The fog of political and economic uncertainty has lingered for longer than anyone would have hoped, meaning quick decision-making, both in occupier and capital markets, has been in short supply. This uncertainty has conspired to create a market that still retains all of the key structural drivers that propelled it forward over the last decade but remains shackled by challenges on many fronts. The spike in inflation has largely passed, but we should continue to expect volatility in this measure, as the last two readings from the ONS demonstrate, with CPI rising to 2.6% at the time of writing. On the cost of capital side, a year ago, we were still speculating on when the Bank of England base rate would start to fall, and now we have two rate cuts under our belt, with the expectation that a further 100 bps of cuts will materialise in 2025 and 2026. Whilst the base rate trajectory is of paramount importance to capital markets, any fall will also be beneficial for occupiers when considering financing the costs of fit-outs, and should therefore also stimulate occupier take-up.

Politically, at least in the UK, there are areas of uncertainty that we were dealing with a year ago that have disappeared. A new Labour government with a strong majority was voted in during 2024, and it is a reasonably credible argument to say that the UK looks less politically volatile than many of its nearest neighbours. The new government has had its first Budget, and this should give investors, consumers and businesses a much clearer picture of the world in which they will be operating for a minimum of the next five years. And while economic forecasts have been revised downward post-Budget, there is a widespread acceptance that 2025 and beyond will see accelerating GDP growth – something that is always good for the industrial and logistics sector and real estate as a whole.

At a global level, Donald Trump is returning for his second term as US President, and his policy announcements, particularly on trade, will be watched with detail, particularly to see if his action around tariffs matches the rhetoric from the election campaign. Whilst such tariffs may not directly impact the UK logistics property market, if European governments retaliate with a tit-for-tat escalation, the ultimate loser will be the consumer when faced with higher prices. Regardless, such actions at a global geopolitical level will put extra wind in the sails of the current thinking around deglobalisation and near/re-shoring and, in the long run, could see occupiers take more space in the UK.

Closer to home, we continue to see growth in the online retail sector, with many companies reporting a strong Black Friday and festive period. Early January has also seen strong reporting from many traditional retailers, albeit with warnings around consumer confidence following the Budget. Hopefully continued sales growth in the retail sector reverses what we have observed in recent years, with requirements being driven by more strategic reasons, such as ESG, rather than business growth.

Take-up

Overall, 2024 was the fifth best year ever for take-up, outside of the pandemic period, and in that long-term context is not a bad outcome given the wider economic and geopolitical situation. At a national level, take-up for 2024 has reached 27.97m sq ft across 116 transactions, reflecting a modest 1% rise year on year (YoY), but 8% above the pre-Covid average, and is in line with our expectations from when analysing data from our requirements index.

Whilst deal counts for 2024 had been trending 19% above the pre-Covid average, a muted Q4 saw just 21 transactions nationwide, the lowest quarterly count since Q1 2020. This meant that using the full-year data, deal counts were just 6.4% above the pre-Covid average.

There are, however, a number of bright spots in the data worth highlighting. Demand for speculatively constructed units increased over the course of the year, reaching 6.97m sq ft, a rise of 27% when compared to 2023. Demand for units over 300,000 sq ft also increased to 13.17m sq ft, a YoY rise of 8%. Levels of build-to-suit remain modest, however, with just 9.2m sq ft transacted, the lowest level since 2013, accounting for 33% of the total market.

We are not observing any trend of occupiers trading down to poorer quality (and cheaper) units; indeed, quite the opposite is true, with 77% of the space transacted being for grade A units, up from 72% in 2023 and exceeding the pre-Covid average of 68%.

Pleasingly, we also continue to see diversification of the tenant mix and a diverse range of occupiers taking space, with 105 different occupiers taking space in 2024. Manufacturing-related companies accounted for 32% of the market, the highest level since 2015, thereby giving further evidence to the near/re-shoring trend. 3PLs also remained active, taking 6.44m sq ft of space, accounting for 23% of the market, making them the second most active occupier group.

Supply and Pipeline

The combination of 9.3m sq ft of speculative completions in 2024, second-hand supply rising by 8.72m sq ft, and more stable take-up levels has resulted in total supply rising to 58.72m across 274 units. This reflects a vacancy rate of 7.18% and the highest level of supply since 2011.

No region or size band has been immune to this rise in supply, and 56% of the total supply is considered grade A, albeit the level of speculatively constructed space fell slightly in Q4 and now stands at 20.38m sq ft.

We are, however, tracking 21 units that are under offer to occupiers and should these deals complete, this will result in supply of close to 6.5m sq ft.

Moving forward, there is 12.63m sq ft of space under construction speculatively, which will be added to total supply throughout 2025 and into 2026.

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