A reset moment for the development market: navigating risk in industrial and logistics

Industrial and logistics demand remains resilient, but higher costs, tighter capital and power constraints are reshaping how development is funded, delivered and de-risked.

The property and development sector will gather at UKREiiF in the attractive surroundings of Leeds Dock. But its collective mind may well be focused on another waterway, the Strait of Hormuz.

Yet as uncertain as the world economy feels in the midst of geopolitical tensions, volatile energy markets and the rising cost of debt, this is a moment of adjustment rather than decline.

Across the industrial and logistics market, occupier demand remains strong. However, translating that demand into viable development has become more complex. For developers, funders and occupiers alike, this is a market that calls for realism, collaboration and a renewed focus on fundamentals – particularly income durability and asset quality.

From just in time to just in case supply chains

Occupier demand is being driven by some powerful forces. Disruption to fuel supply and transport risk, exacerbated by the Iran conflict, continues to push supply chains away from ‘just in time’ models towards ‘just in case’. This shift is increasing demand for warehouse space as businesses hold higher levels of stock to reduce exposure to volatility. Defence spending is also a growing driver, alongside the continued expansion of e‑commerce.

However, delivery constraints are intensifying. Land remains expensive, planning is prolonged, and access to upgraded power infrastructure has become a decisive factor in site selection. Elevated construction, materials and finance costs are all affecting starts on site, while rising energy costs are also impacting viability.

Development activity has not halted, but momentum has slowed, with speculative schemes paused. Nevertheless, it’s important to note that leading demand indicators are still positive, with viewings up year-on-year despite geopolitical uncertainty – requirements are still out there.

Logistics demand is also evolving. E‑commerce remains a core driver, with additional momentum from Chinese platforms such as Shein and Temu, alongside a broader shift towards holding inventory closer to the end customer. This is increasing demand for last‑mile facilities and regional logistics hubs.

Selective capital and the importance of asset quality

Capital remains available for industrial and logistics development, but is more selective. The cost of debt and inflationary pressures continue to affect the appetite of funders, who are placing greater scrutiny on risk. The development pipeline is therefore largely restricted to schemes that are well funded, pre‑let and sustainable.

Income security and asset quality are critical. Best‑in‑class assets with secure income have proved the most resilient, supported by strong covenants and long‑term occupational demand. ESG performance and power security have moved higher up the occupier checklist, alongside traditional considerations such as location, connectivity and access to labour.

For occupiers, energy and power resilience are becoming increasingly important. There is growing demand for facilities with strong power capacity, high energy efficiency and, where possible, on‑site generation, as businesses seek to manage rising operating costs and exposure to energy price volatility.

Industrial and logistics as long-term economic infrastructure

At the same time, competition for land and power is intensifying. Data centres and AI infrastructure are increasingly competing with industrial and logistics uses, further constraining supply and reinforcing the importance of energy security as a strategic issue.

Uncertainty will continue to influence decision‑making in the short term. However, industrial and logistics assets are central to daily life and economic activity and remain critical infrastructure for regional and national growth. With the right conditions in place, the sector is well positioned to deliver sustainable, resilient development that supports long‑term economic performance.