There are many reasons to be optimistic about the market trajectory, including strategic drivers such as nearshoring and the growth of Chinese e-commerce players. Market data also points to supply reaching a turning point
The macro picture
The Trump administration's tariffs announcement was 2025's defining event. Injecting significant uncertainty into the market, with the occupier market showing a clear decline in activity in terms of requirements in Q2, before demand recovered in Q3. The immediate reaction from financial markets quickly led to a three-month delay in the tariff’s implementation, with the UK successfully negotiating a relatively benign trade deal during this time.
In the US, the impact of the tariff has more or less followed historical patterns: in the run-up to implementation, we saw a front-loading of trade before the consumer price index (CPI) began to rise on a three-month lag. Research estimates that between March and August 2025, CPI was 32% higher than it otherwise would be. With Donald Trump’s net approval rating on the economy now deeply negative, we could see a policy reversal in the run-up to the midterms next year as the Republicans try to mitigate the damage, with affordability likely to be front and centre of the elections. This would offset some of the negative impacts of tariffs on global trade and, by extension, the fortunes of the logistics sector.
Coming back to the UK, beyond the impact on consumer and business confidence and a likely deflationary impact due to lower export demand, we would expect to see a chilling effect on exports to the US. Data from Oxford Economics shows exports are expected to grow by 3% in 2025, slowing in 2026 to 0.2% before accelerating to 1.2% and 1.5% in 2027 and 2028, respectively.
While we are yet to see the productivity gains promised from widespread adoption of LLMs like ChatGPT, if corporate data starts to demonstrate rising productivity, this could see overall UK productivity surprise on the upside, driving sustained growth.
This would likely help to bolster a bull run in the US equity markets, which would have positive wealth effects on households, with spillovers to the rest of the world. In combination with an increase in fiscal spending in the US, China and Europe, we could see a recovery in the global economy gain pace in 2026.
The Autumn Budget in late November 2025 showed Labour was able to pull off a tightrope walk between significant pressure from bond markets, with significant fears of rising gilt yields amid higher borrowing requirements and achieving their own policy ambitions. Indeed, the Budget pledged investment in growth sectors, while reassuring investors that debt levels will remain contained.
Notable growth-oriented policies in infrastructure, housebuilding and nuclear energy should mean the UK’s economy will be well positioned to ride the wave as economic growth returns. While economic growth slowed post-tariffs, the IMF reduced the UK’s 2025 GDP forecast from 1.6% to 1.1% in April, before revising its year-end estimate to 1.3% in October. The purchasing managers' index (PMI) in October points to the economy regaining momentum towards the end of the year.
Independent of these potential drivers of economic growth, there are clear signs that inflation is starting to slow. Energy price inflation, in particular, is set to slow substantially due to a combination of base effects as well as measures in the Budget, which the Office for Budget Responsibility (OBR) forecasts will reduce CPI inflation by over 0.2 percentage points in 2026–2027. Slowing inflation could present a greater opportunity for the Bank of England (BoE) to cut base rates. Indeed, at present, the OBR sees CPI declining to average 2.5% in 2026.
Beyond this, a looser labour market is likely to reduce wage growth moving forward. Given that expectations of inflation have a significant impact on future inflation, if the BoE can break the cycle of persistent sticky inflation, then future economic growth may see relatively lower inflation response.
Markets are increasingly pricing in more aggressive rates cuts as inflation eases, with ING noting that expectations for the terminal rate have fallen from 3.6% to 3.3% driving a fall in gilt yields of 30 basis points (bps) in October alone. Monetary easing, in combination with fiscal discipline demonstrated in the Budget, could start to ‘right the ship’ in terms of borrowing costs for the UK government.
Looking ahead, while business confidence has fallen since the election, consumer confidence, while still negative, is trending upwards. Driving this has been declining inflation and rising real wages, which have been positive for much of 2025.
Indeed, looking at data from the ONS, the current household savings rate of 10.7% is 27% higher than its ten-year average. This indicates that consumers are currently significantly more cautious than they have been on average over the last ten years. Inevitably, consumer spending will be suppressed by these precautionary savings amongst consumers. As the economy improves in 2026, consumer confidence is likely to continue to recover, and we may see an unwinding in these savings, driving a substantial increase in consumer spending.
The market picture
Heading into 2026, the occupier market appears to have taken a turn for the better. In the first three quarters of 2025, take-up reached 26.3 million sq ft, the strongest performance in the leasing market since 2022. Indeed, if we look at average quarterly take-up in 2025 compared to 2023 and 2024, each quarter in 2025 saw 22% more space signed per quarter. Looking at the amount of supply that is currently under offer, which sums to 5.2 million sq ft, we could therefore see take-up total just under 32 million sq ft in 2025, which aligns to our baseline and upside scenarios for our supply forecasting scenarios.
This is a significant uplift in take-up this year, and whilst we can attribute a significant amount of take-up to a number of mega-deals, including the JLR gigafactory in the South West and Marks and Spencer in the Midlands, such transactions have largely been absent for the last two years, so their return is a fillip to the market. Without these deals, take-up would be significantly lower, but crucially, these deals were both Build-to-Suit (BTS), a deal type that has been more or less absent in the last two years. However, these deals have happened, and they represent major corporates committing to a long-term strategic decision this year. This has to be seen as a long-term vote of confidence in the UK economy.
Beyond strong take-up this year, we have seen a number of key market fundamentals improving during the year. Requirements quickly recovered after a decline in the aftermath of the Liberation Day tariffs in April 2025, with our Savills Requirements Index recording a 16% increase quarter-on-quarter and a 12.3% increase year-on-year.
This should translate into continued momentum in the market in 2026, with requirements typically taking between nine and twelve months to materialise in take-up. Notably, looking ahead, our requirements index suggests that we could see up to 9 million sq ft of take-up in Q4 2025. This would push take-up well past our current forecasts, with take-up breaching 35 million sq ft, just behind the 37 million sq ft recorded in 2016 and 2018.
In terms of supply, it would also appear that the worst is over. In our baseline vacancy projection scenario, we see continued volatility in 2026, before a gradual downward trend to 7.4% by the end of the year. Similarly, our upside scenario sees the vacancy rate as having peaked in Q2 2025 and is set to fall to 6.5% over the same period.
In the most part, this is driven by a number of speculative completions in the early part of 2026, and whilst the take-up of existing units is increasing and the amount of second-hand supply returning to the market is also falling, this supply will take time to absorb, given current void levels.
Indeed, with demand seemingly normalising this year, the speculative development pipeline appears to be shrinking sharply. If we look at the quantum of space currently under construction across the UK, our rolling pipeline has fallen by 65% from its peak in Q2 2022. While a burst of new construction commencements could quickly see this total rise sharply, at present, it appears that the speculative development pipeline is realigning with pre-pandemic levels.
Beyond the market fundamentals, several megatrends will continue to boost the market in 2026. Regardless of global noise around a loosening of ESG targets, occupiers seemingly remain committed to their own corporate goals. Indeed, 78% of take-up this year has been for Grade A units, against a pre-Covid average of 68%, and whilst the supply of poorer-quality space has increased, we have not seen take-up rise as we would have expected based on previous cycles. Competition too, from other land uses, in particular data centres, should help to constrain the speculative development pipeline as this sector continues to target land being promoted for industrial and logistics (I&L) with the necessary power connections.
Wider issues
Several structural trends are reshaping the logistics property market and will continue to exert upward pressure on demand for space. First, the rapid expansion of the data centre sector and the growing footprint of defence-related occupiers, who may prefer bespoke facilities for owner occupation, are competing for developers for land traditionally earmarked for I&L use. Data centres require large, well-connected sites with robust power infrastructure, often overlapping with prime logistics locations near major transport corridors. Similarly, defence occupiers — driven by heightened geopolitical tensions and national security priorities — are seeking secure, strategically positioned facilities. Research from Savills suggests that Europe will see additional demand of close to 400 million sq ft over the next decade from this sector alone.
Second, eCommerce growth remains resilient, underpinned by generational shifts in consumer behaviour. Younger cohorts, particularly Gen Z and Millennials, exhibit a strong preference for online shopping, reinforcing the structural demand for last-mile and regional distribution hubs. Even as overall retail spending fluctuates, the share of online transactions continues to rise, requiring occupiers to maintain agile supply chains and invest in additional warehousing capacity.
Despite online retail-led take-up falling sharply over the last three years, data from Effigy Consulting shows that UK parcel volumes have grown by 6% per annum. This suggests that while occupiers may have over-expanded during the pandemic, much of this expansion is likely now being utilised.
In a similar vein to eCommerce, we are also seeing a surge in interest from Chinese occupiers, both logistics operators and retailers. In the first half of the year, 1.7 million sq ft of space was leased, with Chinese eCommerce operator JD.com accounting for over a third of this activity. This is the second-highest year for leasing activity among Chinese occupiers, behind only 2021, and a second year in a row of strong take-up levels.
Another potential boon to the market in relation to Chinese e-commerce is the recently announced ending of the ‘de-minimus’ rule, which exempts parcels under the value of £135 paying customs duties. This loophole has been exploited by the likes of Shein and Temu in recent years and seen such imports increase by 53% to c.£6 billion. Whilst the change in the rules is phased not to come in until 2029, the reform is likely to shift more stockholding and fulfilment activity into the UK, increasing demand for domestic warehousing and reducing reliance on direct-to-consumer air freight.
Nearshoring and supply chain diversification are accelerating as businesses seek to mitigate risk and reduce dependency on distant markets. Manufacturers and retailers are increasingly positioning production and inventory closer to end consumers, particularly within Europe, to improve resilience and shorten lead times. This trend is creating demand for larger, strategically located logistics parks capable of supporting integrated operations.
Finally, we would note that our analysis of lease data across the UK shows that many of the major grocery occupiers are now reaching the end of long-term leases and will now be considering their strategic options. This is likely to drive up average deal sizes in the next five years. Indeed, comparing the average size of retail breaks and expiries to the manufacturing and transportation and storage sectors, the average size of the break or expiry is set to grow by 23% for retail between 2026 and 2027, compared to growth of 5% and 8% in the manufacturing and transportation and storage sectors, respectively. Given the strategic long-term nature of these requirements, we would expect many of these to be met through BTS transactions, potentially driving a resurgence in BTS take-up.
Collectively, these dynamics are expected to sustain strong demand for logistics space across the UK and EMEA. Developers and investors will need to navigate rising land values, planning constraints, and infrastructure requirements while responding to occupiers’ evolving needs for scale, connectivity, and sustainability.