Build-to-suit transactions have fallen to their lowest level since 2013; however, promising BTS requirements alongside ongoing discussions point to an uptick in take-up in the rest of 2025
In our last Big Shed Briefing in January 2025, we stated that there were reasons to be cheerful, but on balance, we expected 2025 to follow a similar path to 2024, at least in terms of take-up levels. Even with continued geopolitical uncertainty, take-up levels of existing units remain strong and ahead of pre-pandemic averages, but the lowest level of BTS since 2013 is ultimately stifling overall take-up levels.
Savills industrial and logistics agency teams are reporting that BTS requirement levels remain strong and meaningful discussions are continuing, which should mean we start to see BTS take-up rise in the second half of the year.
More concerning, however, remains persistently high levels of supply. Fundamentally, occupiers have more choices now than at any point during the last decade, and whilst it is a stretch to say it is now an occupier’s market, we expect to see continued movement on quoting rents, lease terms, and incentives.
There are very few markets or size bands across the country where there is less than a year’s worth of supply and are therefore experiencing the tension which ultimately drives rental growth. The one exception to this, however, is the market for units above 500,000 sq ft. From a pure data perspective and not taking into account viability issues, there remains a strong case to bring forward units in this size band for speculative development as demand in this size band continues to rise and supply remains constrained.
BUILD COST AND PROGRAMME
As 2024 drew to a close, optimism was in the air in relation to the UK construction market as the new government enacted policies, which many commentators suggested were the most development-friendly in living memory. However, the combination of a business confidence-sapping first Budget and increasingly volatile trade policy from the US has seen much of that optimism drain away. Whilst the imposition of new tariffs by the American government may have little direct impact on UK construction, the impact on wider economic sentiment has been drastic.
Indeed, the latest readings from the UK Construction Purchasing Managers’ Index confirm that construction output has fallen in the first three months of 2025, albeit with the pace of decline slowing in March. This correlates with the latest reading from the Savills Build: Perspective index, with the indicators around build costs and programme timescales all stable for industrial and logistics.
Despite initial optimism in early 2025, the vacancy rate remains at its highest level since 2011, with supply continuing to rise and a decade low in BTS transactions. The data suggests that investors and developers are thinking twice before progressing capital-heavy new-build schemes or refurbishments.
Minimum Energy Efficiency Standards (MEES) in England and Wales continue to drive energy-efficient refurbishments. The regulations are expected to further tighten to a minimum rating of C in 2027 and B in 2030. Developers continue to focus on achieving the highest ESG standards, with BREEAM Outstanding featuring more regularly in the sector. The landscape for ESG performance standards continues to evolve, most recently with the pilot launch of the UK Net Zero Carbon Building Standard (UKNZCBS), with which we are already seeing developers seeking to align their schemes with.
Although build programmes have stabilised since the easing of Covid-era supply pressures, I&L developments still face challenges in speed-to-market delivery. Securing a power supply remains a key programme risk. Sites with easy access to power are becoming rarer, and the extent of network reinforcement and the time taken to connect new developments continues to go out. As the industry seeks to decarbonise, so natural gas connections to new builds are being replaced by a higher dependency on electrical connections. Combined with occupiers increasingly turning to automation for their operations, as well as increases in on-site electrical vehicle (EV) charging, so electrical capacities and grid pressure to provide them are set to continue to increase. These factors are pushing developers to explore and maximise on-site renewable energy production, often creating commercial opportunities for both landlords and tenants where the existing local electricity grid constraints can accept connection.
To read more about build costs and programme, read our latest Build: Perspective paper.