UK Logistics Market Update – March 2026

Geopolitics has moved firmly to the top of the agenda for global supply chains, and the UK logistics market is no exception. The ongoing conflict in the Middle East is shaping occupier behaviour, investor sentiment and the near‑term outlook for pricing, reinforcing a market that is resilient, but increasingly selective. 

Middle East conflict: implications for UK logistics 

The conflict is influencing UK logistics markets in three key ways: 

First, shipping disruption and inventory behaviour. 
Heightened insecurity along Red Sea trade routes has forced vessels to reroute, extending journey times and pushing up freight costs. Longer and less predictable lead times typically encourage higher buffer stock and more diversified sourcing strategies, particularly for import heavy retailers, automotive supply chains and manufacturers of critical components. This dynamic is somewhat supportive of demand for space, especially modern, high spec facilities that can accommodate automation, higher eaves and efficient yard operations. Port centric locations and key regional distribution hubs are likely to benefit, provided consumer demand does not weaken materially. 

Second, energy risk and inflation expectations. 
Wider escalation in the region risks injecting further volatility into energy and transport markets, raising the prospect of inflation proving stickier than anticipated. If these pressures persist, interest rates may remain higher for longer, limiting yield compression and keeping investment pricing selective. Conversely, any easing of disruption could support further liquidity and firmer prime pricing. 

Third, corporate risk management and supply chain resilience. 
The conflict reinforces longer running trends towards nearshoring and reshoring. Some occupiers are continuing to invest in UK based manufacturing and distribution capacity to reduce exposure to global disruption. This is supportive of hybrid industrial logistics demand, with land availability and power infrastructure becoming increasingly important constraints on development feasibility. 

How these forces net out will depend on the duration of the conflict. While increased inventory requirements may support demand for space, sustained inflationary pressure could erode consumer purchasing power and dampen occupier expansion plans. 

Investment markets: stabilisation meets renewed uncertainty 

Against this geopolitical backdrop, UK logistics investment markets entered 2026 with improving momentum. Transaction volumes recovered through 2025, boosted by large portfolio deals linked to M&A activity, particularly in the REIT market. Liquidity returned to the wider market later in the year. Liquidity also returned to the wider market later in the year, supported by yield stabilisation and a narrowing gap between buyer and seller pricing expectations. 

There is, as yet, little evidence of outright yield softening in the industrial sector. However, near‑term sentiment has become more cautious. Market expectations for interest rates have shifted, with investors now pricing in the possibility of several rate rises this year rather than cuts. Five‑year SONIA swap rates have moved higher, prompting renewed scrutiny of pricing, particularly at the core end of the market, where property yields are offering an increasingly narrow spread over the cost of debt. 

That said, the economic consensus is less pessimistic. Both Oxford Economics and Capital Economics expect policy rates to remain broadly stable through 2026 and into 2027. In this environment, the near‑term direction of pricing is likely to be driven by two factors: the path of interest rates and debt costs, and confidence around rental growth and exit yields. The improved liquidity seen at the end of 2025 may pause until investors regain confidence in exit yield assumptions. 

Supply: a more disciplined development cycle 

In recent years, developers have become increasingly selective in their approach to new schemes, due to higher development and financing costs. Speculative big‑box starts have slowed materially compared with 2021/2022 levels, while build‑to‑suit (BTS) development remains the most deliverable route to market, supported by tenant pre‑commitments that underpin funding and viability. As a result, much of the current development pipeline is pre‑let, reflecting a more risk‑managed supply response.  

This discipline reduces the likelihood of a glut of new Grade A space coming to market and supports rental resilience in the best locations. Despite this, while overall vacancy has stabilised, it has not reduced materially, but this is being driven less by new completions and more by second‑hand space returning to the market as occupiers consolidate or relocate into newer facilities. 

As a result, headline vacancy figures increasingly mask divergent conditions within the market. Grade A vacancy, rather than total vacancy, is becoming the more relevant metric for developers and investors focused on prime assets. 

Occupiers: demand normalises, quality dominates 

While the race for space has ended, demand for logistics property remains structurally underpinned. The composition of occupiers taking space has shifted, with manufacturing firms accounting for a larger share of take up, alongside improving demand from third‑party logistics providers and retailers.  

This broader, more balanced occupier base is supportive of market stability. It also reflects deeper structural themes, including supply‑chain resilience, localisation of production and the ongoing need for efficient distribution networks. 

At the same time, occupiers are becoming more selective. Energy performance, operating efficiency and future‑proofing are now central to location and building decisions. Modern, EPC‑strong assets are consistently outperforming secondary stock, reinforcing rental polarisation across the market. Rising build and refurbishment costs exacerbate this divide, increasing obsolescence risk for older assets and making refurbishment works or retrofitting more capital‑intensive. 

Rents: steady growth, widening divergence 

Rental growth remains positive, albeit at a more measured pace. Average UK logistics rents rose by 4.65% in the year to February 2026, down from 5.48% a year earlier. The outlook has softened in light of geopolitical uncertainty, with average rental growth of around 2.4% now forecast for 2026, though performance will vary by location and asset quality. 

Crucially, the average growth rates conceal a widening gap between prime and secondary space. Demand remains firmly concentrated on Grade A and new‑build space, supporting stronger rental outcomes for prime assets, particularly in land‑constrained or strategically important locations. Secondary stock, by contrast, is facing greater pressure in the form of incentives, capex negotiations and slower ERV progression. 

Looking ahead 

Several indicators will be key in the months ahead. The absorption of second‑hand space will be key in determining headline vacancy rates. The spread between prime and secondary rents is likely to widen further if refurbishment and development costs continue to rise. Investment activity will hinge on clarity around the cost of capital. And the trajectory of global freight disruption will remain pivotal—supportive of space demand via higher inventories, but potentially constraining valuation upside if inflation persists. 

The UK logistics market remains resilient, but increasingly selective. Quality, location, specification and certainty—of income and funding—are once again paramount.