UK occupier market overview: Occupier Demand Remains Resilient

A total of 10.3 million sq ft of logistics space was taken up across the UK in Q2 2026, up 15% on Q1 but 19% below Q2 2025. While activity remains below last year's level, the q/q increase points to improving momentum and continued occupier confidence.

OCCUPIERS FOCUSED ON QUALITY

Occupiers continue to focus overwhelmingly on Grade A (new or refurbished) space, which accounted for 50% of all take-up in Q2 and 57% of take-up during H1 2026. This represents a significant shift from recent trends, with Grade A space accounting for just 26% of take-up on average over the past five years.

Although higher vacancy rates have given occupiers greater choice, their requirements have become increasingly sophisticated. Businesses are increasingly prioritising operational flexibility, speed to occupation and buildings capable of supporting future growth.

Demand for fitted or partially fitted space is increasing as occupiers seek to minimise upfront capital expenditure and accelerate occupation. Power availability, clear heights, floor loading capacity and automation-ready specifications are also becoming increasingly important decision drivers.

RETAIL AND ECOMMERCE DRIVE DEMAND

The retail sector was the most active occupier group during Q2, accounting for 44% of total take-up.

Ecommerce operators were particularly active, both directly and through third-party logistics providers. Notably, Amazon has returned to expansion mode, securing multiple facilities directly, while some large 3PL transactions have also been linked to Amazon fulfilment contracts.

VACANCY RISES, BUT QUALITY SPACE REMAINS TIGHT

Availability increased to 97.1m sq ft at the end of Q2, rising by 10.9m sq throughout H1 2026.

Second-hand space accounted for 87% of this increase, pushing the vacancy rate up to 8.0% from 7.5% at the end of 2025. The increase largely reflects occupiers upgrading, consolidating operations and, in some cases, business failures.

However, the headline vacancy rate masks a clear divide between older and modern stock. Grade A vacancy stood at just 4.4% at the end of Q2, and with occupiers increasingly focused on securing higher-quality accommodation, availability in this segment remains considerably tighter than total vacancy rates suggest.

DEVELOPMENT PIPELINE REMAINS CONSTRAINED

Speculative development activity remains limited. At the end of Q2, 56 speculative schemes over 50,000 sq ft were under construction, totalling 7.7m sq ft, compared with 49 schemes totalling 7.6m sq ft at the end of 2025.

While activity has increased marginally in H1, development remains modest; constrained by elevated construction costs, financing challenges and viability pressures.

OUTLOOK: SUPPLY CONSTRAINTS SUPPORT RENTAL GROWTH

Knight Frank's enquiry metrics, combined with stronger take-up levels in Q2, point to positive occupier momentum heading into the second half of 2026. While enquiry volumes were 16% lower q/q, they remain at their second-highest level since Q1 2022, indicating that ongoing geopolitical tensions and domestic political uncertainty have had little impact on occupiers' willingness to progress real estate decisions.

Despite improving sentiment and greater stability in financing markets, development activity remains constrained. Consequently, occupiers seeking well-located, high-quality space are likely to face increasing competition, with Grade A availability continuing to tighten and development pipelines remaining limited.

These supply constraints are already supporting rental growth. Five of the UK's nine prime regional markets reported annual rental growth this quarter, while 31 of the 69 prime submarkets tracked by Knight Frank recorded annual rental growth (units over 50,000 sq ft).

Average rental growth is forecast at 2.4% in 2026, easing from 4.2% in 2025 before moderating further to 2.3% in 2027 (Knight Frank Insight). While average rental growth continues to moderate, constrained development activity and limited availability of modern Grade A space are expected to continue supporting prime rental growth, particularly in core distribution markets.