UK Industrial and logistics sector - monthly update
Q1 stats demonstrate market resilience but the sector is exposed to global trade headwinds
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Tracking market momentum - Q1 2025 stats
The UK industrial and logistics sector remained active in Q1 2025, albeit with some nuanced shifts in occupier and investor behaviour. Preliminary data shows 8.1 million sq ft of occupier take-up, a decline on the previous quarter—though this comparison is skewed due to an upward revision of Q4 2024 figures. When measured against the first release of Q4 data, Q1 shows improvement, reflecting a resilient occupier market underpinned by a diverse demand base.
While the quarter lacked major leasing deals by floorspace, the leasing pipeline remains encouraging. Several large assets are currently under offer and expected to complete in Q2. In addition, multiple significant requirements are active in the market, indicating sustained latent demand.
Regionally, Yorkshire was a standout performer, after a relatively subdued 2024. The region saw elevated levels of occupier activity, fuelled by its strong connectivity and favourable cost profile relative to core Midlands markets, it’s proving appealing for logistics operators.
Speculative development remains subdued, with the total volume of space under construction below historical averages, a trend that may restrict future supply and support further rental growth.
Rental values continue to edge upward, though the rate of growth continues to slow. Occupiers are facing increasing cost pressures on various fronts, with rising wage bills, business rates and other costs. Unable to control many of these costs, some occupiers are looking to stymie their outlay on rent.
Following a rebasing, online retail has now found its post-pandemic level, and this is fuelling renewed momentum, as third-party logistics providers (3PLs), online retailers and parcel carriers are becoming increasingly active, as they reactivate expansion plans that had previously been on hold. Supermarkets are also ramping up their investment into the resilience of their supply chains. This is supporting occupational demand for the sector.
On the investment side, activity levels were broadly in line with Q1 2024. Institutional capital has been showing renewed interest, particularly in core logistics assets. However, transaction volumes in this segment remain relatively low. The yields offered on these assets are often insufficient to meet most buyer return expectations. As a result, investor focus remains core+ and value-add opportunities, where higher returns and the potential for value creation through active asset management are more attractive.
A pricing mismatch persists in the market, with many sellers unwilling to adjust their pricing expectations and continues to act as a brake on deal flow, especially in the core segment. A lack of development is also restricting the supply of newly built stock available for investors.
Overall, Q1 2025 reflects a market that is steady and resilient, with signs of increasing momentum in both leasing and investment activity as the year unfolds.
US tariffs will impact transatlantic trade
Trump’s recent tariff announcements have rattled global financial markets. One week after unveiling the new US tariff structure, on 9 April the administration introduced a 90-day negotiation window, during which tariffs will be frozen at 10% for most markets. However, the trade war with China has escalated, with a 125% levy now implemented.
Despite the reprieve, a10% baseline tariff remains in place (the same level as was planned for the UK) and the higher, 25% tariffs announced on steel, aluminium and automobiles remain unchanged.
While the imposition of tariffs on UK exports to the US was widely anticipated, their scale and structure will hit certain occupier segments harder than others. Manufacturers in sectors facing the higher 25% rate will feel the most impact.
The automotive industry is particularly exposed. Nearly 80% of UK-produced cars are exported, and the US is the second-largest destination after the EU. In 2023, the US imported £6.4 billion worth of UK cars, representing 18.4% of total UK car exports.
The pharmaceutical sector is also heavily dependent on US exports, though it currently enjoys an exemption. In 2023, the UK exported approximately £8.8 billion in pharmaceutical products to the US, about 33.9% of total pharmaceutical exports. However, the threat of future tariffs remains.
The steel industry is also likely to face a negative impact, with 25% tariffs being applied. The US is the UK's second-largest market for steel exports, accounting for 7% by volume and 9% by value in 2023. UK exports totalled 165,000 tonnes and were valued at £388 million. These new tariffs may significantly reduce demand from US buyers, especially for semi-finished and sheet steel.
As well as manufacturers, freight forwarding companies, particularly those with a strong US focus, could see demand for services fall potentially reducing requirements for warehousing and distribution space near ports and airports.
Ports with high US exposure will feel the brunt of this shift. The UK port most focused on transatlantic (US) trade is the Port of Liverpool, followed by the Port of Southampton. Liverpool is focused on containerised freight, and logistics providers who handle container freight and distribution centres servicing US trade will be impacted. Southampton, a key Ro-Ro port and major automotive export hub, may also see weaker demand for vehicle storage land due to sector-specific tariffs.
Big trouble in little parcels
The de minimis advantage is set to be scrapped in the US and EU, and the UK may soon follow suit, removing a key tailwind for low-cost retail models.
Chinese online retailers have taken advantage of de minimis rules, which exempt low-value international shipments from duties, allowing ultra-cheap goods to be sold directly to consumers abroad.
Last week, Trump signed an executive order eliminating the US de minimis rule, effective 2 May 2025. Originally, shipments under $800 (c.£645) were to be taxed at 30% of their value or $25 per item (rising to $50 after 1 June). However, as trade tensions with China escalated, the US tripled these rates to 90% of value or $75 per item (rising to $150 after 1 June).
Meanwhile, the EU is proposing to scrap its own de minimis threshold of €150.
Although China is the biggest beneficiary of these exemptions, UK exporters have also made use of them.
The UK currently exempts imports under £135 from customs duties. However, there is growing political pressure to reassess this policy. Like the US system, the UK's de minimis rules facilitate small-parcel e-commerce, particularly from Asia. Chinese e-commerce firms often use direct-to-consumer (D2C) cross-border shipping, relying on 3PLs in China to consolidate and fulfil customer orders to the UK, US and other markets.
Removal of the de minimis rule in the UK will force retailers to consider alternate logistics strategies. In particular, bulk shipping, holding stock and fulfilling orders within the UK, rather than in China. This will necessitate the expansion of warehousing and use of 3PLs within the UK.
Some Chinese retailers and logistics providers appear to be moving pre-emptively. In Q1 2025, Chinese logistics firm CIRRO Fulfilment (trading as Super Smart Service) took two warehouses in the Midlands. Along with eBay and Amazon, their customers include Chinese e-commerce platforms Shein and Temu. We could see more activity like this to come.