Rising costs, regulatory changes, and the expansion of Chinese ecommerce: Implications for the UK logistics market

Chinese firms expanding

Chinese firms have been actively acquiring space in the UK. Chinese ecommerce platforms are scaling up their operations in the UK market, and expanding their UK-based supply chains and stock holdings in order to offer same or next day delivery options.

Leading the charge is JD.com who are aiming to offer an alternative to Amazon. It soft launched its ecommerce platform Joybuy in April this year. In July, JD Property acquires a logistics development site in Rugby and is planning to deliver a 250,400 sq ft facility, while JD Logistics (the logistics subsidiary of JD.com) signed a long-term lease for a 117,000 sq ft unit at Apollo, Ansty Park in Coventry. These recent transactions follow a spate of recent acquisitions including 531,519 sq ft in two units (MK 310 and MK 220) at PLP’s MK scheme in Milton Keynes, and a 277,628 sq ft warehouse in Dunstable earlier this year.

They are not the only Chinese online retailer or 3PL to have taken space recently. Top Cloud Logistics signed a 15-year lease for a newly built 164,100-square-foot logistics space at Prologis Park Midpoint in Birmingham, while CIRRO Fulfilment (trading as Super Smart Service) took two warehouses in the Midlands. 

De minimis demise?

The UK is reviewing the £135 threshold for customs duties on imports, with the possibility of reducing or removing it entirely. Such a change would prompt retailers to rethink their logistics strategies, favouring bulk shipping, holding stock in the UK, and fulfilling orders domestically rather than from China. This shift would likely drive demand for additional warehousing capacity and greater use of third-party logistics providers (3PLs) within the UK.

Internationally, the US has scrapped its de minimis tariff exemption on goods under $800, effective from the end of August, while the EU plans to remove its €150 threshold by 2028. Political pressure is mounting in the UK to follow suit, driven by concerns over the influx of low-value Chinese goods following the US move and the desire to protect domestic retailers. The government’s need to increase tax revenues adds further impetus.

If implemented, the removal of the threshold would encourage further expansion by Chinese firms, accelerating investment in UK-based supply chains and warehouse operations.

Labour costs rising

UK businesses are bracing for another increase in wage costs for their lowest-paid workers. In August, the Low Pay Commission raised its projection for the National Living Wage in April 2026 to £12.71 per hour; a 4.1% rise.

Britain’s minimum wage has climbed sharply in recent years, rising 6.7% in April to £12.21 per hour. OECD data shows that in relative terms, it was the second highest in Europe last year, behind only France.

Rising wages and an increase in employer National Insurance contributions from 13.8% to 15% are pushing up labour costs. Many businesses are increasingly cautious about hiring new staff, especially in lower-paid roles.

Younger workers could face even larger pay rises as the government moves to remove age bands and progress towards a single wage rate for adults. Workers aged 18-20 years old saw minimum wages rising 16.3% annually in April.

Since the last budget, recruitment across the sector has slowed. Many businesses have responded by shortening operating hours, reducing shifts, or cutting headcount to manage cost pressures.

Higher labour costs are also encouraging firms to invest in technology and automation to reduce their reliance on low-cost labour. This shift may boost demand for longer lease terms, allowing companies to amortise these investments, and for modern, well-specified facilities capable of housing automation equipment.

Bracing for the Budget

Rising public sector spending, the government’s reversal on welfare reforms, and higher-than-expected inflation — set to push up the state pension more than anticipated — mean that further tax rises in the Autumn Budget now appear inevitable.

The National Institute of Economic and Social Research has warned that “moderate but sustained” tax increases will be required if Chancellor Reeves is to plug a £41 billion deficit and rebuild a £10 billion fiscal buffer. Meanwhile, the Bank of England has cautioned that Britain faces a “toxic cocktail” of sluggish growth, rising unemployment, and persistently high inflation.

The Chancellor had been counting on falling interest rates to help stimulate the economy. However, despite the Monetary Policy Committee (MPC) voting earlier this month to cut the base rate from 4.25% to 4.00%, they also signalled that rates may need to remain higher for longer than previously expected.

In addition to proposed gambling levies, the government may target revenue through scrapping or reducing the customs threshold in the Autumn Statement. However, with a pledge not to raise taxes for “working people,” options are limited, leaving many businesses wondering where the axe will fall. As a result of the uncertainty around future taxation and labour costs, many firms may be holding back on expansion or investment plans, potentially leading to softer leasing activity in Q3.

Ban on UORRs

The English Devolution and Community Empowerment Bill, presented to Parliament for its first reading on 10 July, contains a late-stage surprise for landlords. Within its provisions are proposed amendments to the Landlord and Tenant Act 1954 that would prohibit upwards-only rent reviews in all new UK commercial leases, whether based on open market rent, index-linked arrangements or turnover rents. The Bill would also give tenants the right to initiate a rent review.

Although it is not yet certain that this measure will be implemented, if the Bill becomes law without amendment, upwards-only rent reviews (UORRs) will be banned in all new commercial leases across England and Wales.

What could this mean for industrial real estate? We examine the potential effects on the sector, as well as on other parts of the market here.

In practice, the removal of such clauses will have very little to no impact on income returns at a sector level. However, the perception of risk associated with the potential for downward movements in rents may impact on sentiment. 

In the industrial market, the two main rent review mechanisms are Open Market Rent Reviews (OMRRs) and index-linked reviews, typically with cap-and-collar protections. Hybrid “higher of” models are also common. While OMRRs often include upwards-only clauses, strong rental growth in recent years has meant these clauses have had minimal practical impact. For index-linked rent reviews, even if collars become unenforceable, rents are unlikely to fall given the low probability of sustained deflation.

Modelling the removal of the upwards-only clause on average or prime rents and rental growth suggests a limited impact. However, weaker markets, or secondary stock and locations, are likely to feel a greater effect. In areas where rental growth has been slower or more volatile, and where the downside risks of falling rental values can no longer be mitigated by an UORR, the gap between prime and secondary yields may widen.

For some investors, particularly pension funds and insurance companies, reduced income security could make investment more challenging due to liability-matching requirements. In the short term, some may delay acquisitions until the legislative details are clarified. Leasing activity may also slow, as both landlords and tenants wait for certainty, and upwards-only clauses become a focal point in ongoing lease negotiations.

Higher borrowing costs and increased uncertainty over income predictability may also raise the threshold for viable development. This may reduce supply in the medium term, which in turn could support higher rental growth for new, high-quality stock.