Industrial market update Spring 2024

Aerial shot of inside an industrial unit

Attractive sector.

In short: Vacancy rates creep up and rents ease. The recalibration of the industrial market after the pandemic uplift continues, but overall, the sector continues to outperform compared to other asset classes. There has been significant repricing in the sector, but robust occupational market conditions amid tight supply are helping to maintain a continued confidence. Investment levels slowed in 2023, but investors remain active and the rise in yields will attract more buyers during 2024.

Vacancy rates remain muted. The fundamentals of this sector have moved on since the pandemic when demand was elevated from occupiers and investors alike amid strong e-commerce activity. Even so, the continued popularity of e-commerce and the requirements for net zero is underpinning this market, which is now running back in line with pre-pandemic trends.

The supply of industrial space rose modestly in late 2023, pushing the vacancy rate up to 4.1%, from 3.8% in September. Vacancies are expected to rise further as more supply is released into the market, but unlike offices, the supply pipeline is in line with the five-year average, so they will not rise as sharply. Cost considerations around funding and construction is still weighing on activity in the development market. Overall demand is unlikely to rise sharply given a background of relatively stable online retail sales, although there will always be a demand to move to best-in-class schemes.

Demand for buildings completed to a high specification, and especially those new or redeveloped schemes that meet BREEAM Very Good or Excellent, will be supported by companies setting their own targets and pledges about energy efficiency – for example, DHL has said it will achieve 100% net-zero carbon warehousing by 2025.

In Manchester, the vacancy rate rose to 3.4% at the end of last year from a record low of 1.5% in 2022, and is likely to continue to rise as there is 2.5 million square feet of space under construction, half of which is speculative. Although the vacancy rate will rise, it is expected to remain low compared to other markets and sectors, which will underpin rental growth, which is currently registering an annual rise of 7.6%.

Across the UK, rental growth continues to ease, with asking rents up 5.6% on the year in 2023, down from 6.7% growth in the year to the end of Q3 2023.  

Total operational costs for industrial assets are increasingly exerting downward pressure on rents, with higher service charges, energy costs and business rates, all rising.

In London, the annual growth in asking rents was at 3.5% at the end of last year, a sharp slowdown from a peak of 10% in Q2 2022. London’s vacancy rate also remains higher than the national average at 4.8%, despite a pick-up in activity in the last quarter, with two large deals in Brent and Ealing. The sharp rise in rents in the capital during the pandemic has inhibited take-up over the last few years especially amongst smaller firms, but given that rental growth is now easing, this part of the market may gain traction.  

However, last-mile units in well-connected markets in north and west London, such as Ealing, may buck the wider rental trend as demand continues to outstrip supply.

Line graph of industrial sector rental growth, Cluttons industrial market update Spring 2024

Investment levels muted. Industrial sales totalled £6.7 billion in 2023, well below the total £12.2 billion in transactions 2022. As with all property sectors, high interest rates have had an impact on investment appetite, and a lack of stock for sale and vendors expectations around pricing has also impeded activity. Sales in Manchester fell to £531 million, down from the five-year average of £720 million, while in London, the total value of sales was £1 billion, down from £3 billion in 2022.

However, the interest among investors for opportunities for change of use has been demonstrated by a key deal in Manchester. The Downing Street Industrial Estate near Piccadilly Station, which changed hands in January, is expected to be re-developed as residential units.

Bar chart of industrial investment trends quarterly sales volumes, Cluttons industrial market update Spring 2024

In Manchester, yields have risen to 6.9%, while in London, yields are stable, but have softened since the beginning of the year to more than 4%, with the sub-4% yields achieved in 2022 now uncommon. Our yield sheet is showing industrial yields remaining stable.

Across the UK, industrial equivalent yields have moved out to around 6% – 6.5% across the UK, compared to 4.5% in early 2022, which may also spark more interest from investors.

Total returns for industrial were at 5.3% at the end of last year, up from -24% in June. Across 2023 as a whole, Industrial capital values ended up flat but are still  -26.6% off their June 2022 peak.

Graph of Industrial yields vs 10 years bond to end Q4 2023, Cluttons industrial market update Spring 2024

Industrial: Key investment transactions

Property AddressTown /CityDateBuilding size
Yield (%)Sale Price (£m)Buyer
Leicester Distribution ParkLeicesterQ1 2024714,0005.0%£102.5mAviva
Watford Business CentreWatfordQ1 2024165,0005.1%/7.5% RY£33.75mCrossbay
Next DC, Redhouse InterchangeDoncasterQ1 2024264,0006.3%£21.2mLondonMetric
Royal London AM PortfolioSouth East/ MidlandsQ1 20241,200,0006.1%£200mAres Management
Source: Cluttons, CoStar

Key statistics:

Industrial Q4 2023 unless otherwise statedUKLondon &
South East

Distribution, multi-let estates and specialised industrial
Latest quarter
(Previous quarter / 5yr ave)
Latest quarter
(Previous quarter / 5yr ave)
Availability rate %5.1%
Vacancy rate %4.0%
Rental growth % annual  6.1%
Quarterly take up sqft13.1m sqft
3.0m sqft
Completions (net delivered) sqft11.6m sqft
1.2m sqft
Total under construction sqft55.4m sqft
14.7m sqft

Quarterly sales volume ££1,122m
Average yield (EY)%6.2%
(5.7%/4.9%) *
Prime yield (rack rented) March 2024 (Q4 2023)5.50% – 6.0%
(5.50% – 6.0%)
Prime regional
(4.5% – 4.75%)
Within M25
Source: Cluttons, CoStar, MSCI * Yields for industrial in South East, MSCI

The information provided in this report is the sole property of Cluttons LLP and provides basic information and not legal advice. It must not be copied, reproduced or transmitted in any form or by any means, either in whole or in part, without the prior written consent of Cluttons LLP. The information contained in this report has been obtained from sources generally regarded to be reliable. However, no representation is made, or warranty given, in respect of the accuracy of this information. Cluttons LLP does not accept any liability in negligence or otherwise for any loss or damage suffered by any party resulting from reliance on this publication.


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Richard Moss

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Jonathan Rhodes

Partner, commercial valuations

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Director of research and insights

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Gráinne Gilmore, director of research & insights, Cluttons

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