The industrial and logistics real estate sector in the UK has experienced significant shifts in recent years, influenced by a range of economic, social, and political factors. The valuation of commercial property generally and within this sector specifically is shaped by dynamic market conditions, regulatory evolutions, and changing demand patterns. We caught up with Jason Clines, a partner in our valuation team, to explore the key issues currently affecting the valuation of industrial and logistics real estate in the UK.
The UK economy has faced persistent uncertainty due to factors such as inflation, fluctuating interest rates, and global and domestic economic pressures. These elements have a direct impact on investor sentiment, financing costs, and yield expectations, making it more challenging to accurately value industrial and logistics assets. Higher interest rates, for instance, increase the cost of borrowing, which directly influences yield shifts and suppress values as investors seek higher returns to offset increased expenses.
Across the UK the Warehousing and Industrial property sector is generally considered as a homogeneous group, principally due to the physical real estate being generally the same. However, there are some very distinct drivers that link into the sector:
- Manufacturing Health
- Supply Chain Resilience
- Retailing (physical and online)
- Planning
- Environmental, Social and Governance
According to the most recent ONS data, over the 3 months to July 2025 show the weakest 3 months growth since December 2023
Recent disruptions to global supply chains, exacerbated by geopolitical tensions, have accelerated the demand for logistics space. Businesses are increasingly seeking to "reshore" or "nearshore" supply chains, driving demand for local warehousing and distribution centres. However, this surge in demand has led to fierce competition for prime assets, impacting valuations through price inflation and compressed yields.
The continued rise of e-commerce has significantly increased demand for modern, well-located logistics facilities. Retailers and third-party logistics providers require properties that can accommodate rapid fulfilment, automation, and last-mile delivery. As a result, assets with features such as high eaves, large yards, and strong power supplies are commanding premium values, while older or obsolete stock may face downward pressure on valuations.
Securing planning permission for new industrial and logistics developments remains a major challenge in the UK, particularly in and around urban centres where demand is highest. Limited availability of suitable land, coupled with lengthy and complex planning processes, restricts new supply and supports higher valuations for existing assets. However, uncertainty around future planning policies can also introduce risk and volatility into the valuation process.
Environmental, Social, and Governance (ESG) considerations are increasingly prominent in the real estate sector. Investors and occupiers are prioritising assets with strong sustainability credentials, such as energy efficiency and low carbon footprints. New regulations and minimum energy efficiency standards (MEES) are prompting owners to invest in retrofitting or risk obsolescence, which can affect both costs and asset values.
Rising construction costs which are driven by inflation, labour shortages, and material supply issues, are impacting the feasibility of new industrial and logistics schemes. Higher development costs can lead to increased rental requirements to achieve viable returns, influencing both the pricing and valuation of new-build assets. This can also lead to delays or cancellations of pipeline projects, further constraining supply.
Location remains a critical determinant of value, with properties close to major transport hubs, ports, and urban centres attracting a premium. The quality of local infrastructure, including road and rail links, digital connectivity, and access to labour, also plays a significant role in shaping valuations.
The level of interest from both domestic and international investors continues to shape the valuation landscape. While industrial and logistics assets have generally remained attractive due to their resilient income streams, recent macroeconomic headwinds have led some investors to adopt a more cautious stance, impacting liquidity and transactional evidence used in valuations. That said, the Industrial and logistic sector generally continues to outperform the other core sectors. Demand drivers are everchanging within the industry, as both occupiers and investors continue to change their strategies accordingly. Despite occupiers facing demands from interest rates, increased business rates and increased legislative pressure in the form of the Minimum Energy Efficiency Standard (MEES), vacancy rates remain relatively low and industrial landlords believe the sector remains in a relatively strong place.
Valuations in the UK industrial and logistics real estate sector are currently influenced by a complex interplay of economic, regulatory, and market-specific factors. Stakeholders must closely monitor these evolving issues to make informed investment and operational decisions in this dynamic sector.