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Big box demand returns

The second quarter of 2025 has brought renewed momentum to the UK logistics market, with a string of major lettings underscoring the strength of demand from supermarkets and third-party logistics providers (3PLs).

In April, ID Logistics snapped up the 550,000 sq ft Sherburn 550 unit in Elmet, Yorkshire, while GXO Logistics committed to Avonmouth 885, Panattoni鈥檚 885,000 sq ft development near Bristol. Both of these leases are to service online retail contracts and together they underscore the importance of ecommerce in driving demand for large-format, modern distribution space in strategic locations.

Supermarkets are also stepping up their activity, supporting both the expansion of store networks and the modernisation of supply chains. Many are acquiring new facilities to integrate advanced automation and robotics, and to take advantage of improved energy efficiency as a means to contain rising labour and energy costs. In May, Tesco pre-let nearly 500,000 sq ft at Mountpark Hinckley, while another major food retailer is currently under offer for the 360,000 sq ft Mountpark Central Park in Bristol.

Upgrading to new facilities or retrofitting existing distribution centres has become a key strategy for supermarkets pursuing ambitious net zero or carbon reduction targets, as distribution networks represent a significant source of emissions.

Occupier strategies are now increasingly shaped by operational efficiency, automation, and sustainability. From robotics and energy-efficient buildings, both 3PLs and grocers are investing in futureproofing their supply chains.

London: Policy pivot ahead?

In May, the consultation document for the next London Plan was published, outlining new proposals to address the capital鈥檚 urgent housing needs while balancing the protection of industrial land.

The previous plan sought to protect industrial floorspace while also accommodating housing through policies of intensification and co-location. However, both approaches have seen limited success. Intensification, typically through multi-storey development, is expensive and often sacrifices valuable yard space, which is already scarce in London.

Multi-storey industrial buildings have struggled to gain traction due to high construction costs relative to land values and limited functionality, particularly on upper floors. Co-location (of industrial and residential uses) is better suited to light industrial or trade occupiers and less compatible with distribution or heavy industry, both operationally and from a building design standpoint.

The Towards a London Plan consultation suggests a new approach for the next version, due in 2026. It explores whether low-quality areas of green or grey belt land could help meet industrial land supply needs, while also considering the release of poorly performing industrial land for alternative uses. It also considers the possibility of releasing some 鈥減oorly performing鈥� industrial land for other uses, alongside the need to intensify areas which benefit from better access to the strategic transport network.

This potential policy shift could significantly alter the distribution of industrial land across the capital. We鈥檒l be exploring these implications in greater depth in a forthcoming analysis.

Government spending review

The June 2025 Spending Review commits £113鈥痓illion across infrastructure, energy, defence, and transport, offering tangible growth opportunities for industrial and logistics real estate. However, to fully realise these benefits, there must be stronger recognition of the role the logistics sector will play in delivering these projects.

The Sizewell C nuclear plant has already proven to be a catalyst for logistics demand in the surrounding region. In 2024, Sizewell C pre-let over 1 million sq ft at Orwell Logistics Park near Ipswich for its freight management facility. Other major infrastructure projects may generate similar logistics demand, particularly for materials storage and movement. 

Meanwhile, the government鈥檚 continued emphasis on defence investment is expected to provide a significant boost to defence manufacturing and associated supply chains. Expansion will likely concentrate around established defence hubs with strong Ministry of Defence procurement links.

Middle East Escalation

Rising geopolitical tension, particularly in the Red Sea and Strait of Hormuz, is driving up insurance premiums, shipping costs, and oil prices. The Strait of Hormuz is the only sea passage from the Persian Gulf to the open ocean for major oil-exporting countries including Qatar, Kuwait, and Saudi Arabia, making it one of the world鈥檚 most critical maritime corridors.

While there has been no direct disruption to maritime traffic or oil production in the region, oil prices have climbed. Further escalation could push prices higher still, exacerbating fuel and energy cost pressures. This would affect both logistics operations and energy-intensive manufacturing in the UK.

That said, the Strait of Hormuz is not a primary route for UK imports, and disruptions there are unlikely to lead to widespread stockpiling or a spike in short-term demand for UK warehouse space.

Occupier cost pressures

Energy-intensive manufacturers remain under considerable strain. Since 2021, average electricity prices for UK non-domestic users have risen sharply鈥攆rom 14.81 pence per kilowatt hour (kWh) in Q1 2021 to a peak of 28.39 p/kWh in Q4 2023. Though prices eased slightly to 25.97 p/kWh by Q4 2024, they remain nearly 75% higher than in early 2021.

One recent casualty is the UK鈥檚 largest fibreglass plant in Wigan, which produces wind turbine components. It is set to close at the end of June, citing unsustainable energy costs and competition from cheaper imports.

Alongside energy costs, employers are also contending with increased National Insurance contributions and a higher minimum wage, both implemented in April. These pressures are already reflected in the labour market: according to Liz McKeown, Director of Economic Statistics at the ONS, there has been 鈥渁 noticeable drop in the number of people on payrolls,鈥� with the unemployment rate edging up from 4.5% to 4.6%.