The logistics market has passed its toughest phase, but weak economic growth limits upsizing. Rental growth should stay modest at 2.7% in 2026, with supply moderation and structural trends paving the way for more landlord-friendly conditions later in the decade.
In our recently released report, Big Shed Prospects, we examined a bullish and bearish case for the market and concluded that, overall, the market appears to be through the most challenging period when it comes to rising supply and volatile take-up.
However, we are yet to see any significant overall improvements in the economy that would form a catalyst for occupiers to consider upsizing due to business growth, rather than the more strategic reasons we see at the moment. This is highlighted by the latest reading from the Savills requirements index, which fell 15% in Q4 2025 after a strong rebound in Q3. With transactions taking longer to conclude, there is little evidence to suggest that we should expect 2026 to have a higher take-up level than 2025.
What’s more, landlords and developers looking for a return to the strong rental growth the market became used to, and which underpinned many purchases at the end of the pandemic, will be disappointed in 2026. Assuming net absorption remains positive, there is still an elevated volume of new and second-hand space that will need to be absorbed before supply tightens sufficiently to trigger above-trend rental growth. Indeed, at a UK level, our model is providing a range of 2.3% to 3.5% rental growth per annum until 2029, with our baseline scenario seeing 2.7% growth in 2026 before increasing as the decade continues.
The key to above-trend rental growth will be falling supply, and in the absence of take-up dramatically rising, the key to falling supply will be for the development pipeline to moderate. Looking at the quantum of space currently under construction across the UK, it has fallen by 65% from its peak in the second quarter of 2022. Although a burst of new construction commencements could quickly see this rise, at present, it appears to be realigning with pre-pandemic levels.
There are, of course, some structural trends such as build-to-suit (BTS) take-up being replaced by larger spec builds, an increase in demand from defence-related occupiers, and e-commerce growth remaining resilient, which will have a positive impact on the market. We are also seeing a surge in interest from Chinese occupiers, both logistics operators and retailers. This, plus the ending of the ‘de minimus’ rule announced in the Budget, will see them shift more stockholding and fulfilment activity to the UK and Europe.
Overall, it would seem the shifting sands in the market in 2026 should set the ball rolling for the second half of the decade to return to more landlord-friendly conditions rather than occupier-friendly as things stand.
BUILD COST AND PROGRAMME
At the start of 2025, we were optimistic that we had turned a corner and were seeing the dawn of a market recovery. Tariffs, conflict, and negative political rhetoric have since dominated the airwaves, with a tangible impact on business and investor confidence. But are things really as bad as they seem?
If we compare a number of economic indicators to twelve months ago, the situation in some areas has improved more than it has declined. Base rates are down, construction GVA has moved from negative to positive territory, and exports have seen stronger-than-expected growth. As a consequence, the British Chambers of Commerce revised its previous GDP forecast from 1.1% to 1.3% growth. However, against this backdrop, the UK construction PMI remains in negative territory, albeit the rate of contraction continues to moderate. This also correlates with the latest reading from the Savills Build: Perspective index, which, after a period of stability, contracted sharply in Q3 2025, suggesting that some sectors are starting to see drops in both build costs and programme length.
In the industrial and logistics sector, where the speculative development pipeline has decreased and BTS levels remain subdued, we are now seeing work thin out for construction contractors, which should lead to tighter margins in tender returns and potentially a deflationary impact on construction costs. As such, the Savills Build: Perspective index for industrial and logistics is now starting to exhibit downward pressure.
While some cost pressures on development are easing, the introduction of the UK Net Zero Carbon Buildings Standard (UKNZCBS) means that developers will need to increase the coverage of rooftop PV panels to comply going forward. The UKNZCBS benchmarks for compliant levels of embodied and operational carbon from industrial and logistics buildings are set to reduce incrementally over time, meaning that alignment to the standard will become increasingly challenging and potentially more costly in the short to medium term. Other developers are looking to offset embodied carbon through planting new forests and creating enhanced habitats, with one new scheme requiring a land bank almost the size of Gatwick airport, and so competition for land remains fierce.
To read more on our outlook for build costs and programme timescales, click here to read our latest Build: Perspective report.