The market entered 2026 with a comparative spring in its step after a period of volatility caused by a range of geopolitical issues, including the 2022 cost of living crisis, the war in Ukraine, and the imposition of wide-ranging tariffs by the US in April 2025. Any semblance that 2026 was going to be a ‘normal’ year evaporated at the end of February when American and Israeli forces started military operations in Iran.

While the conflict itself will have little direct impact on UK logistics markets, the ripple effect is far wider as the ramifications of the closure of the Strait of Hormuz become clear. An IMF rule of thumb suggests that a sustained 10% increase in oil prices leads to a 40-basis-point (bps) rise in global inflation and a 0.1–0.2% decline in GDP. Whilst oil prices have dropped back from their peak during the conflict, they remain volatile, which implies an inflationary impact of less than one percentage point. But this comes against the backdrop of a wider disinflationary environment. In its latest projections, the Bank of England expects UK inflation to peak at 3.3% later this year. Back in November, it was forecasting inflation of 2.5% by Q4 2026.

Whilst the deal agreed between the US and Iran looks shaky, commentators agree it is unlikely we will see a return to all-out war. This means we should start to see a recovery in production and exports from the region. Limited damage to regional production facilities – Saudi Arabia has suggested a timeframe of around three weeks to resume pre-conflict output – means that transportation infrastructure is likely to prove the greatest impediment. The Strait of Hormuz is formally “open” according to the agreement between the US and Iran, but the recovery is likely to be gradual, as events during the first two weeks in July have shown. Mines need to be removed from the main shipping lanes, a process due to begin within 30 days of signing, while shipping networks need to be reoriented to facilitate the flow of oil from the region. There will also be a period of rebuilding confidence among shipping operators.

The full impact on the global economy should be limited. As with other events in recent years, this may prove to be a case of crisis averted. The material decline in oil prices will limit the inflationary impact and, therefore, the squeeze on household real incomes, while the resumption of supply will avoid the need for physical rationing.

Closer to home, the UK Prime Minister, Sir Keir Starmer, has resigned after the Labour Party lost confidence in his leadership. Whilst uncertain at the time of writing, it looks increasingly likely that Andy Burnham will become the UK’s seventh Prime Minister in seven years. While this may give a boost in confidence to Labour Party members, details of his policy agenda remain thin on the ground, and it is likely business confidence will suffer until more clarity emerges. We will be watching keenly as more details are provided on areas such as defence spending and general taxation, which stand to have the biggest impact on the demand for warehousing.

Despite all of this, the UK consumer remains remarkably resilient. The latest retail sales data from the ONS shows that year-on-year (YoY) retail sales values grew by +6.8% in May, with volumes ahead by +4.6%. This was the best monthly sales performance since February 2002, if we exclude the anomalous periods during the pandemic. In volume terms, it was the best monthly sales performance since January 2026. Online retail continues to drive overall retail sales growth, with online growing 12.2% YoY in May, and increasing 3.3% month-on-month.

As the year progresses, it will be interesting to observe if consumer sentiment continues to remain strong in the face of an expected uptick in inflation.

Take-up

Given all of the above, it would be reasonable to assume that there would be an impact on the wider UK logistics market. However, examining our leading indicators, such as requirements and viewings, tells a different story. Indeed, data from the Savills requirements index shows that in the immediate aftermath of the war in Iran, the occupier requirement level actually went up. If we look at the impact on requirements after ‘Liberation Day’, a different story emerges, with requirements going down. Moreover, if we track viewings of vacant buildings, our data shows that April 2026 was the highest level of viewings we have ever recorded. While there is no guarantee that a requirement turns into a viewing and then into a deal, these leading indicators do suggest there is a strong level of activity in the market.

Take-up in Q2 has reached 8.4 million sq ft, a rise of 15% over Q1, meaning that for the first half of the year, 15.7 million sq ft was transacted across 71 deals. While an 8% drop on H1 2025, it should be noted that Q2 2025 was the highest level of take-up for 11 quarters at 10.2 million sq ft.

Build-to-suit (BTS) levels remain depressed, accounting for only 10% of take-up, although a significant level of BTS requirements in the market should mean a rebound over the next 12 months.

Perhaps the biggest take-up story of the year is the rebound in activity at the larger end of the market. H1 2026 has seen 4.3 million sq ft of take-up of existing units over 400,000 sq ft, up 139% from the 1.8 million sq ft transacted in H1 2025.

Whilst second-hand take-up remains strong in absolute terms, the data generally shows that the overall quality of units is increasing, with 76% of take-up this year being accounted for by Grade A units.

The other story coming out of the data this year is about occupier profile. While the occupier mix remains broad so far in 2026, 59% of total take-up has been for online retailers and third-party logistics (3PLs). Whilst the balance is to 3PLs, it can be argued that it is actually online retail driving this demand, with many units being taken to service Amazon contracts or Chinese 3PLs on behalf of Chinese e-commerce retailers.

Lastly, at a regional level, the recent dominance of the Midlands market shows no sign of abating, with the combined East and West Midlands accounting for 60% of take-up in H1, the highest proportion we have ever recorded.

Supply

The combination of the strong levels of take-up we have witnessed this year and a decreasing speculative development pipeline means that supply has dropped as we enter the second half of the year. Supply now stands at 64 million sq ft across 304 units, reflecting a vacancy rate of 7.76%. Whilst still elevated, the 39 bps reduction over the quarter will be welcomed by investors and developers.

This has meant that the level of Grade A supply has continued to fall and now stands at 35.1 million sq ft, reflecting a proportion of 55%, the lowest level since Q3 2023. Pleasingly, we are also seeing the level of supply for units over 400,000 sq ft is starting to decline too and now stands at 11.9 million sq ft, a fall of 5% since Q3 2025.

While it is too early to say we are seeing a supply crunch, we are tracking 21 units – totalling 4.3 million sq ft – that are under offer to occupiers, of which 3.1 million sq ft are Grade A units. Should these deals complete, the supply would decrease to 59.6 million sq ft. However, there are no standing units over 400,000 sq ft under offer.

Moving forward, 7.6 million sq ft of space is under construction speculatively, which will be added to the total supply throughout 2026 and into 2027. The development pipeline is now 63% lower than its peak in 2022.

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