Commercial Quarterly Examiner – industrial market update Q4 2025

Online sales as a proportion of retail sales rose throughout 2025 and are now at the highest level
since January 2022.

Internet sales penetration of the UK retail market peaked at 37.2% in February 2021 during the third lockdown, but rapidly fell back the following year. However online sales now account for 28.3% of all retail, sustaining demand for logistics space.

Output of the Transport and Storage industry decreased in the three months to the end of November by -0.38% but grew by 2.33% y-on-y adding further support to the story of growing demand for logistics space. The sector has grown by 10.1% since the onset of the pandemic in February 2020 compared to growth of 5.7% 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

• Availability increases as take-up decreases causing rental growth to soften.
• Development completions, construction starts and the development continue to slip.

Availability of logistics space to let continues to increase across London and the Rest of the UK but has recently fallen in the South East. In Q4 2025 availability increased by 3.5% in London and by 1.8% in the Rest of the UK but decreased by -3.9% in the South East.

Across the UK the take-up of all industrial space decreased quarter-on quarter in Q3 by -33.4% whilst the demand for logistics space fell by a relatively modest -9.1% to 14.1 million sf. Preliminary figures for Q4 suggest that all industrial take-up has fallen by a further -24.5% quarter-on-quarter to 13.9 million sf.

Two of the largest industrial and logistic lettings in Q4 2025 featured buildings in Kent. Panattoni are citing the letting of let 440,000 sf to ID Logistics at S440, Panattoni Park, Sittingbourne as one of 2025’s largest speculative deals in the South East. The warehouse has a 15 meter clear internal height with extensive level access doors and access via the A249 to the newly reconfigured Junction 5 of the M2. Less than 20 miles away, Ares Management let 246,000 sf at Aylesford 245 close to Junction 4 of the M20, to online retailer, Must Have Ideas as a distribution hub for the growing business.

Given the recent uncertainty caused by the latest business rates revaluation it is not surprising that industrial market rental value (MRV) growth is trending downwards in some markets and showing signs of volatility in others. Although London MRV growth increased by 100 bps to an annual rate of 4.9% in December from 3.9% in September, in the 12 months to December 2024 it was higher still at 5.8%. South East MRV growth decreased to 5.4% y-on-y in December from 6.7% in September but MRV growth across the Big 6 regional centres rose to 5.5% y-on-y in December from 4.9% in September. In Birmingham 12m MRV growth was 5.2% and in Manchester it reached 6.2% in Q4 although that was a reduction from 6.5% achieved y-on-y in Q3.

A combination of weaker rental growth, softer valuations and high construction costs are constricting the industrial development market. The amount of logistics space under construction has been declining since 2022 and decreased nationally by a further -6.1% in Q4 to 30.9 million sf from 32.9 million sf in Q4. 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 10.9 million sf under construction in 68 buildings. Most of this pipeline space is in and around Northampton where 7.35 million sf is under construction in 24 buildings.

The largest speculative scheme in the Logistics Triangle is M1 XL just off J24 and J24A of the M1 in Sawley, Derbyshire near the East Midlands Airport. The building developed by specialist industrial and logistics property developer and investors, PLP and Indurent will provide 608,000 sf of warehouse space with a clear internal height of 18m and 60 dock-level loading doors. The development will be targeting a BREEAM “Excellent” rating for environmental performance; an EPC rating A+, indicating high energy efficiency together with provision for EV charging infrastructure and future-proofed PV solar roof readiness.

Investment view

• Industrial in London and the South-East is being outperformed by assets in the Rest of the UK, driven by higher income returns and stronger rental growth.
• London continues to attract the largest share of inward investment but the Rest of UK, including cities like Manchester and Bristol saw significant investment activity in 2025.

Consistently, throughout 2025, Rest of UK industrials have outperformed London and the South-East due to a combination of higher income return and stronger rental growth. In Q4 y-o-y London industrial total returns decreased to 6.9% from 8.9% in Q3. Across the Big 6 regional cities, y-o-y total returns decreased to 9.0% in December from 11.8% in September; and in the South East y-o-y returns also decreased to 8.4% in Q4 from 11.9 % a
quarter earlier. In Manchester 12m total returns fell back to 12.2% in Q4 from 16.6% in Q3.

In all locations much of the yield tightening seen in the year to September was reversed in Q4. Yields for London industrials have marginally de-rated / softened over the last 12 months but have re-rated / hardened by an average of 12 bps in the Big 6 regional centres.

Industrial investment transaction numbers had been falling through H1 2025 but witnessed an uplift in Q3. All industrial Investment volumes¹ increased y-on-y in Q3 by 15.8% to £899 million in 824 transactions or, £1.834 billion in current value terms, from £776 million (£1.573 billion) in 781 transactions in Q2. Preliminary estimates indicate that investment volumes decreased to £646 million (£1.325 billion) in 998 transactions in Q4 compared to the ten-year quarterly average of £1.46 billion (£2.650 billion) and 1,073 transactions.

Despite the growing strength of performance from Rest of UK industrials, London attracted the largest slice of inward investment in the year to September amounting to £1.291 billion in value terms, but this was a 19% fall from £1.591 billion invested y-on-y in Q2. A further £4.071 billion was targeted across the Rest of the UK including Manchester, Birmingham, Liverpool, Bristol, Leeds Sheffield and Northampton.

The strength of the Bristol market was demonstrated in Q4 when Mountpark Bristol 360, a 361,000 sf BREEAM outstanding, EPC A+ warehouse let to Waitrose for 15 years at an annual rent of £3.1 million was sold to Leftfield (Fund III) by Affinius Capital, in partnership with its wholly owned development subsidiary Mountpark. The purchaser is a non-listed specialist UK warehouse and distribution property fund with institutional and private investors.

In November KSP announced that its GLi investment platform, a joint venture with PATRIZIA, had completed the sale of PR1 in Park Royal, London NW10 to Tritax London Logistics Fund for £43.9 million. The 61,600 sf warehouse was styled as ultra-sustainable and achieved net zero in construction. It is fully let to Classic Fine Foods serving prestigious restaurants, hotels and gourmet outlets across Central London.

One sector seeing plenty of activity is Data Centres which can be categorised as either “hyperscale” or “Colocation”. Hyperscale data centres, owned by major cloud providers, offer massive, automated infrastructure for large-scale workloads. Colocation facilities, owned by third parties, provide flexible space for businesses to house their own hardware. Slough currently has the largest concentration of “hyperscale” centres in the UK amounting to 1.5 million sf with a further 1.27 million sf proposed. However, this is dwarfed by proposals to develop 12.5 million sf at the Humber Tech Park and Elsom Wolds Industrial Estate in North Lincolnshire.

^{1 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.}