from Junction 31 of the M1 has an outline planning consent for a single 462,000 sf unit. Construction of both is
scheduled to begin in 2026 and finish in 2027 and 2028, respectively.

Marks & Spencer is partnering with Prologis to build a 1.3 million sf national distribution centre in Daventry, Northamptonshire. Investing £340 million, M&S aims to double its food business with this automated, BREEAM ‘Outstanding’ facility featuring hightech picking systems, rooftop solar panels, rainwater harvesting, vehicle maintenance, EV charging, energy-saving technology, and an EPC A+ target.

Other news this quarter includes the completion of Indurent 420, Omega West, in St Helens. The 521,000 sf logistics and office facility, developed by Miller Developments and forward-funded by Indurent, has the mandatory green specifications including BREEAM ‘Excellent’ and EPC ‘A+’ ratings and sustainable features like alternative fuels,
photovoltaic panels, and electric vehicle charging infrastructure.

Investment view

• Yields remain stable in London, while those in regional centres re-rate, causing London’s industrial sector to underperform relative to the Big 6 regional cities and the rest of the UK.
• Major investment in AI infrastructure and Data Centres is planned but providing grid capacity to power new schemes remains a challenge.

The performance of London industrials has fallen back relative to the Rest of the UK and the Big 6 regional cities. Rest of UK industrials outperformed the South-East due to a combination of higher income return and stronger rental growth. In Q3 y-o-y total returns amounted to 8.9% in London, whereas across the Big 6 regional cities, y-o-y total
returns decreased to 11.8% in September from 13.0% in June; and in the South East y-o-y returns also decreased to 11.9% in Q2 from 13.8% a quarter earlier. In Manchester 12m total returns fell back to 16.6% in Q3 from 17.2% in Q2. Yields in London and the South East have remained relatively stable over the last 12 months but have re-rated by an average of 40 bps in the Big 6 regional centres.

Investment volumes are the quarterly value of investment transactions adjusted for capital growth over the analysis period and provide a measure of transaction activity that is not obscured by changes in value. Industrial investment transactions continue to slide due to investor caution or a lack of assets available on or off market. Volumes
decreased y-on-y in Q2 by 26.6% to £680 million in 713 transactions or, £1.378 billion in current value terms, from £926 million (£1.863 billion) in 1,035 transactions in Q1. Preliminary estimates indicate that investment volumes further decreased to £589 million (£1.201billion) in 623 transactions in Q3 compared to the ten-year
quarterly average of £1.46 billion (£2.614 billion) and 1,045 transactions.

London attracted the largest slice of inward investment in the year to June amounting to £1.545 billion in value terms but this was a 27% fall from £2.109 billion invested y-on-y in Q1. London’s total industrial investment
in the second quarter was almost twice the £58 million targeted at Manchester, the next most popular centre for investors.

The “Tech Prosperity Deal” between the UK and USA announced during President Trump’s September state visit promises £22 billion of investment by Microsoft, Nvidia, Google and others into AI infrastructure over the
next ten years. Of more immediate impact, SEGRO provides both “powered shells” (partially built data centres) for major clients and is increasingly developing fully fitted-out facilities. The REIT is actively expanding its data centre footprint at Slough, including through a joint venture with Pure DC to develop a £1 billion, fully fitted data centre. Slough Trading Estate is claimed to be the second-largest cluster of data centres in the world and the largest in Europe. However, major bottlenecks to the rapid development of these AI assets remains not only the UK’s planning system but also the capacity of the national grid which is currently unable to support the projected growth in data centres.

Lastly this quarter, further illustrating a theme we discussed in Q2 surrounding corporate transactions as the most efficient way to access scale, Tritax Big Box announced its acquisition from Blackstone of a £1.04bn logistics portfolio, after the end of the quarter.

The consideration was £632 million in cash and £375 million of new ordinary shares. The largest assets in the portfolio include Tesco’s 700,000 sq ft Fradley Park distribution hub, Rolls-Royce’s 540,000 sf Glasgow site, a
Kuehne+Nagel facility in Thatcham, and warehouses in Birmingham and Basildon.