Northern Industrial Market

Ceara Duggan
Senior Surveyor, Commercial Valuation

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The Northern Industrial Sector Update

The industrial sector continues to perform compared to other asset classes and has generally shown resilience in the recent turbulent times. The market has shown significant momentum, supported by strong occupier demand in key cities such as Manchester, Leeds, Sheffield, and Newcastle with prime rents showing strong growth levels across most key areas. Markets showed improved levels of activity in 2024, with higher volumes of transactions in both the occupier and investment markets. The sector remained active in Q1 2025, albeit there was a decline in occupier take-up. However, this drop appears larger than it really is because the Q4 2024 figures were later revised upward, while investment activity levels were broadly in line with Q1 2024. 

Yorkshire has outperformed in Q1 2025, after a relatively subdued 2024. The region experienced a notable uptick in occupier activity, driven by its strong connectivity and more competitive costs compared to the core Midlands markets making it an increasingly attractive option for logistics operators. 

Rental values are still rising but at a slow pace. Occupiers are facing financial pressures from rising wages, business rates, and other overheads. With limited control over many of these expenses, some are seeking ways to reduce their rental commitments.

Meanwhile, speculative development remains limited, with construction volumes falling below long term averages a trend that could constrain future supply and, in turn, support further rental growth.

While there has been a  slowdown in the occupier demand, demand for high quality, well located assets continues to drive rents and the agreed terms, especially for assets that are ESG compliant which is a must for most regional / national occupiers.

Here is an overview of mid to large box (<100,000 sqft) prime industrial rents across major northern cities:

Who is Buying What and For How Much?

As mentioned earlier, activity levels were broadly in line with Q1 2024. Institutional investors are showing renewed interest in core logistics assets, but transactional volumes remain relatively low although this is more likely down to yields being insufficient to meet most buyer return expectations, promoting many investors to shift their focus towards value add opportunities. 

Industrial remains to be the asset class of choice for many and multi-let industrial estates in particular have been a rare occurrence in recent years, but they remain to be on the top of the shopping list for most prospective investors and strong benchmark pricing has been achieved on those schemes that do come to market. In fact, the industrial sector is forecast to outperform all other property sectors between now and 2028. 

With the prospect of a more (relatively) stable and certain outlook, reducing interest rates and improving overall confidence, the big question is how the industrial occupier markets will fare, and whether sellers will be tempted back to the market as pricing makes it more attractive to do so.

A prime unit may comprise of the following;

• A high quality and well located asset
• Long let (15 – 20 years) to a good to strong covenant including OMRRs
• ESG compliant which is critical for long term growth

Some may take caution from the above re-pricing and softening of yields over a period of 3 years, most of which took effect in an alarmingly short period of time post Liz Truss budget in September 2022. However, any value lost in the clear yield shift has generally been recouped from the rental growth experienced in the respective markets. 

When we are valuing industrial assets, we tend to find that tenancies entered into 12, even 6 months ago are now out of date and reversionary with landlords keen to push rents while competing supply remains limited. 

With rents growing at such a pace, many industrial owners have been relatively unscathed from drops in values as seem in other sectors of commercial real estate. 

With a realistic hat on, there are potential speed bumps on the horizon and the sector faces several challenges, including rising inflation, which has eased, providing some relief to the market. However, with this expected to rise again and growth forecasts being revised downward – driven in part by global instability like US trade tensions, this could disrupt supply chains and increase costs which may create a more cautious environment for occupiers and investors alike. 

The Bank of England have begun easing rates, now at 4.25%, with 2 further 25 basis point cuts expected later this year to support the economy and avoid recession. Lower rates will help ease debt costs and could stimulate investment. Additionally, volatile energy costs and stricter sustainability regulations will require significant investment in green infrastructure.

Key Takeaways

• Investor demand is for the strongest prime assets and those with short term value add opportunities. Appetite dwindles for secondary / older stock, although there are certainly still buyers for these, albeit at more discounted pricing.
• Appetite for modern Grade A space continues but limited occupier choice in the best stock has seen a high proportion of demand being facilitated by space within Grade B buildings as the ‘next best’.
• New build development in the speedy hike in interest rates almost came to a standstill, as proposed schemes were no longer deemed viable when factoring in increasing build costs, cost of finance together with re-pricing across the sector. While completions of big boxes in particular that were already under construction have come about, there is a higher proportion of these that are without a pre-let and remain vacant.
• Occupier demand for buildings that are specified to a high standard, and especially those newly or redeveloped schemes that provide strong ESG credentials and low carbon footprints continue to be highly sought after and are now a pre-requisite for any proposed development in order to secure the best quality tenant on the best terms.
• Competition for good quality existing and new build product has helped maintain upward pressure on rental growth, and ultimately helps bring secondary rents on an upwards trajectory along with it.

About Ceara

Having joined Allsop in mid-2022, Ceara is based in the firms Leeds office and has expanded the Commercial Valuation team in the North and provided much needed resource to help service our workload. Coming from a background of landlord and tenant, lease renewals and rent reviews, the move into valuation across all main asset classes was the clear next route. 

Since joining Allsop, Ceara has set up regular Allsop events alongside another colleague which is aimed at professionals who are in the earlier to mid stages of their careers and are looking to build a networking platform. 

While Ceara has worked on and valued assets across all classes since joining, she has recently worked on a mixture of regionally significantly multi-let industrial estates and several large retail warehouses throughout the region, while one of the more specialist assets includes a new build development site for a prime drive thru and petrol filling station in West Yorkshire. 

Ceara has particularly enjoyed working on a shopping centre in Newcastle for one of our largest clients which was part of a wider portfolio.

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