In the East Midlands, 4.95 million sq ft of second-hand space has been returned to the market in the past twelve months, most of which was built before 2000. This is due to two key factors: occupier consolidation into newly speculatively developed units as historic lease events occur, and company failures. As a result, our vacancy rate analysis suggests a "higher for longer" scenario, as these older units are redeveloped or refurbished to meet modern standards. Interestingly, our requirements index saw a 25% increase in Q4 2024 compared to Q3 2024, indicating a resurgence of occupier interest and pointing to an uptick in activity for 2025.

Ongoing speculative development, along with the return of second-hand space, has pushed vacancy rates to a record high of 10.28%. Consequently, Savills has revised its baseline rental growth projections for the region over the next five years to 2.4% per annum.

Supply

The level of vacant warehouse space over 100,000 sq ft in the region currently stands at 13.56 million sq ft across 59 separate units, marking a 56% rise in the past twelve months. Based on the five-year average annual take-up, this represents 2.20 years' worth of supply. It is now crucial to examine the local supply and demand dynamics throughout the region. Analysis shows that, when compared to demand, the larger size bands (400,000 sq ft+) are still relatively undersupplied across the region. At the county level, Warwickshire appears healthy in terms of supply characteristics, while the market for units under 400,000 sq ft in Northamptonshire and Nottinghamshire appears oversupplied.

In terms of grade, of the available space on the market, 29% is considered new speculative development, 38% is second-hand grade A, 23% is second-hand grade B, and the remaining 10% is low-quality grade C space, which may be considered obsolete due to its inability to meet modern occupier requirements. Currently, there are 33 units available in the 100,000–200,000 sq ft size band, twelve in the 200,000–300,000 sq ft size band, seven in the 300,000–400,000 sq ft size band, two in the 400,000–500,000 sq ft size band, and four over 500,000 sq ft.

Savills anticipates that, in the second half of 2025, rising requirements, a declining development pipeline, and continued challenges with build-to-suit (BTS) developments will drive occupiers to acquire existing units, leading to a decrease in the vacancy rate.

Take-up

Despite the rise in supply, indicating a market under pressure, transactional activity in 2024 exceeded the long-term average, reaching 7.95 million sq ft across 22 separate transactions. This represents a 29% increase over the long-term annual average and a 65% rise above the pre-Covid average annual activity.

It is noteworthy that, despite challenges in the feasibility of BTS developments across the UK due to economic and political uncertainties, occupiers committed to the East Midlands region, with BTS activity reaching its highest levels since 2020. In 2024, 62% of activity was in BTS developments, 20% was in newly speculatively developed space, and 18% was in second-hand space. According to the long-term average, 40% of space transacted annually is BTS, 40% is second-hand space, and 20% is newly speculatively developed space. Furthermore, all space transacted in 2024 was grade A, reflecting the continued preference for buildings with better ESG credentials, ensuring future resilience.

In terms of size bands, there were eleven deals in the 100,000–200,000 sq ft range, two in the 200,000–300,000 sq ft range, three in the 300,000–400,000 sq ft range, two in the 400,000–500,000 sq ft range, and four over 500,000 sq ft. According to the long-term annual average, there are nine transactions annually in the 100,000–200,000 sq ft range, five in the 200,000–300,000 sq ft range, two in the 300,000–400,000 sq ft range, one in the 400,000–500,000 sq ft range, and three over 500,000 sq ft.

Occupier activity in 2024 aligned with trends seen across the UK, with third-party logistics (3PL) firms acquiring the most space, accounting for 35% of total activity. High street retailers accounted for 21%, online retailers 12%, and food producers 10%.

Development pipeline

The development pipeline has decreased by 16% in the past twelve months. There are now six units under construction, totalling 2.6 million sq ft. These include two units in the 100,000–200,000 sq ft size band, one in the 200,000-300,000 sq ft size band, two in the 300,000–400,000 sq ft size band, and two over 500,000 sq ft.

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