Industrial and Logistics Outlook 2026: Looking ahead with cautious optimism

The UK industrial and logistics sector enters 2026 with a sense of cautious optimism. Stabilising macroeconomic conditions, the gradual return of core capital, and renewed occupier confidence are set against a backdrop of uneven rental growth and continued bifurcation between prime and secondary assets. Below, we explore the investment landscape, changing occupier dynamics, and expected rental and returns performance for the year ahead.

Investment market: Gradual re-engagement amid improving stability

Return of core capital

Core capital is set for a, albeit gradual, return to UK commercial real estate in 2026, driven by stabilising debt costs and improved investor confidence.

Expectations for interest rate cuts in 2026, together with increased competition among lenders, suggest that real estate debt costs will decrease further. This should make debt more accretive for core and core plus assets.

Growth is projected to be driven by a mix of rental income and modest capital appreciation rather than significant yield compression. Therefore raising the need for investors to scrutinise assets in terms of their income durability.

Pension reforms could boost allocations

A series of major pension reform initiatives, including the 2025 Mansion House Accord and the Sterling 20 coalition, are set to unlock substantial new capital for UK private markets, with logistics real estate positioned as a key beneficiary.

The Mansion House Accord (2025), arising from the UK Government’s Pensions Investment Review, commits 17 major Defined Contribution (DC) providers to allocate 10% of default funds to private markets by 2030, including at least 5% to UK-based investments. Building on this, the Sterling 20 - a coalition of 20 of the UK’s largest pension providers and insurers launched in October 2025 - aims to channel long-term capital into the real economy by supporting regional development, infrastructure, innovation and renewable energy.

Legislative reform will reinforce these commitments. The upcoming Pension Schemes Bill, expected to receive Royal Assent this year, proposes to:

• Consolidate DC and LGPS schemes into large £25bn+ “megafunds”
• Expand investment freedoms for private markets and real assets
• Direct more capital into the UK economy, explicitly naming real estate, infrastructure and regeneration
• Unlock billions of pounds expected to flow into UK property markets

As part of this consolidation, the Local Government Pension Scheme (LGPS) will be streamlined from 86 separate funds into eight larger pooled vehicles, improving investment efficiency and capacity to support long-term UK projects - including logistics-focused developments.

Together, these shifts create a deeper pool of capital, seeking long-dated, inflation-linked assets at a time when the logistics sector offers stabilising returns, reduced volatility and strong fundamentals. With 2026 marking the first full year in which the reforms take effect, pension funds are increasingly expected to scale allocations to logistics, particularly modern, ESG-compliant assets that meet strict sustainability criteria and offer operational resilience.

Pension investors will remain selective, favouring high-quality, energy-efficient logistics facilities that align with net-zero commitments and minimise regulatory and obsolescence risks. This positions best-in-class logistics stock - especially prime, automation-ready buildings - as major beneficiaries of the UK’s evolving pension investment landscape.

Portfolio trading to remain a dominant feature

Approximately £10.5bn was invested in the sector in 2025 - half of this through portfolio transactions. A number of sizeable portfolios are expected to come to market in early 2026, suggesting that portfolio transactions will continue to be a major driver of investment volumes.

Growing performance bifurcation

Increasing allocations from pension funds and the re-entry of core capital will widen the gap between prime modern assets (with strong sustainability credentials) and secondary stock, where pricing remains strained. This mirrors trends in the occupier market, with demand increasing focused on high quality facilities that can enable operational efficiency and energy performance. Careful asset selection will be key in determining future liquidity and pricing.

Occupier market: Efficiency, automation and resilience drive demand

External market analysis shows occupier demand remained resilient through 2025 and will likely stabilise further in 2026. UK take-up (units over 50,000 sq ft) rose 13% year on year in 2025, reaching 40.8 million sq ft.

Demand is strongest for large, modern, well-specified, automation-ready units, consistent with broader consolidation and network optimisation trends. The average size of transactions rose 8% year on year. The 250,000-400,000 sq ft size band saw the largest uptick in activity, with take-up rising 48% year on year.

Automation and network consolidation

Rising operational costs and the need for greater efficiency continue to push occupiers toward:

• Portfolio consolidation
• Larger, high-spec facilities
• Automation-ready buildings with greater power capacity, EV charging and sustainability features

In 2026, operators will prioritise operational efficiency as a way to maintain or increase market share rather than simply expanding their footprint.

Manufacturing sector expansion

Manufacturing-related demand is strengthening, supported by:

• A rise in defence and engineering-linked requirements
• Reshoring and nearshoring activity
• Improved business sentiment and lower borrowing costs

Broader market indicators support this. UK manufacturing activity stabilised through late 2025, and demand from manufacturing firms was a key driver of take-up last year, accounting for 32% of space taken.

Supply chain resilience

Supply chain volatility remains a theme, with geopolitical instability continuing to shape inventory and sourcing strategies. Statista’s estimate of more than $1 trillion in excess inventory held globally by manufacturing firms underscores ongoing supply chain recalibration and heightened risks.

Ecommerce competition

Chinese ecommerce retailer JD.com has announced its strategic intent to rival Amazon, suggesting further scaling is likely and will translate into additional demand for high-quality logistics space.

Amazon, which dominates the UK ecommerce market, currently has a network of around 32 fulfilment centres in operation across the UK and is building and opening further centres in 2026. JD.com has explored major acquisitions, such as Argos and Currys, to build a rapid-delivery network, but following unsuccessful bids, it has instead focused on organic growth.

As ecommerce operators compete for market share, some will need to expand, although there will also be a focus on improving efficiency. This could drive consolidation in the market, with operators prioritising large, modern facilities that can accommodate automation and support operational efficiencies.

Rental growth and returns outlook: moderation with increasing divergence

A slowing in rental growth is expected to continue. The forecast average annual growth rate is 2.9% in 2026, down from around 4.6% last year. However, rental growth is still likely to remain favourable relative to other sectors or historic levels.

There is variation across regions and asset qualities. The South West and London are expected to outperform, with 4.1% and 3.8% forecast for this year. Reduced levels of speculative development and shrinking availability of new stock offer potential upside to rental growth for core assets. A greater divergence in rental growth performance is expected, with elevated vacancy rates in secondary stock. With tightening EPC regulations in the coming years, some assets may become stranded.

Given stable yields and limited expectations of yield compression, income return and rental growth will be the main contributors to total return. Investors will therefore need to be selective in terms of asset location and quality. Core assets stand to benefit from renewed pension capital flows, while secondary assets may continue to lag.

Conclusion

The industrial and logistics sector enters 2026 on steadier footing but with clear divides emerging across assets and locations. With capital returning, occupiers consolidating and development slowing, the sector appears to be entering a more stable, although highly selective, phase of the cycle. Rental growth is moderating but remains supported by structural drivers, while sustainability and operational efficiency will increasingly determine which assets outperform.