Fuel volatility, rising defence spending and a new wave of ecommerce occupiers

Europe’s industrial and logistics market is entering a phase in which operating cost volatility and strategic policy considerations are increasingly shaping location and investment decisions. Traditional fundamentals such as labour availability, motorway access and rental levels remain important, but they are increasingly being assessed alongside energy exposure, network resilience and long‑term occupier security.

Three themes are likely to influence market behaviour through 2026 and beyond: the impact of the Iran conflict on fuel costs and transport risk, the acceleration in European defence and resilience‑related spending, and the European rollout of JD.com’s Joybuy platform, which is built around local inventory and rapid delivery.

The Iran conflict: transport costs, inflation risk and logistics network recalibration

Energy markets have repriced geopolitical risk since late February 2026, with a particular focus on disruption and constrained shipping through the Strait of Hormuz, the only sea passage from the Persian Gulf to the open ocean, and a critical corridor for oil and LNG flows. While prices remain volatile, the longer-term issue for European supply chains is the likelihood that fuel costs and insurance premia remain structurally higher for longer, even after conditions stabilise, due to backlogs, infrastructure damage and persistent security risks.

At a macro level, energy‑driven inflationary pressures have re‑emerged just as European economies were beginning to stabilise. Higher fuel and utility costs are beginning to filter through into transport, manufacturing and household bills, reinforcing a more cautious outlook for interest‑rate cuts. Rather than driving sharp repricing, however, this environment is supporting a period of more stable and disciplined capital markets.

For industrial and logistics real estate, this has important implications. Prime yields continue to be supported by structurally strong occupier demand and constrained supply, particularly in core markets. However, higher risk‑free rates and wider credit spreads mean near‑term yield compression appears unlikely, especially for secondary assets. This more measured environment is encouraging selective rather than speculative capital deployment.

Development finance remains highly selective. Lenders are placing greater emphasis on build costs, energy assumptions and exit pricing, which is moderating speculative construction activity. Schemes with strong pre‑lets, proven demand and robust income assumptions continue to attract funding, while speculative projects, particularly in less proven locations face higher hurdles. This dynamic is helping to control supply risk and supports medium‑term rental growth in the strongest locations.

From an occupier perspective, sustained volatility in diesel and freight costs tends to favour logistics networks that minimise transport miles and maximise proximity to demand. Shorter, more flexible supply chains are better positioned to absorb cost shocks while maintaining service levels.

Higher transport costs sharpen the focus on operational efficiency. While headline rents may be lower in peripheral locations, these savings can be offset by higher fuel consumption and longer delivery routes. As a result, occupier demand is increasingly concentrated in locations that offer predictable performance and cost control.

Intermodal connectivity is also becoming increasingly relevant, as occupiers assess its role in building resilience into supply chains and reducing exposure to transport disruption. Rail‑served and intermodal locations offer flexibility between transport modes, support decarbonisation targets and provide resilience during periods of network disruption. Well‑located rail freight hubs are therefore becoming more attractive, particularly for longer domestic and cross‑border distribution.

Energy and power resilience are also moving higher up the occupier checklist. Volatile energy pricing affects not only transport costs but building operations, including automation, electric vehicle charging and temperature‑controlled logistics. This reinforces demand for modern facilities with strong power capacity, energy efficiency and, where possible, onsite generation.

Defence spending: a growing driver of demand

European defence expenditure has increased rapidly in recent years. Total EU member state defence spending in 2025 is estimated at around €381 billion, with defence investment approaching €130 billion. This reflects growing emphasis on equipment procurement, infrastructure upgrades and research and development.

The real estate impact extends well beyond large‑scale manufacturing. Increased defence activity is filtering through supply chains, supporting demand from component manufacturers, precision engineering firms and occupiers requiring dual‑use space that combines production, research and testing. Defence logistics requirements are also expanding, covering storage, maintenance, repair, calibration and secure distribution.

Defence‑related occupier demand is often highly specification‑led. Security protocols and operational resilience requirements typically drive demand for specialist space rather than generic warehousing. Occupiers frequently require controlled access, higher power availability, enhanced floor loadings and secure external areas. This supports demand for high‑specification assets and, in many cases, build‑to‑suit development.

Importantly, this demand is rarely footloose. Location requirements are tightly defined and often linked to existing skilled labour pools and manufacturing ecosystems. As a result, much new defence‑related space is emerging through the expansion or repurposing of existing facilities rather than entirely new locations. There are increasing examples of manufacturers pivoting from automotive, rail or medical supply chains into defence‑related production.

Demand is strengthening in established manufacturing regions, while rail‑served logistics and port‑side locations are also benefiting, particularly where they support the movement of heavy, oversized or sensitive equipment. These assets play an increasingly important role in modern defence supply chains, where secure and efficient mobility is essential.

Strategic connectivity is therefore becoming a key differentiator. Locations combining motorway access, rail freight connectivity and the ability to accommodate secure compounds are increasingly favoured. While demand will remain programme‑specific, defence spending provides a durable and long‑term source of occupier demand, particularly in well‑connected secondary corridors with available land and supportive planning frameworks.

Competition in the rapid‑delivery ecommerce market

A third structural driver is the continued growth of ecommerce, with additional momentum coming from Chinese platforms shifting towards local inventory and faster delivery. On 16 March 2026, JD.com launched its Joybuy platform across the UK, Germany, France, the Netherlands, Belgium and Luxembourg.

JD.com’s differentiation lies in its commitment to an owned and controlled logistics model. This is underpinned by a European network of approximately 60 warehouses and depots, alongside its new last‑mile delivery brand, JoyExpress, initially focused on the UK, Germany, the Netherlands and France.

JD.com is directly targeting the same‑day and next‑day delivery segment. In its domestic market, JD has built a reputation for dense, highly efficient warehousing networks and rapid fulfilment, and it is seeking to replicate this performance in Europe. Joybuy’s entry will intensify competitive pressure on Amazon, which is already contending with the rapid growth of other Chinese platforms such as Temu and Shein.

One immediate implication is increased demand for urban logistics and micro‑fulfilment space. JD.com has been assembling a London‑wide last‑mile network of small delivery stations, typically around 3,000–5,000 sq ft, tightening competition for infill light industrial space in dense urban areas.

At the same time, Joybuy’s model supports demand for large regional fulfilment centres, with inventory held within Europe to enable faster delivery. Same‑day and next‑day commitments increase the value of assets that support late cut‑off times, rapid sortation and efficient onward distribution, often favouring infill or near‑urban locations even at higher rental levels.

Operational control is central to this approach. Controlled logistics models such as JoyExpress prioritise buildings that can support automation, robust power infrastructure and efficient yard flows. This further reinforces demand for modern, power‑ready logistics facilities.

Core markets within Joybuy’s initial footprint are therefore likely to experience heightened competition for both last‑mile and regional fulfilment space, particularly in locations combining dense consumer catchments, strong transport connectivity and resilient power supply.

Key takeaways

• Fuel and energy volatility are reinforcing a growing divergence between prime and non‑core locations, increasing the relative value of infill urban, motorway-adjacent and intermodal assets as occupiers seek to reduce transport intensity, manage cost exposure and protect service levels.
• Higher energy costs and a more cautious rate cutting outlook are supporting disciplined development activity, favouring schemes with strong pre lets, clear occupier demand and resilient income assumptions.
• Rising defence expenditure is creating a distinct and durable source of demand for high specification, compliance led and often build to suit space within established manufacturing corridors with deep labour pools and strong connectivity.
• Strategic connectivity is becoming a central underwriting consideration, with assets offering motorway access, rail freight options and power resilience best placed to capture future demand.
• Rapid delivery ecommerce models are tightening demand at both ends of the logistics spectrum, increasing competition for scarce urban last mile space while also supporting well located regional fulfilment hubs.