Occupier market recovery amid rising cost concerns
The UK logistics occupational market continued to recover in Q1, underpinned by tightening availability and steadily improving demand. Availability edged down for the third consecutive quarter to 7.3%. Take-up was 12.5m sq ft in Q1, which was up 3% on Q4 and 8% higher than a year ago. Transactions were driven by logistics, e-commerce, food-related occupiers and companies in the automotive supply chain.
Solid demand, committed requirements and weak speculative development point to further improvement in 2026, though cost pressures are forcing occupiers to look hard at total occupational budgeting. The US and Israel conflict with Iran has driven energy prices higher and reshaped the inflation and interest rate outlook. For some, this uncertainty strengthens the case for new, more efficient buildings that can cut operating costs and support supply chain resilience. Others are more cautious given the impact elevated construction, financing, energy and fit-out costs will have on occupational expenses.
Prime annual rental growth has broadly stabilised post-Covid and was 3.2% in Q1 2026. Fit-out quality and power availability are key rent differentiators, with strong grid connections highly prized by most occupiers. Meanwhile, annual speculative development was at a 5-year low in Q1, which continues to support prime headline rents. Incentives are another support, which are relatively high and moved out further in Q1 – either in locations with higher supply or on assets with returns-driven capital structures where landlords have greater impetus to ensure space is let and generating an income.
Investment in Q1 was quiet in open market terms, with capital and debt focused on portfolio deals and smaller industrial units. There continues to be liquidity, but single-let deals were largely confined to core-plus lease-event driven strategies. Core buyers are largely absent from the market and investors are highly selective, despite occupier market improvements. Prime pricing softened slightly in Q1 to reflect weakened sentiment, though evidence is thin.
