Britain Can’t Build Fast Enough – And That’s Good News for Investors
The numbers are stark. A landmark report published in March 2026 by the British Property Federation and Savills concluded that the chronic undersupply of industrial workspace across the United Kingdom has cost the economy more than 140,000 jobs and £9.7 billion in economic output since 2010. To put that figure in context: it is roughly equivalent to erasing the entire economic contribution of a mid-sized British city. Not because demand wasn’t there. But because the space to meet it simply didn’t exist.
This is the central paradox of the UK’s logistics and industrial market: it is simultaneously one of the country’s most in-demand asset classes and one of its most undersupplied. And that tension – between relentless structural demand and a constrained, slow-moving pipeline – is precisely what makes it so interesting to investors looking for durable, income-generating returns in a stable jurisdiction.
A Squeeze That Has Been Building for Over a Decade
The availability rate for industrial and logistics space in the UK remained below 8% – widely regarded as the ‘healthy’ equilibrium level – for over a decade between 2010 and 2024. During the pandemic boom years of 2021 and 2022, availability dropped to an almost unimaginable 3.3%, meaning that at prevailing take-up rates, there were effectively just two months of ready-to-occupy space available in the entire country.
The market has since normalised somewhat, with national vacancy returning to just under 8% as a wave of 2024 and 2025 completions came to market. But this statistical calm masks an increasingly urgent underlying problem. Grade A availability – the modern, energy-efficient, automation-ready space that occupiers actually want – has dropped by around 6% over the past year. New speculative development has slowed dramatically as developers face rising construction costs, tighter financing conditions and prolonged planning processes.
Prime industrial rents have responded accordingly. Average prime headline rents for mid-box and multi-let industrial units reached approximately £15.55 per square foot by mid-2025, representing year-on-year growth of around 4%. In London and the South East – where vacancy in prime logistics submarkets sits below 2% – rents inside the M25 are reaching £25 to £35 per square foot. In Scotland, Glasgow and Edinburgh recorded rental growth of 5.7% year-on-year.
“For an investor seeking predictable, growing income in a market where supply is structurally constrained, this is an unusually attractive environment.”
Why Supply Cannot Keep Pace
Understanding why supply is so constrained requires looking at three interacting forces: planning, construction costs, and an approaching regulatory cliff edge.
Planning remains the most intractable problem. The UK’s planning system is fragmented, slow and, in many areas, politically hostile to large-scale industrial development. Meaningful planning reform that materially accelerates delivery remains at least several years away.
Construction cost inflation has made matters worse. Tender price inflation is forecast at 3.5% for commercial real estate in 2026. The most pressing near-term pressure, however, is the approaching energy efficiency deadline. Under the UK’s Minimum Energy Efficiency Standards, commercial properties will need to hold an EPC ‘B’ rating to be legally lettable from 2030. The BPF and Savills research found that 73% of existing industrial and logistics floorspace in the UK currently falls below this threshold. If even a fraction of this space becomes unlettable, the effective supply available to occupiers will contract sharply – intensifying pressure on modern, compliant assets still further.
The Demand Story Is Changing Too
Between 2019 and 2024, more than half of all industrial floorspace leased went to businesses outside of logistics and manufacturing. Retailers accounted for 26% of take-up. Science, R&D and professional services firms took a further 20%. And data centre operators, responding to the AI-driven surge in compute demand, accounted for 7% – a share analysts expect to grow significantly.
Two structural demand drivers deserve particular attention. The first is defence. The UK Government has committed to increasing defence spending to 2.5% of GDP by 2027. Savills estimates this will require up to an additional 285,000 square metres of industrial and logistics space – sovereign, contracted demand of precisely the kind long-term investors prize.
The second is supply chain resilience. Geopolitical uncertainty is prompting businesses to onshore or near-shore operations previously dispersed across global supply chains. The UK, as a stable, well-governed country with well-established rule of law and strong infrastructure links, is a natural beneficiary.
Our Views
The structural case for UK industrial and logistics investment is genuinely compelling. But investors should resist treating this as a market where all assets are created equal. The bifurcation between Grade A and secondary stock is real and widening. The 2030 MEES deadline creates a potentially severe valuation discount for non-compliant buildings.
The most interesting risk-adjusted opportunities may lie in identifying well-located secondary markets – Scotland’s Central Belt, the Thames Gateway, the Midlands and North West freeport zones – where occupier demand is building but institutional capital has not yet fully arrived. For Gulf sovereign wealth funds and family offices accustomed to deploying capital into long-duration, infrastructure-adjacent assets, UK industrial and logistics has a great deal to offer: structural demand growth, a constrained supply environment, government-backed occupiers, and a legal framework that has consistently protected investors across multiple market cycles.
© 2026 Redwood Real Estate Partners. For informational purposes only. Not investment advice.
