The UK Logistics & Industrial (L&I) sector is no stranger to structural change or supply chain shocks. The announcement of ‘reciprocal’ U.S. tariffs on what President Trump called ‘Liberation Day’ is likely to change the landscape of global trade, creating both challenges and opportunities for the sector. To understand the wider impact of Reciprocal Tariffs and economic Policies of Donald Trump on the EMEA Property market please reference our Trump 2.0 The First 100 Days report.
When trying to unpick the implications for the UK’s L&I sector it is important to acknowledge we are currently in the middle of a ‘pause’ and there remains uncertainty as to where tariffs end up across other markets – particularly as we speak, there have been promises of 50% tariffs on goods going from the EU to the US. On 8 May, Donald Trump and Keir Starmer announced a UK-U.S. trade deal – the first to be agreed between the U.S. and any other major economy following ‘Liberation Day’.
Nevertheless, the largest impact across real estate will be driven by continued uncertainty of the financial markets, shifts in the relative pricing of real estate and as a drag on global growth. Resurfacing inflationary pressures, particularly for construction, is likely to exacerbate a slowing development pipeline – especially for speculatively-developed units. New starts during Q1 2025 fell to 1.5m sq ft, significantly below the Q1 2023 peak of 6.6m sq ft.
Business confidence has already fallen, with the UK PMI falling to a contractionary score of 48.2, down from a modest expansionary score of 51.5, and a return to its lowest levels since late 2022. Low confidence is negatively impacting expansionary activity and new site acquisitions; market demand is reverting towards leasing events and limited occupiers driving operational efficiencies.
The UK manufacturing PMI registered a contractionary score of 45.4 in April. Perhaps more alarming is the rapid increase in UK manufacturing job losses, and high levels of goods price inflation which appear to be impacting the UK more severely than the other 30 economies surveyed by S&P global.
The export market and its role in Logistics & Industrial
The UK exports c.£60bn of goods annually to the U.S., accounting for 16% of its total exports. A further 50% of the UK’s exports are traded with the EU. Machinery & Transport equipment accounts for the largest share at £27bn of UK goods exports, followed by chemicals at £14bn, and raw and semi-finished materials at £4bn. In terms of tangible products, this is largely made up of pharmaceutical products, cars, mechanical power generators, treated chemicals, and scientific instruments.
But goods exports only makes up a portion of the UK’s total trading relationship with the U.S. The UK is the U.S.’s fourth-largest export market. Furthermore, the UK’s service rich economy exports c.£125bn of services each year, meaning goods accounts for approximately a third of its total outbound trade – with inbound trade also contributing to overall trade. The UK being the first major economy to secure a trade deal may signal both the strength of this long-standing relationship, but also a willingness to collaborate and compromise as wider global trade undergoes a significant reset.
Unsurprisingly, both Wales and the West Midlands have high levels of exposure at a regional level, a result of longstanding industries in steel, automotive manufacturing, and raw materials processing. Data from the SMMT shows that the UK exported 101,000 units (cars) during 2024 to the US, making it the second-largest export market for UK manufactured cars. The ‘Victory Day’ tariff announcement included tariff relief for 100,000 units each year, reducing the applicable tariff from the higher 25% to 10%, and helping to reduce some of the impact of the former package. Similarly, some relief has also been promised for UK steel which will reduce (not fully mitigate) the impact on these markets.
From a property perspective, it’s also worth remembering that whilst we have seen an uptick in demand for Grade A space from the manufacturing sector, many of these sectors and industries continue to operate from buildings of scale often held in freehold ownership. London has a low exposure of 3.2%, owing to its primary trade coming in the form of financial and business services.
Demand from U.S.-headquartered businesses has totalled 51m sq ft since the beginning of 2020, accounting for around a fifth of total demand during this time. While this does not directly reflect total exposure within the sector, it does point to the scale of demand from U.S. companies in recent years. Furthermore, exposure across the component occupier sectors is also varied, with e-commerce having the highest exposure, at 65% of the market.
Much of this has been driven by Amazon alone. In the five years prior to the global pandemic, Amazon signed for an average of 3.5m sq ft per annum. This rose to c.12.5m sq ft during 2020 and 2021 as the e-commerce giant looked to onboard capacity in the face of forced retail store closures and the structural shift to online shopping. However, when excluding Amazon, U.S. headquartered businesses as a share of demand in the last five years falls to 10% from c.20%.
Outside of e-commerce, all other occupier groups have seen exposure of less than 20%. Furthermore, over the last five years domestic and European demand has accounted for 73% of take-up, although it is worth mentioning that many UK and European headquartered businesses will export goods to the U.S.
Opportunities and change
While many will immediately focus on the downside risks presented by a changing global trade outlook, such change may also present a sizeable opportunity for the UK.
The ‘Liberation Day’ tariff package is likely to result in significant recalibration of international trade relations, and the establishment of new multilateral trade agreements – with an agreement between the UK and India also recently agreed. The subsequent ‘Victory Day’ deal also promises to provide access to wider U.S. export markets and streamline the administrative processes associated with import markets.
In the short term, it is also likely to result in significant re-routing of finished goods previously destined for the U.S. market. Traditionally the L&I sector has seen demand improve during times of uncertainty and elevated supply chain pressures, as additional supply chain capacity is onboarded to mitigate against supply chain risks. Supply chain pressures remain both elevated and volatile. The global supply chain pressure index has risen steadily since May 2023 rising to a score of -0.29 in April, and having seen significant volatility during 2025.
The imposition of new tariffs will drive continued onshoring and nearshoring, resulting in long term demand increasing from domestic producers.
The commitment to greater defence spending equivalent to a 2.5% share of GDP, rising to 2.7% by the next parliamentary term, is likely to drive further demand from advanced manufacturing and defence related logistics, resulting in a new wave of demand within the market over the medium term.
Prohibitive trade barriers placed on Asian economies exporting to the U.S. present a significant opportunity for the UK as a result of diverting focus from leading e-commerce brands. The UK L&I sector’s occupier base has already broadened to include a wider range of international companies - in 2024, 2.3m sq ft of demand was registered from companies predominantly comprised of scaling brands from the Middle East and Asia.
For large and rapidly scaling e-commerce brands such as Temu, Shein, & Alibaba, a significant volume of finished product may be re-directed in coming months, resulting in a renewed focus from these brands or by proxy through the 3PL sector in the UK consumer market. This is known as ‘dumping’ and relates to manufacturers and retailers exporting goods to alternative markets at a price below normal sales price.
Over the short term this may result in an increase in the volume of grey space being utilised (typically facilitated through the flexible logistics market), while over the long term its increasingly likely we will see a new wave of demand looking to maintain the rapid growth seen in recent years. This does pose some questions around competition for existing retailers in the UK, but also represents a likely new wave of occupier demand.
“Whilst the macroeconomic uncertainty impacts decision-making, there is plenty to remain positive about. The supply ‘tap’ in China, and other low-cost manufacturing countries, won’t be turned off anytime soon and if the ability to service U.S. demand remains difficult, it will find its way to other markets. Being the sixth biggest economy in the world, the UK is well-placed to be a beneficiary of that. This will drive more, and new, stocking locations in supply chains which will ultimately create activity in the real estate sector.”
- Michael Carson, Head of Supply Chain & Logistics Advisory - EMEA
Looking ahead
U.S. economic policy will undoubtedly result in significant supply chain pressures and elevated levels of business uncertainty, which will continue to drag on occupier demand over the medium term. In the short to medium term the automotive and manufacturing sectors are likely to be hardest hit in the UK, with regions exposed to large manufacturing bases likely to see a reduction in secondary demand. The UK manufacturing sector remains susceptible to economic shocks and inflationary pressures. However, to date, exposure from large manufacturers within the sectors for new build prime logistics and industrial buildings has been limited relative to broader demand accounting for just 16% of total Grade A demand. The need to reconfigure global supply chains will result in a short-term uplift in levels of occupier demand as additional supply chain capacity is onboarded and closer trade relations with both Europe and Asia, resulting in new market entrants across a range of segments. Whilst some direct and tangible impact is inevitable, it is important to remember it remains early days and that it is more likely that the largest impact of recent developments will come in the form of further delays in economic recovery, and ongoing uncertainty.
