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Cut through the noise. At the moment there’s a plethora of topics that all have the ability to drive uncertainty through real estate markets. Whether it’s Trump’s tariffs, spiking gilt yields or National Insurance  contributions, the headlines can make for difficult reading. However, from a real estate perspective, 2025 is shaping up to be a positive year with investors on the front foot looking to capitalise on re-priced assets as the next cycle begins.

With inflation stabilising, DTRE expects the Bank of England to cut rates by 100 bps this year, leaving the Bank Rate at 3.75% by the end of 2025, and these interest rate cuts will provide further liquidity across real estate with pricing and valuations supported by the reduced cost of debt.

 From an occupational perspective, the post-Budget souring of sentiment and resultant downturn in consumer and PMI surveys is expected to be more of a soft-patch rather than a sustained slowdown. As a result, DTRE expects occupier demand to rebound across all the traditional real estate asset classes with rents supported by the supply and demand dynamics that have been further exacerbated in recent times due to rising construction and financing costs.

The logistics sector enjoyed a strong finish to 2024 across both the occupational and capital markets, and despite macro headwinds that momentum has carried on into the early weeks of 2025. In the occupier markets, 2024 was a strong year with take-up of Big Box units (100,000 sq ft) totalling 28.6m sq ft – 13% up on 2023’s total. That total was reached largely without any help from large e-commerce players, demonstrating the market’s depth beyond Amazon and pure-play online retailers.

Third-party logistics providers, grocers and physical retailers were active throughout 2024. While Amazon will be active once more in 2025 with several requirements in the market, we expect the big supermarkets, defence and aerospace-led contracts, and selective high-end manufacturers to be the major drivers of take-up this year.

In the capital markets, 2024 saw £8bn of industrial and logistics assets transact, but that total was reached primarily in the absence of any large pure-logistics portfolios to boost volumes. This year, we expect to see a continuation of the same themes, with investors targeting logistics and urban/multi-let assets with reversion potential. However, as we move through the year and debt becomes more accretive and supportive to valuations, we expect to see some larger portfolios trade.

We’re seeing confidence return to the science and technology market following the second-best year for fundraising on record. Many companies have already resumed their searches for space and started to make new commitments, with a particular surge in demand for larger requirements. We expect this positive momentum in the leasing market to continue through 2025, and drive capital markets activity, too.

Rumours have also begun to swirl around growing private equity interest in UK pharma and pharma services, with several players said to be deep into due diligence. Our expectations are high that these private equity speculations will materialise, providing a further boost to one of the country’s fastest-growing industries.

And finally, while Reeves’ plans for the Oxford- Cambridge Arc are a positive signal from government and should boost market confidence, similar commitments have been made before, in 2017 – so we won’t be holding our breath. Meeting the required commercial and residential capacity in the Arc will be impossible if the existing planning constraints remain in place.

The real test will come in the Planning and Infrastructure Bill. To make meaningful inroads, Reeves will need to extend her ‘coalition of builders’ to local councillors and communities. However, if she is successful in her endeavours, it could require delivery of in excess of 80m sq. ft. of commercial workspace.

With investment in UK living totalling £14bn in 2024 – c.5% up on 2023 – private equity firms and pension funds are increasingly allocating capital to single-family housing, favouring them for their ease of construction and appeal to stable, long-term tenants. We believe that this sustained investment will drive a divergence in the single-family housing market, splitting into two distinct approaches.

On one side, traditional housebuilders will continue to focus on managing excess stock to address slowdowns in new-build sales. These housebuilders benefit from bulk sales through forward funding agreements, which provide them with liquidity and enable them to fund essential infrastructure for their developments.

The other side will feature purpose-built communities, combining multi-family housing principles with horizontal layouts, situated on brownfield land in well-connected urban hubs. With developers, contractors and funders working together in a tri-partite model, these amenity-rich developments will aim to attract renters choosing convenience and lifestyle over ownership.

Against a backdrop of NHS strikes and a national waiting list estimated at 8 million people, demand for private healthcare spaces will continue to rise with service providers looking to accommodate the rapid growth in the self-pay market and a surge in private medical insurance uptake.

For investors, the sector provides stability through long-term, often government-backed income streams. Index-linked leases and operators’ diversified revenue models – balancing self-funded and publicly funded care – enhance resilience, positioning healthcare as a lower-risk investment compared to other industries.

In 2025, we expect private healthcare to outperform other healthcare sub-sectors, fuelled by structural drivers such as the UK’s ageing population and chronic undersupply in senior living and medical office spaces. These factors will sustain demand across these critical segments, solidifying healthcare’s position as a reliable and attractive investment opportunity.

Retail is shaping up to be the ‘surprise sector’ of 2025, with rents climbing as retailers return to high streets and shopping centres. Driven by retail warehousing, we’re expecting institutional interest to reach its highest level in five years as consumer and retailer confidence strengthens.

Prime shopping centres and high street parades will still remain a focal point, while affluent suburban areas will see growth in smaller, convenience-driven retail formats to cater to localised shopping needs. We’re also expecting to see institutional investors continuing to revisit second tier shopping centres, sparking a liquidity rebound.

Experiential retail will continue to reshape the sector, with retailers leaning into immersive, in-store experiences to engage consumers. Demand for adaptable spaces will be driven by pop-ups and interactive events aiming to boost footfall and differentiate physical stores.

The contrast in leasing demand between best-in-class Grade A offices and lower-quality Grade B stock will continue, with many landlords of problem assets needing to make challenging decisions between cutting their losses, investing heavily to retrofit and refurbish, or exploring changes of use (e.g., PRS, BTR or hospitality) within the confines of planning legislation. A critical pinch point is already emerging, driven by rising development costs over the past five years, which have created a significant disparity between the demand for and supply of premium office spaces. As a result, rental growth is expected to continue, but again heavily weighted towards the sparse, premium stock.

As for capital markets, activity is likely to stay muted as long as interest rates remain high and global political uncertainty persists. While market sentiment has slightly improved, tangible signs of recovery have yet to materialise. Well-let Grade A offices in London and the Big Six should continue to offer attractive opportunities, but current owners’ reluctance to sell, due to loose yields, will likely limit transaction volumes.


That said, we anticipate some investors will focus on acquiring vacant possession buildings over the next 12 months, with plans to transform them into modern, top- tier workspaces. These upgraded assets will be well- positioned to meet occupier demand for sustainable, adaptable and high-quality office environments.

DTRE 2025 Outlook

2024 was a transformative year for sustainability.

The introduction of Biodiversity Net Gain, the launch of the first agreed methodology for net zero buildings under the UK Net Zero Carbon Buildings Standard, and the pre-release of BREEAM New Construction Version 7, slated for formal launch in Q1 2025. 

There were also significant revisions to the Energy Performance of Buildings Directive, together with potentially transformative elections in the UK, US and elsewhere.

Our full report explores the key sustainability trends that shaped industrial and logistics transactions in 2024 and offers predictions for what lies ahead in 2025. A full copy is available on request but you can find our headlines below.

Sustainability within real estate begins with addressing effective operational 

 emerges from improved asset quality, and our data analysis demonstrates a strong correlation between 

 and rent achieved. When these elements align successfully, they contribute to a favourable 

DTRE’s 5Cs of Sustainability

5 Things You Need to Know About Big Box Logistics In Q3 2024

Q3 2024 Big Box take-up has reached 18.4 million sq ft. That’s ahead of 2023 (18.2 million sq ft) but slightly behind pre-Covid averages. The traditionally slower summer market saw 5 million sq ft transact, with the biggest letting being Cain International’s Link674 in Ellesmere Port (674,000 sq ft).


After twelve successive quarters of decline in the rolling annual take-up – Q2 had seen an uptick of 5.6%, suggesting a floor to demand may have been reached. However, that uptick has since been reversed with Q3 impacted by the slower summer months and lack of bigger deals – with only one deal bigger than 500,000 sq ft and only twenty-four deals in total (on average Q3 has seen 44 deals over the last 10 years).

Activity was noticeable from the 3PL’s with EVRi taking three units in Sheffield, Avonmouth and Lutterworth with distributors generally accounting for 39% of the deal volume. The retailers accounted for the largest share of deals with retailers accounting for 44% by deal volume. Tesco at Mountpark Hinckley (491,000 sq ft) and B&M Retail at Link 674, Ellesmere Port (674,264 sq ft) the two standout deals.

A current theme ‘deal friction’ – the time taken for transactions to complete; DTRE are currently tracking close to 9 million sq ft of units that are under offer, of which over half were under offer at the end of Q2. 

In a normal cycle we would have expected these deals to have concluded and added close to 4.5 million sq ft to the total – which would put overall volumes ahead of 2023 (18.2 million sq ft) and the pre-Covid average (21.1 million sq ft).

The DTRE Big Box Vacancy rate (all units over 100,000 sq ft) has remained stationary at 6.8% through the quarter. Vacancy rates have remained unchanged overall even though new build supply is falling because tenants are ‘upscaling’ - they continue to vacate older second-hand units and occupy new and better units. New build units now represent only 35% of total supply - down from over 40% in the previous quarter.

New speculative developments; there is currently only 8.19 million sq ft under construction, of which 6 units (39% by square foot) are in units of over 400,000 sq ft and 39% are due to complete in the remaining three months of this year.

There is just 5 million sq ft of speculative developments to be delivered in the next 12 months – which without any further additions would be the lowest level of speculative completions since 2017 (4.8m sq ft). Even with significant additions 2025 looks set to be well behind the 12.6 million sq ft we’ve seen on average in each year from 2018 – 2024.


Rental growth has remained elevated, despite the effects of inflation fading, ensuring ‘real’ rental growth is being delivered to the sector. In the twelve months to August 2022 distribution warehouse rents grew 14.2% before falling to 6.3% by September 2023.

Rental growth has remained in that range for the subsequent 12 months and at the end of August ’24 annualised rental growth was 5%. However, at the same time the consumer prices index measure of inflation (CPI) has fallen from 11.1% in October 2022 to 2.2% for year to end August 2024.

There is a renewed sense of optimism that we are moving off the bottom and a new cycle is about to begin. The Bank of England’s 25bp rate cut was a positive step but was already ‘priced in’. The next cuts should provide confidence, as the pricing on 5-year swaps and 10-Year gilts move towards sub 3.5% and 3.8%, respectively. Significant dry powder continues to target the sector, and with supply set to fall in 2025, and rents likely to rise, buyers conviction should return.

Q3 saw £1.2 bn of deals complete, with the largest transaction in the sector being Prologis’ purchase of Western Avenue Business Park for £125.05 million from DTZIM, and marking their first significant deployment in over a year. The largest single asset transaction was Pontegadea’s 1st purchase of a UK logistics asset at SEGRO Park, Heathrow for £65.5m. The largest portfolio was Mirastar & KKR’s purchase of Project Tournament a collection of five single let “Big Box” assets for £115.25m. DTRE advised the purchasers on all three transactions.

The £1.2 bn transacted in Q3 has resulted in volumes reaching £4.4bn by the end of September, 8% ahead of the pre-Covid average (2010-19). Of note is that this is the first quarter of the year where volumes were not supported by large M&A activity, with five deals over £50m equating to 44% of the volume during the quarter. 

The further anticipated rate cuts should help grease the wheels of the capital markets, with 5-year swaps now trading at 3.6%, down from 4% in early June and the cost of debt on good quality logistics assets shrinking by c.120 bps since the start of Q2’24.

However, whilst Q4 will likely be busier, typically there remains a 25bps ‘bid/ask spread’ – with core investors starting to return we are seeing the return of competitive tension and the potential for that gap to start closing. Outside of the Big Box sector we have seen examples of this with reversionary mid box schemes trading in the low to mid 3’s.

DTRE Big Box Logistics Report - Q3 2024

This report provides a comprehensive analysis of the relationship between sustainability credentials, rental growth, and investment value within the industrial and logistics market. By examining data from 133 million sq. ft. of leasing transactions, conducting a solar survey with 20 companies, and engaging 125 participants across 80 firms in a sustainability survey, we uncover key insights into how sustainable practices impact asset performance. 

The findings reveal that properties with strong sustainability credentials not only attract higher rents but also deliver greater investment value and resilience in the market. This report serves as an essential guide for investors and developers, offering practical tips and insights into ways investors and developers can capitalise on the evolving landscape.

Investors are becoming sustainable investment intelligent, with 74% considering ESG in every transaction and 56% costing decarbonisation pathways during acquisitions. 

Despite no legislative pressure, the market is targeting Green+ refurbishments driven by perceived rent and yield premiums.

The rental premium between EPC A and B is widening, but there is no premium for EPC A+.

The rise of green capital is not only targeting prime assets, offering a yield improvement of 10-25 bps but also paying a premium for assets that have a clear decarbonisation strategy.

Net zero pressures have redefined the transaction process, 70% of purchasers are requesting consumption data during transaction due diligence. 

Power is the biggest challenge to the industry, 59% of developers have abandoned an acquisition due to power concerns.

Flood has been identified by 83% as the greatest physical risk but climate-related risks are not considered a priority.

The Industrial & Logistics Sustainability Handbook

Partner
Co-Head of Industrial & Logistics Leasing, Advisory & Development 

Jake Huntley

Deals are taking longer and, in this market, it means everybody is losing out. On all sides of the process, those of us involved have felt deal timelines creep up and up and up since the COVID-19  ‘race for space’ ended.

According to our research, deals are, on average, now taking almost twice as long as they did in a normalised market. Where 6-8 weeks used to be considered standard, the average big box deal today is taking around three months. DTRE is currently tracking 3.6 million sq. ft. that has been under offer for even longer than that, and our data indicates that, the longer a deal takes, the more likely it is to fall through.

In this market, transaction management is even more important, but there are other factors at play to be mindful of…

What we need is transparency and clarity. Sluggishness benefits no one, but nor does it pay to be too eager. When imprecision and carelessness creeps in during the rush to do a deal, delays and misunderstandings naturally follow.

Tenants need to be clear on when they require a facility, intend to move in and the reasons for those timings. Most Landlords will respond positively to being in possession of the facts. Of course, landlords also need to be honest and upfront with occupiers: additional scrutiny and sharing of information prior to appointing solicitors will aide with navigating the legal and due diligence processes. 

For our part, we as advisers must ensure that we have assisted in this process and carefully managed communications between landlord, tenant and consultants. At the outset of the process, establish a realistic transaction timetable, which should include legal meetings, either in person or virtually. 

Too often, speed is prioritised over accuracy, with a view that lawyers will pick up the slack. In reality, this only slows things down, and lawyers don’t come cheap.

Extra scrutiny when drafting heads of terms is crucial for minimising delays further down the line. By removing vagueness and ambiguity we can reduce the time in which legal teams are at the helm and, very generously, reduce lawyer workloads. This is a route to saving both time and money.

Careful consideration of transaction structures can bring significant timesaving benefits: accept Schedules of Condition over FRI leases or opt for an Agreement for Lease over capital contributions at your peril.

The increasing criticality of sustainability and the rise of green clauses is one legalistic element in particular where this refreshed approach would be of benefit. As a new and often unfamiliar area, widely misunderstood, it’s an element in contracts and deal processes that is time and again acting as a stumbling block.

Take solar power purchase agreements (PPAs). The complexity of such an agreement, coupled with tenants having little experience of acquiring properties with PPAs in place, is undoubtedly having an impact on the speed of transacting. Green leases, more sophisticated M&E, and a spate of contractor insolvencies are exacerbating the need for all parties to be well advised and pragmatic at this time. 

Though no two cases are the same, there is clear scope to reduce the risk of this element of a lease negotiation significantly delaying a transaction. We would all benefit from deciding on what best practice in this area looks like.

As advisers, we want and can do more. As an industry, we ourselves need to take a considered approach, identify points of difficulty, and work harder and more creatively to resolve these challenges. 

In today’s world, pairing best-match parties is a route to efficiency and effectiveness, but one made harder when information is vague or withheld. Resolving this would be a positive for all involved, and a driver of greater returns and other outcomes.

When we all draw on personal, prior experience (or consult colleagues), communicate solutions effectively, and come together to provide clarity in process and best practice, we will build more trusting and information-led dealmaking. 

All of this will help to inject some much-needed momentum. Picking a professional team capable of facilitating this has never been so important.

Working Together To Get Deals Done, Faster

5 Things You Need to Know About Big Box Logistics In Q2 2024

Cautious optimism has returned to the Big Box logistics market in the last three months, with some big requirements providing a boost to take-up numbers and the slowdown in development completions ensuring that the vacancy rate is now on the turn.  DTRE expects this positive momentum to carry on through the remainder of the year.


Take-up in the second quarter has reached 6.35 million sq ft, which is up 11% quarter-on-quarter and at the halfway stage of the year, 2024 is in-line with 2023’s 12.1 million sq ft. The second quarter has seen some big occupiers finally sign for space, such as Nike taking 1.3 million sq ft at GLP’s Magna Park Corby scheme, which has boosted the overall take-up number. We also witnessed 7 deals for units of greater than 300,000 sq ft – which is more than any other Q2 outside of the Covid years. 

As a result, we are now seeing some take up momentum for units between 300-400,000 sq ft, which at the turn of the year accounted for nearly a third of all Grade A supply. Deals at Ergo 354 in Fradley (Super Smart Services), Unit 1 Orwell Logistics Park (EDF Energy) and MPS9 Magna Park South Lutterworth (CEF) have all helped in both boosting take-up and reducing the vacancy rate.

However, take-up of units between 100-300,000 sq ft was just 2.3 million sq ft in Q2 - that’s 29% down on the pre-Covid average. Furthermore, second-hand units of between 100-200,00 sq ft saw virtually no lettings at all, which we believe reflects the preference for newer, sustainable, and future-proofed assets.

The DTRE Big Box Vacancy Rate stood at 7.2% at the end of Q1, but we are pleased to report that has trended downwards over the last three months and now stands at 6.8% at the end of Q2 with 4.26 million sq ft of take up of standing stock, reducing overall supply to just over 51 million sq ft. The ‘split’ is now 21 million sq ft ‘New/Spec Built’ and 30 million sq ft classified as ‘Second Hand’.


We can also report that the continued slowdown in new speculative completions, and this, coupled with the existing unsatisfied occupier demand will ensure that downward pressure on vacancy rates will continue for  12 months at least given the structural delay required to implement new build starts on site.

Currently there is approx 8 million sq ft of existing warehouses under offer and whilst it’s difficult to forecast the extent of further second-hand or grey space being added to the market, there’s only 960,000 sq ft across 6 units of new development, all between 102,000 sq ft and 240,000 sq ft, that will reach practical completion by the end of Q3. As a result, we expect the vacancy rate to compress further to 6.3% by the end of September.

MSCI’s latest Monthly Index showed rental growth for distribution warehouses was just 0.23% in May (annual rate of 5.7% to end May), which is the lowest monthly level since peak-lockdown in January 2021 and unsurprising given the hike in the vacancy rate over recent months. But with vacancy now on the turn, development slowing and occupier demand, particularly for ‘New/Grade A’ product on the rise, we expect to see rental growth pick up once more from here on for the remainder of 2024. Despite the statistics, DTRE have continued to experience strong rental growth in core markets at beyond these levels. 

At the end of the quarter some cautious optimism has returned to the capital markets. Sentiment is starting to improve and in a few limited examples competitive tension has returned. One Swallow does not make a Summer – perhaps it may make an Autumn? With the likelihood of a new government and with the Bank of England expected to cut rates in either August or September, we expect the ‘Bid/Ask’ spread which has held back the market for much of the year to narrow and a busier second half of the year will unveil with increasing levels of stock expected.

Q2 saw £1.8 bn of deals complete, with the largest transaction in the sector being Tritax’s purchase of Abrdn’s UKCM which included c.£270m of logistics assets. The largest single-unit deals saw Ceva Logistics purchase its own warehouse at Rockingham Gateway from Mulberry for £78m, whilst M&G sold a Co-Op distribution unit in St Helens, just outside of Liverpool, to Brookfield for £59m/5.79% NIY. 

At £1.8bn, trading volumes in Q2 have increased 63% on what we saw in the first three months of 2024, and this cautious optimism is largely mirrored in the bond and swap markets. 5-year swaps are now priced at 3.95%, down from the 4.1% - 4.2% range where they have spent most of Q2 with a similar story playing out in the bond market for UK 10-year gilts, as investors price in interest rate cuts as inflation has tumbled down to its 2% target.

Pricing has remained firm through the quarter, particularly for assets with reversion and with little to no sign of distress in the sector, a phenomenon hopefully confined to the US and office sector, we expect both direct pricing and valuation yields to remain stable for the remainder of the year, with some inward movement for assets with open market rental mechanisms.

In fact, the ’Bid/Ask’ spread, which has narrowed marginally during Q2 should continue to see the gap close over the forthcoming quarter as swaps (5-year) and gilts (UK 10-year) dip under 3.9%. This could unlock a number of deals, including some larger deals and portfolios which have continued to be conspicuous by their absence.

Finally, and surprisingly, (and unlike in France) the UK’s general election has not seemingly spooked the investor community this time around, as it has done in the past, with investors much more focused on the latest CPI print and the bank rate, rather than whether it’s a Labour or Conservative government.

To that end, we don’t expect to see any disruption caused by a change of government. Indeed, if Labour, who are on average 20 pts clear in the polls, do form the UK’s next government then their proposed reform of the planning laws, intended to promote housing development, should also be seen as an unintended boon to logistics.

DTRE Big Box Logistics Report - Q2 2024

5 Things You Need to Know About Big Box Logistics In Q1 2024

The occupational market has got off to a sluggish start in 2024, with a combination of factors ensuring that the quarterly volume for new lettings reached just 5.6 million sq ft, that’s down 16% quarter-on-quarter and the slowest start to a year since 2019. However, there remains reasons to be positive as we move into the second quarter. 

Whilst the slowdown in occupier demand can be attributed to a number of macro-economic factors, ‘transaction friction’ has also increased significantly. Legal and ESG due diligence processes appear to be the main contributors, although C-Suite decision making is slower than it has been.

However, DTRE are currently tracking 7.6 million sq ft of logistics units that are under offer and should all those units complete by the end of June 2024 then take-up for the half-year will be 10% ahead of the “Pre-Covid” average.

Looking at Q1, the Midlands led the way accounting for almost 60% of all demand, split 40% East Midlands and 19% West Midlands, with Yusen Logistics’ 1.2 million sq ft pre-let at SEGRO’s Northampton Gateway accounting for 47% of the Midlands total.

In total, twenty-two deals signed across the first three months of the year, with 100,000 - 300,000 sq ft being the most popular building size, accounting for 77% of take up. Positively, particularly given the availability of assets in the 300,000 sq ft size bracket, take-up for bigger units was 14% ahead of the “pre-Covid” quarterly average (2007-19).

The level of supply and in-turn the vacancy rate has continued to creep up at the start of 2024, albeit it at a much slower rate than we saw throughout 2023. By end Q1 2024, the DTRE Big Box Vacancy Rate had only reached 7.2% up from 6.9% at the turn of the year.

However, we believe this will be the ‘peak’ vacancy and that the headline rate will trend downwards through the remainder of the year. There is only 7.6 million sq ft of new speculative development due to complete in 2024 – this will be the lowest level of new speculative completions of Big Boxes in seven years.

At the end of 2023, there were 24 assets available in the 300,000-400,000 sq ft size range; encouragingly 5 units are now under offer and with no significant new supply expected, this sector should see further decreases as the year progresses.

Finally, rental growth continues strongly and is being driven by the demand/supply dynamics that have underpinned industrial and logistics for the past ten years, rather than inflationary pressures. The latest MSCI Monthly Index for end March showed annualised rental growth of 6.9% for the industrial sector (see below).

Whilst rental growth had tracked closely with the UK’s CPI for much of 2023, by autumn it had de-coupled,  and we are now seeing real rental growth of 370 basis points over the latest annual CPI number of 3.2% for March.

The themes that have dominated the capital markets for the last twenty-four months continue to persist and whilst bouts of optimism have appeared over the first three months of the year, they have also receded just as quickly, as capital sits on the side lines awaiting a definitive signal from the world’s central bankers.

The result of this hesitancy in the capital markets has meant that just £1.1bn of industrial and logistics has traded over the quarter, down 21% on the 10-year ‘pre-Covid’ average (2010-19). Larger transactions and portfolios remain largely off the radar, and this is reflected in the fact that only four deals occurred over £50m in the quarter.

The biggest deal of the quarter saw the US fund manager Ares (advised by DTRE), purchase Project Armitage, a highly reversionary 1.84 million sq ft portfolio from Royal London for £175m/5.5% NIY in an off-market transaction. Elsewhere, the industrial & logistics apportioned pricing for the LondonMetric/LXI merger helped boost the end quarter volume by a further £163m.

Whilst the UK economy has turned a corner and the threat of a prolonged recession is in the rear-view mirror, the bond and swaps markets tell of the bumpy path endured year-to-date as well as providing a pre-cursor to what lies ahead. 

At the start of the year and on the back of the US Federal Reserve signalling they were likely to undertake four rate cuts during the course of 2024, UK 10-year bond yields were trading at 3.4%, however, as the prospect of both a) when the first rate cut will be and b) how many there’ll be this year, the UK 10-year has moved upwards and now stands at 4.3% (17th April).

The swaps market tells a similar story, with 5-year swaps at 3.5% at the start of 2024 and now standing at just a nudge over 4.1% (17th April).

Whilst corporate activity in the listed sector is on the rise - as undervalued businesses receive attention from bigger players seeing an opportunity to create scale - in a pure property transaction sense, the shift in bond yields and swap rates since the start of the year has meant capital has been hesitant, particularly for the bigger ticket lot sizes. Unfortunately, we expect more of the same ‘wait and see’ approach for the next 3 months at least, with transaction volumes remaining depressed whilst the ‘bid/ask’ spread remains too wide.  

Significant dry powder continues to admire the sector, and with the Big Box vacancy rate about to turn a corner, real rental growth continuing and a 25 bps cut to interest rates to come in Q3, we remain hopeful of a busy end to the year.   

DTRE Big Box Logistics Report - Q1 2024

5 Things You Need to Know About Big Box Logistics In Q4 2023

After three record breaking years, the UK’s Big Box occupational market has reverted to pre-pandemic levels, however, given the macro-economic picture that unfolded during 2023 that is not necessarily such a surprise.

Take up by the end of 2023 was just short of 25 million sq ft and whilst that is down 35% year-on-year, when compared to the long-run ‘pre-Covid’ average from 2007-19, take-up for 2023 is actually up 2%. 

Perhaps more importantly, DTRE are tracking 8.2 million sq ft that is currently under offer as we start 2024, which will provide a significant boost to take-up volumes.


The most dominant sector in Q4’23 (and in 2023 as a whole) remained the retailers, who accounted for just over 51% of total occupier demand in the final three months of the year, with Amazon’s return to the market, securing a site at SEGRO’s Northampton Gateway to develop a new 2 million sq ft facility – an early Christmas present for the market.


Looking ahead, we expect the retailers to continue that trend as the dominant sector. The grocers, including Tesco, Sainsbury’s and Marks & Spencer all have requirements as part of a drive to increase supply chain efficiency, and we expect Amazon are on the cusp of a significant return in 2024.


Whilst manufacturing enjoyed a strong Q3 last year, that uptick was not sustained in Q4, with just five transactions totaling 600,000 sq ft. Given the latest PMI and GDP numbers from the manufacturing sector, we would be a surprised to see above trend demand from that area of the market in 2024 (see Fig 2).


Turning to supply and vacancy, the supply of Big Boxes has continued to rise throughout the year, with 15 million sq ft (64 buildings) of new speculative developments completing across the UK together with a further 8 million sq ft of ‘grey space’ added to the supply schedules. The effect is that the DTRE Big Box Vacancy Rate has risen all the way to 6.85% by end 2023, up from just 3.5% twelve months ago.

The statistic is that 36% of the UK’s entire Grade A supply (in 24 buildings) is of between 300,000 and 400,000 sq ft.


However, on a positive note, last year’s pricing correction and construction price rises have ensured no supply increase, and so we anticipate that 

the current vacancy rate of 6.85% will be the peak of supply, with only 5.7 million sq ft of new speculative development is due to complete in 2024.

This will be the lowest level of new speculative completions of Big Boxes since 2017.

 Available planning permissions and prohibitive site enablement costs will ensure that on-site starts will remain suppressed.

"There is currently 23 million sq ft of Grade A space on the market, however, with 24 assets totalling 36% of the UK’s entire Grade A supply is between 300,000 and 400,000 sq ft, it is evident that certain size brackets have more vacancy than others."

Finally, rental growth continues to confound. The latest MSCI Monthly Index for end December showed annualized rental growth of 7.2% for distribution warehouses. Whilst rental growth had tracked closely with the UK’s CPI for much of 2023, by autumn a de-coupling process had started and we are now seeing real rental growth of 330 basis points over the latest inflation number of 3.9% (see Fig 3).

Macro-economic themes dominated the investment market in 2023 and those same themes won’t disappear entirely over the next 12 months. However, whilst downside risks remain, long term trends (de-globalisation, demographics, and de-carbonisation) also provide tailwinds for the logistics sector and with the overall macro outlook starting to improve, with inflation easing, a UK recession looking unlikely and with the interest rates narrative switching to cuts rather than rises, sentiment turned to a more positive outlook as ‘23 closed and ’24 opened for business.

Investment volumes across all industrial and logistics reached £7.4bn in 2023,

 and though that was down on the £13.3bn transacted in 2022, it is still a remarkable 

40% ahead of the average annual volume from 2007-2019

. When stripping out multi-let deals, overall logistics volumes reached £4.7bn, down 39.7% on 2022.


Despite overall volumes being ahead of the long-run average, Q4’23 finished as a damp squib, with just shy of £530m transacted, with the largest single-let deal being the sale by Tritax of an 847,000 sq ft Eddie Stobart unit on midlands Logistics Park to P3 Logistics Park for c.£92m.


Looking ahead to what’s in store in 2024, the industrial and logistics sector remains the asset class of choice and whilst fully acknowledging that some investors will come under pressure from numerous external forces, such as fund redemptions, refinancing and potential breaches in Loan-to-Value covenants, we do not expect to see distress in the market.


The lack of distress can be largely attributed to the fact that many banks are now reluctant to step back into the market having worked out of their positions following the GFC. As a result, investors faced with having to refinance could be given the option to simply ‘kick the can’ down the road in the hope that improving macro-fundamentals will see an easing in financing conditions and/or some yield compression.


In terms of pricing, the economic fundamentals have improved in recent weeks, with the yield on 

UK-10 year gilts coming in from c.4.7% at the end of October 2023, to 3.4% by the turn of the year.

 Albeit that yield has moved out once more in the first two weeks of January 2024 to stand at 3.9% (January 18th 2024).


The reason for the fall in yields in recent weeks has been that the US Federal Reserve policy makers signaled in mid-December that they expect to undertake 75 basis points of cuts this year, marking an abrupt shift from previous warnings that rates could still go higher through much of 2024.


Whilst the rhetoric from the Bank of England has remained that it’s ‘too early to signal rate cuts’ and that 

the fight against inflation is not yet over, the BoE is largely expected to follow the US FED in cutting rates in 2024.

 Therefore, from late summer, DTRE expect to see more conviction from investors as inflation and in-turn the Bank of England base rate starts to fall. As a result, UK-10 year gilt yields should also fall to c.3.5% and stabilise at that level, allowing prime yields to fall in-line with the ‘risk-free’ rate.


In terms of who will be active market participants in 2024, institutions are returning to the market after being priced out for a number of years, seeking to capitalise on the limited number of unexpectedly available core assets.


However, the US Private Equity houses, Prologis and the UK REITs will be the dominant market forces as the year progresses. Blackstone, KKR and Ares, amongst others, have all signaled their intention to deploy into the sector in 2024.

"... from late summer, DTRE expect to see more conviction from investors as inflation and in-turn the Bank of England base rate starts to fall. As a result, UK-10 year gilt yields should also fall to c.3.5% and stabilise at that level, allowing prime yields to fall in-line with the ‘risk-free’ rate."

Big Box Logistics Market Review – Q4 2023

5 Things You Need to Know About Big Box Logistics In Q3 2023

The annual summer slowdown that occurs during Q3 has unfortunately not helped in boosting this quarter’s take-up figures which reached just shy of 5 million sq ft. As a result of this year’s slowdown, occupational demand has now reverted back to it’s pre-pandemic trend line, after the Covid-induced boom.

Nine months into 2023 and take-up for Big Box logistics units over 100,000 sq ft stands at 16.7 million sq ft, down 41% year-on-year. However, as mentioned this is close to the preCovid (2009 19) average of 19 million sq ft. Measuring take-up on a quarterly basis shows that since Q1’22 take-up has averaged out at 7.5 million sq ft, similar to the pre-Covid (2009-19) quarterly average of 7.4 million sq ft.


What has caused this reversion back to pre-Covid trends? This can largely be attributed to three things.
Firstly, due to the macro environment, decision-making processes within businesses are taking much longer. That is apparent in the take-up numbers as well as current requirements. We currently have 9.2 million sq ft of space currently under offer, however, of that figure, 40% of it was also under offer three months ago when I last wrote this report.


Secondly, the growth in online retail sales has fallen back to its pre-pandemic trend after the Covid-induced spike. Online sales accounted for 24.9% of total retail sales in the UK in August 2023, down from a high of 37.2% in November 2020, however, still higher than the 19.1% seen in February 2020 and tracking the pre-Covid trendline. 

"We currently have 9.2 million square feet of space currently under offer, however, of that figure, 40% of it was also under offer three months ago when I last wrote this report."

Pure-play e-commerce retailers accounted for 57% of total retail take-up in 2021 as they rushed to deal with this new level of demand, however, since the end of the pandemic pure-play retailers have retreated and therefore demand from e-commerce occupiers for warehouses has also fallen back. This year e-commerce occupiers account for just 16% of take-up from retailers.


Nevertheless, as retail sales and consumer confidence recovers over the next 12 months and the worst of the interest rate and inflationary environment passes, we expect to see the online retail segment of the market recover also, back to prepandemic levels of around 30%.


Thirdly, despite some sporadic examples, the return of the manufacturers in a post-pandemic and post-Brexit world is yet to materialise in any meaningful way. Manufacturers are on course for their worst year of take-up since 2013 and take-up is currently 55% below its long-run annual average since 2009. The latest UK PMI data for manufacturing doesn’t point to a pick-up anytime soon given there has been a slowing in both global and domestic demand.

The DTRE Big Box vacancy rates now totals 6.2% up meaningfully from the 3.5% it was
at the turn of the year with a further 6.1 million square feet to be added in the remaining 3 months of 2023..."


Another area of the leasing market attracting some unwanted attention is the level of supply in the market.
Looking at the supply schedules, there can be no doubt also that supply has ticked up and t

Industrial & Logistics Market Intelligence