LSH’s TAKING STOCK report identifies 2026 as a key turning point for the UK industrial and logistics market, with improving occupier confidence working in tandem with absorption of high-quality supply.

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Set against a challenging backdrop of trade policy uncertainty, rising costs and lacklustre economic conditions, 2025 was a respectable year for occupier market activity. UK take-up rose 5% from 2024’s 11-year low to a three-year high of 40.2m sq ft, albeit the improvement was driven by stronger activity at the very large end of the market.

While the geopolitical environment remains febrile under the US Trump Administration, not least due to unfolding events in the Middle East, 2026 is shaping up to be a year of accelerated recovery for the occupier market. Requirements that were on hold due to Budget-related uncertainty have been revived and Q1 promises to deliver robust take-up across the big box market, with circa 7m sq ft known to be in advanced discussions.

LSH predicts UK take-up of 44m sq ft in 2026, or 10% above 2025’s level. LSH’s research identified three key pockets of growth that will drive the improvement. Chinese ecommerce will continue to make inroads into UK logistics, rising demand for chilled food and healthy living will underpin strategic demand in the cold chain, while increased spending on defence will start to be reflected in rising demand from defence-related manufacturers and logistics.

Rising cost pressures were also cited as a potential key stimulus for activity in 2026 and beyond, with typical logistics occupiers scrambling to cope with a substantial 44% rise in operating costs since the eve of the pandemic. With more confidence to commit, and alongside quantum leaps in AI technology, enhanced automation will increasingly be deployed to maximise efficiencies, with competition for power becoming equally important as labour in site selection.

Supply levels continued to shift upwards in 2025, but evidence suggests 2026 will be the high-water mark. The UK-wide availability rate ticked up from 7.0% to 7.9% during 2025, marking a 12-year high. With speculative development activity effectively halving during 2025, grade A’s share of supply has stabilised to represent approximately two thirds of the total.

Despite improving sentiment, 2026 is set to be another relatively muted year for speculative development, with just 8m sq ft of spec starts anticipated in 2026, the lowest since 2017. As a result, 2026 will see net absorption of grade A space for the first time since 2021. However, this absorption will be offset by increased supply of second-hand space. Considered overall, the UK-wide availability rate is predicted to stabilise in 2026, before gradually edging down in 2027.

Average prime rental growth across the UK’s key markets was 3.4% in 2025, down from 4.1% in 2024 and modest by 2022 standards. In spite of significant cost pressures, meaningful rental growth is expected to continue, as higher rents are often a necessary trade-off to secure an optimal site for enhanced automation, access to markets and labour. Prime rents are forecast to grow by an average of 3.1% across the UK’s key markets in 2026. However, growth will be geographically patchier than previous years, with most markets witnessing limited change in tone at best.

James Polson, Executive Director – National Head of Industrial and Logistics at LSH, said: “Recent events in the Middle East have admittedly brought a fresh dose of uncertainty, just as the market was showing clear signs of improving confidence post Budget. However, standing still is looking more like the riskier option. While cost pressures and disruption risks are front of mind for many occupiers, it’s also a call for action, be that through consolidating into more efficient operations or investing in new facilities with enhanced automation and strong environmental credentials.”

Richard Meering, Senior Director – National Head of Industrial Leasing at LSH, said: “While the outcome of the conflict in the Middle East is difficult to predict, I remain cautiously optimistic that 2026 will be a better year for acticity, with pockets of expansion and renewed ambition to optimise supply chains translating into stronger activity. With spec development easing right back to pre-pandemic levels, 2026 is a window for demand to catch up with supply levels. This points to continuing upward pressure on rental growth, albeit more selectively.” 

Meanwhile, in the investment market, 2025 ended very strongly with Q4 industrial and logistics volume of £3.7bn driving the annual total to £8.7bn, the third strongest year on record. With core income unappealing to many investors, rental growth has played a key role in driving recent investor demand, with reversionary potential key to a record quarter for South East multi-let volume in Q4.

While similar volume is expected in 2026, the improving financial environment points to an improvement in activity levels (i.e. no. of deals) compared with 2025, where volume was boosted by Tritax Big Box REIT’s £1.0bn acquisition of the Project Centurion distribution portfolio from Blackstone, the second biggest UK industrial transaction on record, in Q4.

Alex Carr, Executive Director – National Head of Industrial Investment at LSH, said: “With last November’s budget passing without a fuss, sentiment has subsequently improved markedly. Some assets that failed to sell in 2025 are now garnering renewed interest at closer to vendor’s pricing aspirations, and in multiple cases now ahead of valuations. While recent events in the Middle East are a cause for concern, certainty in the short term, industrial’s defensive characteristics will continue to drive global appeal. Investment volumes in 2026 will continue to be supported by large portfolio transactions, some of which have already transacted in Q1”.

Download the Industrial & Logistics Market Report 2026 in full here →