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Low risk, attractive returns. Speculative Big Box development is mispriced, and we expect that anomaly to correct.

Following Jake Huntley's analysis in 'The Race for Space' and last week's 'Something Has to Budge', which set out why big box development economics are so stretched, we turn to the case for speculative Big Box development. Our central contention is straightforward: the returns available in this part of the market are not commensurate with the risk taken to secure them. For investors prepared to underwrite carefully, big box remains the most compelling opportunity we are currently tracking.

 Securing consent remains slow and resource-intensive, notwithstanding recent improvements to the regime. In addition, section 106 & 278 agreements are expensive and prohibitive for some developers. But for well-conceived schemes, however, the risk is overwhelmingly one of timing rather than outcome: the question is when, not if. In the year ending March 2026, 6,300 decisions were made on applications for commercial development, of which 5,700, or 90%, were granted.

Grid capacity is increasingly difficult to secure within sensible timeframes, a constraint that is only intensifying as automation and electric vehicle infrastructure raise the power demands of modern logistics facilities.

 Cost inflation continues to work through the supply chain, led by structural steel, where July's tariff changes have moved section prices from £700 to £950 per tonne this year, and many contractors remain unwilling to hold tender prices for more than a few weeks. DXTRE's build cost tracking shows rises of 7% to 9.5% in the second quarter of 2026 alone, with further increases expected before year end. Something Has to Budge sets out the mechanics in full.

This is the principal risk in big box. An error in location or specification can prove costly, exposing an asset to prolonged void periods or to weaker terms on letting.

The race for space is firmly back on, and nowhere more so than in Big Box. Rental growth forecasts are robust, underpinned by shrinking supply and strengthening demand. DXTRE's National All-Industrial five-year forecast points to rental growth of 3.3% per annum, with prime further ahead of that.

Occupiers of larger-scale units tend, by definition, to carry stronger balance sheets. They are also more willing to commit to strategically located facilities, a commitment that justifies the substantial fit-out and automation investment these buildings increasingly attract.

 Leases are longer, in part to allow occupiers to amortise fit-out over an extended period, and they frequently carry more favourable review mechanics. The contrast with smaller units is consistent and material, as Figure 1 shows.

Figure 1: Average term certain by unit size, 2023 to 2026 - Source: DXTRE

 Well-designed modern buildings can accommodate a wide range of occupier requirements with meaningful future-proofing built in. Contractor warranty packages give incoming landlords further comfort on ongoing capital expenditure, assuming the right contractor was used.

 DXTRE data shows a consistent discount in the market for Big Box single-lets relative to multi-let estates. We regard this as an anomaly rather than a durable feature, and one we expect to correct. In the meantime it offers attractive entry pricing today, with clear scope for yield compression on exit. As Figure 2 illustrates, the net initial yield spread between single-let and multi-let industrial has widened markedly through the last 18 months.

Do the returns on offer reflect the risk being taken? We would argue not. Through disciplined stock selection the risk can be tightly contained, yet the return profile points to internal rates of return in excess of 20% on downside assumptions alone. The breadth of funding and structuring options available means that specific risks, whether planning, construction or, in some cases, even leasing, can usually be substantially mitigated. And the point can be put more starkly. If the only routes to 20% returns in industrial and logistics today are income-producing secondary stock or speculatively developed Big Box, then for us the choice is clear.

20%+ achievable IRRs on downside assumptions, through careful stock selection

As core capital returns to the Big Box space and occupier demand continues to outstrip the supply of Grade A stock, rental growth and yield compression appear more probable within this strategy than within any other we are currently observing.

With significant downside protection and substantial upside potential, Big Box stands out as the most compelling investment strategy in the market today. Specialist knowledge for navigating these nuances against a continually changing economic backdrop has never been more important.

Figure 2: Average net initial yield: single-let versus multi-let industrial, 2021 to 2026 - Source: DXTRE

Big Box is Back: Fortune Favours the Brave

The maths of Big Box development still works. It has just never had to work this hard. Let me explain why.

Last week I sat at a lunch table with 12 of the most senior people in UK logistics development and construction. Developers, contractors, funders. People who have collectively delivered hundreds of millions of square feet. The premise was a simple question. How does anything get built at these prices? Twelve of the sharpest operators in the sector, and not one of them had a convincing answer, as they had already “pulled every lever available to them”. That should worry anyone who needs a shed in 2027. 

Occupiers took 17 million sq ft of big box space in the first half of 2026, the strongest first half on record outside the COVID distortion years. Grade A vacancy sits at 2.6% and at current absorption rates, the market holds roughly 6 months of Grade A supply. There is plenty of secondary space on the market, but much of it will not lease and occupiers are increasingly preferring the newer, better built, cheaper to operate, easier to attract staff to, big boxes. Factors which we all must see as a positive overall for the sector. 

Rubbing up against that demand there’s just 6 million sq ft of speculative space under construction across the UK, versus a 10-year rolling average of 11 million sq ft. That is a 45% shortfall in the pipeline, in a market absorbing space at near record pace. If demand holds its trajectory, the arithmetic becomes uncomfortable, because the market effectively runs out of new Grade A supply within 12 months. 

A pipeline shortfall like that is not developers sitting on their hands, nor a collective failure of nerve. It’s rather a rational  supply-side response to an appraisal that has become far harder to make stack up. Development still works, but every input   is moving at once, with costs rising, rents climbing and yields shifting, and the margin for error has narrowed.

DXTRE’s build cost tracking shows warehouse construction costs rising between 7% and 9.5% in the second quarter of 2026 alone. Not annualised. In one quarter. In hard numbers, a 500,000 sq ft unit at 18m eaves now prices at £61.58 per sq ft, up from circa £57 in March. Across the range we track, costs run from £54.54 per sq ft on a 1 million sq ft cross-dock at 21m, up to £96.15 per sq ft on a 50,000 sq ft unit at 10m. And in a grim irony, the biggest quarterly increases sit at the large, tall,  ross-docked end of the market, precisely the product in shortest supply, because those buildings carry the most steel.

Steel is the flashpoint as sections have moved from £700 to £950 per tonne this year, and since 1st July imports above the government’s tariff-free quota carry a 50% duty. The room’s shared expectation was blunter than any forecast I could  publish, namely that domestic prices will drift up to sit just beneath the tariff line, because that is what prices do. And the all-in numbers are no longer market talk. A leading main contractor tells us structural steel is currently pricing at circa £2,500 per tonne to site in the preconstruction phase, up from around £2,150 at the start of the year and £2,300 through the spring, a 16% rise in 6 months. That rate is deliberately forward-looking, because on most big sheds a long earthworks programme means steel ordered today does not land on site until late 2026 or early 2027, so contractors are pricing the unknown impact of the government’s steel strategy, continued volatility in fuel and energy markets, and the growing squeeze on low-carbon EAF steel from Europe as net zero commitments bite. On a typical big box the frame alone is circa 12% of total construction cost, and once cladding, decking and rebar are counted, total steel exposure runs at roughly four times that.

Here is the part that separates this cycle from every previous one. There are no levers left. The industry has spent 20 years value engineering the big box. Frames are optimised, specifications are lean, procurement is professional. In previous cost cycles, developers absorbed inflation through cleverness. That capacity is exhausted. Every pound of cost increase now lands directly on the appraisal. On top of that sit three structural pressures with no release valve.

Put those together and you have cost inflation with no shock absorber.

There are four candidates, and only the last of them can move quickly.

The first is quality, or more precisely, specification. 

There is a live and overdue debate about whether the UK builds to an institutional standard when it should build to an occupational one. On the continent, structural materials are treated as commodities, and the same developer will frame a building in steel, concrete or timber depending on what is cheap that quarter. The UK remains stuck on steel at the precise moment steel is the most politically exposed material in the country. A genuine shift here would help, but re-educating an entire investment market about what makes a building fundable is the  work of years, not quarters. Nor is this an argument for building worse buildings. Institutional-grade product is what keeps the deepest pool of exit capital engaged, and a pound saved on specification can cost a multiple of that on exit.

 In a functioning market, development economics repair themselves through the residual, where rising  costs push land values down to compensate. In practice, land is the stickiest input there is. Landowners anchor to yesterday’s price, sites are optioned at yesterday’s assumptions, and nobody sells into weakness unless they must. Land will budge as it  always does but again, it budges over years, and the supply hole is being dug now.

The third is pricing, meaning rents and exit values. 

Rental growth is running at roughly 3.5% nationally, with the strongest geographies already well ahead of that, and the 3.5% itself is best read as a base case with downside protection rather than a ceiling. Even so, no rental number in the market is tracking a 9% quarterly build cost move. The inflation maths on rents is instructive. The first generation of big box rents from the 1990s on Magna Park Lutterworth, adjusted for inflation alone, would sit around £16 per sq ft today, and the market remains well below that. There is clear headroom in what occupiers can bear relative to their total operational costs, and a supply squeeze of this severity will force rents through it. The penny has already dropped with some occupier advisors and they have confidently advised their clients to accept this rental growth in  order to solve their operational need but more will need to follow. Meanwhile, every quarter of cost inflation raises the  replacement cost of standing prime stock (which, whisper it quietly, is in turn making a strong argument for buying and owning standing stock).

The fourth is the appetite to fund risk. 

This is the lever most likely to move first, because it is the only one that does not require anyone to build, buy or re-educate anything or anyone. It requires a funder to change their mind, It requires a funder to change their mind, and the, case for changing it strengthens every quarter.

Development risk has not gone away, but funders are, in our view, disproportionately bearish right now. The typical  underwrite prices today’s challenging conditions in full while giving no credit to the rental growth, ‘core’ exit opportunities and consequential yield compression coming down the tracks, even though every one of those five lines pushes risk-adjusted returns in the same direction. The funders able to price the medium term trajectory, rather than just today’s conditions, are likely to be rewarded for it. If speculative development restarts into this vacuum, it restarts here, with whoever reprices that risk first.

My best guess is that all four budge, and that funding appetite budges first. The market clears a way through a thin 2027 delivery pipeline by moving rents upwards, by land being repriced (though largely at the margins), by prime stock benefitting from a pricing uplift due to demand and supply imbalances, and by capital accepting more development risk for the returns now on offer.

However, as outlined, there is no quick fix and the winners over the next 24 months will be those already holding land at sensible cost, those with the balance sheet to start speculatively into a supply vacuum, those with the occupier relationships to de-risk through pre-lets, those volume developers who build the most and thereby have the strongest leverage with the tier 1 contracting market, and those funders willing to underwrite the trajectory of rents and yields rather than just today’s conditions, because by the time the evidence is unarguable the return will have been competed away. For everyone else, it’s time to get creative, and realistic.

That final lever deserves a piece of its own, and it gets one. Big Box is Back: Fortune Favours the Brave follows next week, setting out why the returns on offer for taking development risk now outweigh the risks being priced. If this piece explains why something has to budge, next week’s explains who gets rewarded when it does.

Something Has To Budge

During a period where conflict and geopolitical tension seemed ever-present, it might be easy to assume that – in the industrial and logistics market – caution would have translated into paralysis in the first half of 2026.

But on the ground, the Northern market tells a very different story. While uncertainty has persisted, activity levels in the region have proven resilient – powered by occupiers and investors with the long-term conviction and capital to keep moving forward.

While the first half of the year did see a modest slowdown for some occupier types, the largest players – those with balance sheet strength and strategic flexibility – remain very much open for business. Rather than retreating, they had to adapt and navigate around another obstacle. In doing so, they are helping to stabilise and future-proof the region's occupational market. For the rest of the year, there are many reasons to believe occupiers and investors will have greater certainty, stability and clarity – pointing to more positive momentum in the months to come.

Overall, the first six months of 2026 proved exceptionally busy. DTRE facilitated 189 industrial and logistics viewings across all size ranges in the North in H1, representing a notable uplift year-on-year. This elevation reflects pent up demand from occupiers who delayed decisions through the latter part of last year but who are no longer willing to wait.

Whilst there are new entrants spying regional opportunities, a trend we have seen across both regions is that occupiers that have taken space tend to already have a presence nearby those buildings, and are consolidating or expanding their existing regional operations.

Record numbers underlined this strength with new headline rents set in both regions. In West Yorkshire, £9.75 psf was achieved at Baytree Leeds – a 145,000 sq ft, BREEAM Outstanding asset – and, in the North West, £12.50 psf was achieved at Haydock140. Both demonstrating again the flight to quality seen in recent years.

Interestingly, across the North, the start of 2026 mirrors that seen in 2025. It was a slow start in the North West in terms of actual deals completing, but the tide quickly turned. Six deals have now been completed across the region, equivalent to 1.1m sq ft, and today there sits an additional 790,000 sq ft under offer across 4 units.

The Yorkshire market also saw six deals complete in the first half, totalling 1.2m sq ft, with an additional 190,000 sq ft currently under offer. The largest deal completed in H1 across both regions was a 411,470 sq ft unit at Gateway4, Doncaster, let to Maersk.

One of the most notable shifts in recent months, though, has been larger occupiers' approaches to managing risk. Rather than committing directly to long term, single occupier platforms, the biggest prospective occupiers are putting their own, direct requirements on pause and instead turning to third party logistics (3PLs) providers to meet their needs.

This shift has already had a tangible impact. Occupiers including Maersk and GXO took space across the North in the first half, with 3 of the 6 deals completed in Yorkshire let to logistics operators and a number of other large-scale contracts currently going through the tender process.

3PLs offer a built in buffer: building capacity and maintaining flexibility, all while insulating operations from further possible market shocks. In the market, the expansion of 3PLs is absorbing supply at scale and providing a degree of stability at a time when smaller occupiers are facing tougher trading conditions.

Elsewhere, and as you might expect, defence related occupiers remain a consistent presence within the market. Though it has since collapsed, BAE Systems were at one point set to deliver the largest deal in the region so far this year, contemplating Arc500 in Birkenhead.

While we are not seeing any particular surge in defence-occupier demand driven by the conflicts that have defined 2026 to date, there are active defence related occupiers in the market. It is a sector providing steady requirements and adding further resilience to the region's occupier base.

Looking ahead, the outlook for rental growth remains firmly positive, driven by long-term shortages of supply. In the prime North West locations of Greater Manchester and Warrington, land availability for developers remains constrained. An 8 acre site in Trafford Park attracted significant interest in Q2, with Prologis ultimately coming out on top – their first re-entry into the North West market.

A similar picture emerges in West Yorkshire, where there are just two new build big box units currently available, K151 Konect62, a DTRE instruction, and SH190 Sherburn42 – with Panattoni the only developer so far this year committed to speculative build: a 490,000 sq ft unit in Wakefield.

In the North West, there are two units committed so far this year: Indurent has started building out a 199,420 sq ft unit in Knowsley and Garbe has committed to starting a 245,000 sq ft unit in Skelmersdale in Q3, with DTRE advising on both.

Supply constraints promise to be the most acute at the larger end of the market, with the availability of XXL boxes (500,000 sq ft plus) set to be extremely limited. There are currently only two new build XXL units available across the North (one in each region), but developers are looking to go big during the rest of 2026. In West Yorkshire alone, there are three sites rumoured to be coming forward in H2 – all of which can accommodate 500,000+ sq ft units.

Where supply has not been constrained in recent years is South Yorkshire, with a historic oversupply of 300,000+ sq ft units and some buildings having sat empty since the Covid boom. Off the back of a surge in occupier interest and a steady stream of viewings, we're now confident that a number of these will transact in H2, reducing availability further.

Beyond the rumour mill, standout schemes such as Warrington 675 (on which DTRE is advising) are attracting particularly strong interest. In February, Panattoni submitted plans for the 675,000 sq ft site, targeting BREEAM Outstanding, and will be on site later this year once planning has been granted.

An end to conflict in the Middle East should provide greater certainty through the rest of the year. As should a change in Prime Minister, provided that leading candidate Andy Burnham maintains the 'fragile peace' he has made with the bond markets. In industrial and logistics, it will mean those with scale and conviction continue to press ahead, reinforcing the region's long term fundamentals and the pivotal role it plays across the North.

Conflict Driving Change, Not Withdrawal.

Conflict Driving Change, Not Withdrawal

Britain is rearming, and the private sector is moving fast. With the government committed to raising defence spending to 3.5% of GDP by 2035, the defence budget on course to top £73.5 billion by 2028/29, and companies like Anduril, who closed a $5 billion Series H raise in May at a $61 billion valuation, already committing to UK manufacturing, one question is starting to cut through: what kind of real estate will all these companies actually need?

The geopolitical order has shifted. Russia’s invasion of Ukraine, NATO’s new 5% of GDP aspiration agreed at The Hague in 2025, and a recalibrated transatlantic relationship have together triggered the most significant re-arming of Western nations in a generation. According to SIPRI, global defence spending hit $2.46 trillion in 2024, a real-terms increase of 7.4%. Defence News research found that defence technology startups raised a record $49.1 billion in 2025, almost double the prior year. In Europe alone, deal count for defence tech grew 67% year-on-year. Helsing, Europe’s leading defence AI company, is now in talks for a $1.2 billion round at an $18 billion valuation, a raise described by the Financial Times as oversubscribed multiple times.

The numbers are becoming names. Before 2026, the UK had no defence tech unicorns; within the first three months of this year it is on course to have three, with Tekever, UForce and Cambridge Aerospace all crossing or approaching the billion-dollar mark. The question of physical space is no longer academic. 

The nature of modern defence technology is important here. This is not the defence of old, with vast factories turning out armoured vehicles and munitions behind high-security perimeters. The new cohort, from drone manufacturers and autonomous systems developers to AI-enabled sensing businesses and advanced materials firms, clusters around talent, needs flexible space for both R&D and early-stage manufacturing scale-up, and cannot be accommodated by either a traditional factory or a Grade A science campus. The European Commission’s Defence Industry Transformation Roadmap, published in November 2025, puts it plainly: new defence companies “would benefit from agile and flexible approaches to manufacturing” and are held back by the need to commit to expensive, purpose-built facilities before contracts are secured. That is precisely the problem mid-tech solves.

This is why a conversation DTRE started 2.5 years ago feels more urgent than ever. Our ‘Rise of Mid-Tech’ report identified a structural gap in the UK’s commercial real estate market: between Grade A laboratory buildings commanding £65-£85 per sq ft in Cambridge and Oxford, and the vanilla industrial unit, there existed a largely unmet category. Mid-tech: an industrial shell with adequate height and loading, Cat A mezzanine office space covering at least 25% of the footprint, full-height sections for heavy equipment, and the amenity knowledge workers expect. Shell and core, at around £30 per sq ft. Not a compromise. A proposition.

That proposition has found a powerful new advocate in the defence technology sector. The specification requirements of a drone manufacturer scaling from prototype to production are almost identical to those of a life sciences business outgrowing its incubator. They need height. They need loading. They need to run power-hungry equipment. They cannot wait two years for a bespoke building to be delivered. The Financial Times has reported that weapons factories across Europe are already expanding at nearly three times the peacetime rate, with some 7 million square metres of new industrial development recorded since 2022. That is the direction of travel, and it is accelerating.

Location logic mirrors that of life sciences. The Golden Triangle remains the gravitational centre, but the real opportunity  sits on its edges. The fringes of Harwell, the Cambridge arc, the M40 corridor: these are precisely where developers can acquire land at a cost that makes a £30 per sq ft shell and core viable, while proximity to research institutions delivers the clustering effect these occupiers need. It is not a coincidence that Anduril and Tekever are already gravitating to exactly these locations.

The thesis has not changed. What has changed is the urgency and the breadth of the demand signal. Mid-tech is now being validated by a defence technology sector that is flush with capital, under political pressure to manufacture on home soil, and deeply unsuited to either a conventional office park or a full-specification science campus. Our own pipeline bears it out: since the start of this year we have put under offer or transacted on 173,000 sq ft of space to defence technology occupiers. Two years ago, those conversations barely existed.

Some developers have been slow to recognise the full range of occupiers that mid-tech can serve. Defence technology changes that calculus significantly. With IMARC Group projecting the UK’s aerospace and defence market will nearly double from $28.7 billion in 2024 to $58.3 billion by 2033, the pipeline of companies requiring exactly this kind of space, industrial in structure, intelligent in finish, located within reach of the country’s key research clusters, is only going to grow. The goal is open. It has been open for 2.5 years. Developers just need to take the shot.

The New War Room: How the Defence Tech Boom Is Making the Case for Mid-Tech Real Estate

In the face of regular market shocks, the industrial and logistics sector across the North West has proven to be
remarkably resilient. 

Despite fluctuating macroeconomic indicators, occupier demand has remained steadfast – and in many cases, grown stronger. In a market defined by its manufacturing roots, robust e-commerce expansion, and strategic transport network, this comes as little surprise.

This year, DTRE data shows that total Big Box take-up across the North West has reached 2.9 million sq ft, a 21% increase on the full year of 2024. Investment volumes have also held firm at £1.35bn an 8% uplift – reaffirming investor confidence in the market’s long-term
fundamentals.

One of the defining trends of 2025 in the North West has been the relentless upward pressure on rents. Each new deal has seemed to set a fresh benchmark, underscoring both scarcity of quality space and enduring appetite from occupiers seeking quality, well-located assets.

The headline deal at Trafford150, Trafford Park – achieving £10.90 per sq. ft. – was the latest record set, up from a high watermark of £10.25 earlier in the year. This reflects not just inflationary growth but also growing polarisation between prime stock and secondary assets.

Looking ahead, supply constraints will continue to define the market. Across the North West, only five big box buildings are
currently under construction, with all set to complete by mid-2026. 

A key example of the region’s resilience is Indurent 420 in Warrington – a 420,000 sq. ft. Grade A logistics unit recently taken by Regency Glass. Developed by Indurent and advised by DTRE, the unit achieved BREEAM ‘Excellent’ certification, offering high-spec and ‘Best in Class’ design.

The transaction was the region’s largest single-site lease in 2025 and largest manufacturing deal across the whole of the UK in Q3 2025. Regency Glass’s decision to relocate from older facilities into a purpose-built distribution hub underlines a clear flight to quality among occupiers and reflects growing demand for better quality buildings.

But it’s not just UK-based businesses looking North West: another defining trend has been the market’s increasing internationalisation. Overseas capital has returned to the UK regions, and occupiers from abroad are now actively seeking space. 

Chinese e-commerce giant JD.com is set to become the first major Chinese online retailer to establish a logistics footprint in the North West having recently acquired the former Asda facility in Wigan (totaling 322,000 sq. ft.). 

This signals not only confidence in the UK consumer market but also growing recognition of the North West’s strategic
importance as a logistics hub on the global stage.

While new developments remain a frequent fixture in the headlines, the logistics sector continues to face high-profile opposition, despite its economic importance. Local resistance is threatening what little new supply there is with PLP Astley in Wigan, the most recent scheme to come under scrutiny from local residents, even after securing a pre-let to Whistl. 

The government has taken strong steps to back new homes and digital infrastructure in the face of NIMBY opposition – but
logistics is struggling for airtime. This is despite the fact that every new home built requires more than 69 sq. ft. of warehousing to support the lifestyles people have come to expect. 

More generally, record rents, sustained demand and a scarcity of available stock are the trends we expect to continue to define the North West’s industrial and logistics market into 2026. The North West has demonstrated its resilience, and it’s not a market we expect to slow down.

North West Market Opinion: Resilience and Record Rents Define 2025

It’s fair to say this summer has been anything but quiet for the UK ‘big box’ logistics market, with leasing activity showing signs of turning a corner after the frustrations of the past 18 months. Total take up in the 100,000 sq. ft + market stood at 18.86 million sq ft, as of the end of August, which is 3.5% up on the same period last year, and 6.3% ahead of the 10-year pre-Covid average.

The Midlands continues to outperform the other regions, reaffirming its position as the UK’s most sought after location for logistics and manufacturing businesses. Take up across the East and West Midlands is currently at 7.6 million sq. ft, with a further 4.1 million sq ft under offer. With very little new speculative development being announced across the region, we are seeing rental growth across all the core locations. Core schemes such as Magna Park Lutterworth, SEGRO Park Coventry Gateway and DIRFT, are now all firmly established in the £10s per sq ft, with the next wave of speculative development expected to push into the £11s across these logistics’ parks.


So, what’s behind the sudden spike in leasing volumes? It can be one of, or a combination of several factors; Trump’s tariffs across the globe making the UK an attractive place to store and distribute stock, building obsolescence and a dwindling supply of good quality, energy efficient buildings, supply chain efficiencies through consolidation and automation, increased defence spending and therefore a surge in military backed contracts, and a more buoyant automotive sector.

Who is taking the space? It’s no secret that Chinese businesses have been very acquisitive so far this year. 

JD Logistics have leased nearly 930,000 sq ft across sites in Milton Keynes, Dunstable and Coventry, with more live acquisitions in the pipeline as they aim to take on the likes of Amazon for UK market share. The market is poised for the next wave of acquisitions from Super Smart Services, having acquired close to 1m sq ft in 2024. Meanwhile, Top Cloud Logistics has entered the UK market with its acquisition of 160,000 sq ft in Birmingham. 

Midlands Take-up by Sector (to end Aug 2025)

Perhaps unsurprisingly, we have seen an uptick in enquiries from defence related companies, with the likes of Babcock, Marshall Aerospace and BAE all having either already acquired warehouse space already this year, or under offer on their preferred buildings. With defence budgets on the rise, this is a trend we expect will continue for several years. 

Alongside the growth in defence-related activity, the 3PLs have remained central to activity, with DP World, Menzies, GXO, Iron Mountain, Fiege and DFDS having a busy year so far. Finally, the supermarkets have been the strongest performing retailer group, with M&S (1.3m sq ft), Tesco (806,000 sq ft) and Sainsbury’s (391,000 sq ft) to name just a few examples.


All-in-all, market sentiment has strengthened considerably this year, particularly for the Midlands big box market. With the busiest period still ahead of us, let’s hope this continues in to the year end, and beyond.

Midlands
Market Opinion

Midlands Market Opinion

For years, an EPC certificate or BREEAM rating was enough to badge a building as sustainable. But expectations have shifted. Investors and regulators are no longer just asking how a building was designed. They want to know how it’s actually being used.

As pressure builds across the value chain, energy consumption data is emerging as a new priority. It’s not just about carbon reporting, it’s about risk management, deal liquidity, and future-proofing portfolios. And in a tightening regulatory and investment environment, the absence of this data is fast becoming a red flag.

A strong EPC rating once gave investors and developers a green tick. But performance ratings don’t reflect how a tenant operates the space. A net-zero-ready warehouse is still a carbon liability if it’s used inefficiently.

Frameworks like the Global Real Estate Sustainability Benchmark (GRESB) factor tenant use into scoring, and tools such as the Carbon Risk Real Estate Monitor (CRREM) provide benchmarks for carbon intensity - including the recently rebranded “CRREM Misalignment Year.” Yet implementation is still uneven, particularly for multi-let assets, manufacturing and data-heavy buildings, where reliable consumption data is hard to collect.

One of the key challenges is the lack of a centralised or standardised system for accessing energy data. In most of Europe, including the UK, landlords need tenant consent to collect usage data, making the process fragmented and highly manual. Without consistent access to data, carbon accounting is unreliable, and landlords and investors risk falling short of their net-zero commitments. If we want to align as a country with the Paris Agreement, a national solution for data access and sharing will be essential.

This shift to prioritising consumption data raises difficult questions especially for landlords operating under existing Full Repairing and Insuring (FRI) leases. If tenants upgrade equipment, alter HVAC systems or over-spec lighting, those changes can quietly degrade the building’s energy performance. And under current MEES regulations, lease renewals - not just lease starts or sales - can now trigger EPC obligations. The result is that some landlords may be on the hook for costly upgrades to buildings they haven’t directly altered.

So far, enforcement has been light. No fines have yet been issued for non-compliant EPCs, and the process for registering exemptions remains slow. But regulatory change rarely happens overnight, it often comes gradually, then all at once.

DTRE are already seeing signs of consumption data influencing deal flow.

EPC ratings have been subtly influencing transactions, particularly in the leasing market, where energy efficiency directly impacts annual operating costs. There is some evidence of their impact on the investment market, contributing to variations in net effective rents through shorter void periods, longer lease terms, and reduced tenant incentives.

In capital markets, investors are increasingly re-certifying assets during transaction due diligence to account for changing regulations, tenant use/fit-outs, outdated EPC assumptions, or older certificates. Any change in the EPC rating can lead to price adjustments - often significant ones. 

But the conversation is evolving. Driven by growing ESG reporting requirements, consumption data is starting to feature in investment committee discussions. Increasingly, investors and developers are questioning whether housing a high-energy user, without a clear decarbonisation strategy, could undermine their investment value.

This shift could have broader implications. If regulations continue to tighten and energy prices remain volatile, will we see energy-intensive users begin to relocate outside the UK? The feasibility of electrifying UK manufacturing is still under debate, and with the national grid already strained, there are concerns around capacity and resilience.

In practice, this isn’t always feasible. Covenant strength and location often outweigh ESG considerations, particularly in more challenging markets. But there may be other ways to manage the risk. One option is to price it in, charging a rental premium for high-energy users to reflect that risk.

This may already be happening in some sub-sectors and how they navigate the environmental impact of their building. Data centres, for example, are increasingly locating near renewable power sources, co-locating with greenhouses, or building in microgrids and SMRs (small modular reactors) to offset their load.

Measuring energy use is no longer optional - it’s essential for regulatory compliance and for achieving certifications, especially as BREEAM Version 7 has introduced an energy section. Fund managers must monitor energy intensity to comply with regulations such as the Corporate Sustainability Reporting Directive (CSRD) - despite a slight delay introduced by the 2025 Omnibus Directive - and the Sustainable Finance Disclosure Regulation (SFDR), particularly for Article 8 and 9 funds.

For those pursuing net zero through frameworks like the Science Based Targets initiative (SBTi), accurate consumption data is equally critical. Without it, emissions cannot be quantified, nor can progress toward climate goals be demonstrated. For investors, reliable energy data is now a baseline expectation during due diligence. Fund managers depend on this data to calculate fund-level metrics, such as financed energy intensity, aligned with the EU Taxonomy.

DTRE has observed that lenders and institutions are already starting to reward strong energy performance. In some cases, preferential loan terms are being offered for assets with sustainable credentials or clearly defined brown-to-green strategies. Meanwhile, consumption data is beginning to feature in red book valuations, signalling its growing importance in how assets are assessed, though the precise impact on valuations is still emerging. 

The good news is that the market is moving. According to government data on industrial EPCs, the amount of A and A+ rated buildings has increased significantly in just five years, from 7% in 2019 to 72% in 2024. It shows that the sector is responding, even without a firm deadline in place.

Net zero isn't a label, it's a lived reality. Buildings must prove their performance, not just promise it. That means tracking, managing, and reducing real-world energy use in partnership with tenants. 

Consumption data is a board-level issue that is central to regulatory compliance, investment strategy and long-term asset value. 

Particularly as capital gets more selective, the message is clear: operational performance is the new sustainability benchmark. The era of design-stage box ticking is over. Those who fail to adapt won't just fall behind; they risk being left out of the market entirely. 

EPCs to Emissions: 
Will carbon benchmarks 
drive high consumers offshore?

EPCs to Emissions: Will carbon benchmarks drive high consumers offshore?

During his first term, Trump waited a year before pulling the trigger on tariffs. This time, with four years to prepare, he’s wasted no time at all.

These measures, which he has now diluted, marked a sharp return to aggressive protectionism, triggering a global market meltdown that has caused even loyal supporters like Elon Musk to question their merit.

Despite a long history of friendly diplomatic relations, the latest round of tariffs — regardless of where we land after the 90-day pause — signals a broader shift in trade policy that is already taking a toll on the UK’s science and technology ecosystem. This ecosystem thrives on cross-border collaboration, depends on international supply chains, and is already in an increasingly competitive battle for international capital.

But amid the challenge of shielding the UK economy from global headwinds lies the opportunity to cement its status as a science and tech superpower. Seizing this, however, and avoiding an exodus will require speedy action.

UK universities, spin outs, and start-ups have long benefited from cross-border partnerships as well as a system whereby capital and talent can move somewhat freely. Pharmaceuticals is a prime example of this, with international leaders Pfizer and Moderna partnering closely with the likes of Cambridge and Oxford Universities.

For the real estate market, the collaboration between home and international parties is critical, too. Over the past five years, the average transacted laboratory and mid-tech floorspace for internationally headquartered businesses across the Golden Triangle has been 30,100 sq ft, more than three times that of their UK-based counterparts (8,500 sq ft). These businesses, from all over the world, have also accounted for 40% of all laboratory and mid-tech space leased in the Golden Triangle during that same period, with US companies alone responsible for over a quarter of total take-up.

As Keir Starmer recently warned, Trump’s tariffs could signal “the end of globalisation as we know it.” Should that be true, and their arriving or staying in the UK become economically unviable, the impact on our science and technology ecosystem would be significant. For a sector that depends on openness, cross-border collaboration and global mobility, this threat is more than just economic.

Maybe it’s not all as bad as it seems…

Whilst the outlook remains uncertain – and many economists still anticipate a recession – there are still reasons to be optimistic.  

The UK government has already signalled its desire to position the UK at the forefront of scientific and technological development. In initiatives such as the creation of ‘AI Growth Zones’, the implementation of a new industrial strategy, and the proposed stripping back of regulation that risks holding back the growth of British businesses, we have had a glimpse of what it might mean for the UK to map its own course. 

For this to occur though, the right legislative environment must be in place, building on our existing innovation economy and our competitive advantage through our world-leading educational institutions. 

For example, the government must continue to take action to unlock planning infrastructure, particularly in the Oxford-Cambridge Arc, where restrictive policies and local resistance have historically slowed progress. Whilst a definite step for the industry, the recent Planning and Infrastructure Bill was still quiet on laboratories, mid-tech, and other non-residential assets.

Developers and investors cannot just be passive observers. Real estate too has a critical part to play in ensuring these businesses are set up for success.

Although the supply-demand gap for best-in-class laboratories has closed significantly, with more purpose-built facilities coming to market, a slight imbalance still remains. Active demand in the Golden Triangle (as of the close of Q1 2025) stands at 877,300 sq ft, compared to 828,900 sq ft of up-and-built available supply. As science and technology businesses around the world rethink the shape and scope of their international footprints, we must ensure that we have the right spaces in the right places to meet any change in demand.

While some businesses will inevitably leave the UK, others will return – and with the right incentives, such as R&D tax relief and competitive executive pay, as well as providing the flexible space to grow, there’s a real opportunity to attract new entrants too. 

The established order has undoubtedly been shaken, but it doesn’t spell the end for our innovation ecosystem. In fact, this moment offers a chance for the UK to come back stronger. Parts of the puzzle are already in place, and a growing number of US investors are already eyeing the UK as a safe haven for their capital - but there is still a lot of work to do. Government and industry must act fast to deliver the flexible infrastructure and talent framework necessary to power growth and set us apart.

UK Innovation 
in the Crosshairs: 
Trump and Tariffs

UK Innovation in the Crosshairs: Trump and Tariffs

As we reflect on the UK office market over the past year, it’s clear that the story of the UK office market has split into two distinct narratives which will continue to shape the industry in 2025. Last year, the market saw prime A-grade offices in London and key regional cities thrive, buoyed by rising occupier demand and the race to meet modern sustainability and design standards. In stark contrast, ageing offices in the Grade B class were slipping into obsolescence with little interest in upgrading them.  

The result was a market with no spectrum, no middle ground between the Greenest and Newest and the Greyest and Oldest. For landlords of these older properties, it’s not all doom and gloom. As we look ahead to this year, there is continued opportunity to reimagine these spaces for entirely new uses. Through repurposing for high-demand sectors like Build-to-Rent (BTR), purpose-built student accommodation (PBSA), and even senior living, there’s a promising path forward for those willing to embrace the transformation. 

2024 Recap: The growing divide between Grade A and Grade B  

The contrast between the thriving demand for Grade A offices and older, less flexible Grade B buildings became more pronounced last year. The divide has been starkly evident with the office market having collapsed during the pandemic unlike anything seen before. However, as pricing bottomed out, activity in the Grade A market is rebounding strongly. The pandemic reinforced the importance of the office as a concept, but it also raised the bar: occupiers have now demanded the best quality and green credentials, viewing these as essential for staff retention and attraction. 

The “Big 6” cities such as London, Bristol, and Manchester have led the charge in recovering occupier activity, with Grade A offices accounting for 80% of total take-up last year. Not only that, but they’ve also seen prime rents soar in the last five years. It took nearly 20 years for average prime rents to rise from £20 – £30 per sq. ft. By contrast, the climb from £30 to over £40 per sq. ft occurred in just five years, reaching this milestone in 2023. Markets such as Bristol have already achieved rents of £50 per sq. ft, while Oxford and Cambridge have seen deals exceeding £60 per sq. ft in the past year.

Figure 1. Prime regional Big 6 office rents 

The divide is not just between Grade A and Grade B but also between the Big 6 cities and regional offices. Whereas the “hub-and-spoke" model has largely fallen flat, with many regional offices now destined for obsolescence, these strides of confidence to Grade A in the Big 6 are, in DTRE’s view, something to follow suit sooner than later. These offices have hit the trough of the latest cycle, signalling the time for decisive investor action. 

On the other end of the spectrum, Grade B buildings have faced a different investor landscape, having been hit hard by rapidly transforming sustainability standards and tenant expectations. Minimum Energy Efficiency Standards (MEES) regulations were updated and now require commercial properties to hit a C rating on their EPC by 2028, and B rating by 2030. 

A-grade offices remain relatively unharmed by this, while Grade B buildings are struggling to keep pace. The trends of last year suggest older builds might head down a path to obsolescence as they face a more unstable market, with occupiers demanding greater sustainability and flexibility. Owners remain willing to refinance Grade A assets driven by confidence in their future value, but the same cannot be said for Grade B properties. The uncertain future of these ageing assets deters reinvestment, which will leave them increasingly sidelined in the year ahead.

But there’s an upside to this downturn, and this has been found in repurposing obsolete office spaces for high-demand, resilient sectors BTR, senior living and PBSA. As we head into 2025, these conversions are likely to remain a key trend as many landlords are expected to explore how Grade B offices can be transformed into vibrant properties.

These conversions, which don’t have uniquely specific infrastructure requirements, are among the most feasible options for repurposing office properties. The approach also aligns with Local Authorities' growing preference for a ‘retrofit first’ model to prioritise sustainability, and with the UK government’s housing strategy, with regulations that further eased repurposing last year.

Repositioning offers a cost-effective, adaptable strategy for transforming outdated offices into valuable assets again. In fact, ourselves at DTRE are involved with landlords in markets like Oxford and Cambridge who are exploring residential or student housing office conversions.  

This won’t work for every Grade B and below office in every location but, for many, it will provide a valuable alternative to sitting, waiting and hoping on a dramatic up-turn in the UK’s office market at large. 

Senior living is a sector that is often overlooked but holds significant potential for office landlords to explore. Leading doctors have repeatedly warned that our ageing population represents one of society’s greatest challenges, but it also offers investors one of their greatest opportunities. With the number of people aged 80 and over projected to rise by 71.5% by 2042, demand for well-located and well-equipped senior living facilities is expected to soar. That Grade B office may look grey and old, but it could hold untapped potential worth its weight in gold.   

The UK office market has reached an inflection point. Looking to 2025, the focus on sustainability may continue to attract major investment for A-grade, glistening offices in the premium pockets of London, while secondary offices are still caught in a market slump, proving difficult to sell. The absence of a middle ground in demand for non-Grade A have prompted a necessary evolution. This is further reflected in rent incentives for new office lettings. Best in class office rental incentives have remained constant, with net effective rents sitting at 85% - 90% of the headline rent whilst Grade B accommodation is sitting at 70% - 80%. This further demonstrates the polarisation of the market. 

Repurposing obsolete offices into high-demand sectors allows landlords and investors to stay one step ahead: aligning with sustainability goals and meeting the needs of a shifting population – both routes to capitalising on long-term value. Embracing these conversions can revitalise properties that might otherwise be written off, extending asset lifespans and repositioning those landlords – currently on the backfoot – at the forefront of real estate’s evolving landscape. The trends of 2024, including adaptability, sustainability and the potential for repurposing obsolete assets, will continue to shape success in the year ahead. 