Improved Q2 for investment volumes masks a stuttering start to 2025 keeping yields stable
Stuttering start for investment market
As the market entered 2025, there was a sense of greater stability and liquidity returning to capital markets. However, a combination of factors such as gilt rate volatility in the early part of the year, continued uncertainty around the impact of US ’Liberation Day’ tariffs, and ongoing global conflicts have given investors multiple reasons to hold back on deploying capital.
This is reflected in the overall investment volumes for the half year. Whilst Q2 2025 saw volumes rise by 15% over Q1 2025, the overall volume at the half year reached £21.9 billion, which is 7% off the long-term H1 average. By sector, industrial was the best performer, accounting for 26% of the market, followed by offices at 24% (with Central London accounting for 71% of the total) and retail at 18%. It should also be noted that both offices and industrial posted volume increases when compared with the first half of 2024.
It would seem that prolonged decision-making and a lack of decisiveness are a continuing theme in the market despite many signals suggesting now is a good time to invest, particularly as we expect continued inward movement of the base rate as the year progresses. Whilst not just a UK problem, liquidity is being held back by a lack of sellers with intention, along with a general scarcity of prime stock amidst a persistent price expectations gap. This market indecisiveness is reflected in our prime yields, which all remain stable, meaning the average prime yield stays at 5.91% for the fifth month in a row, a feat not achieved since 2011.
London remains most expensive warehousing market in the world
Global prime warehousing costs (prime rents plus taxes and service charges) increased by 1.1% in the six months to March 2025, marking three years of decelerating growth. Regionally, Europe has seen the largest increase in prime warehousing costs at 5.3% in the 12 months to March 2025, while in Asia Pacific and North America, this figure is 1.8% and 1.3% respectively over the same period. In Q1 2025, North American prime warehousing rents fell by -0.1%, driven by a combination of overbuilding and the continued normalisation of demand following the pandemic.
Analysed globally in USD for consistency, London has kept its position as the world’s most expensive warehousing market for the fifth consecutive year, with total annual occupancy cost reaching nearly $49 per square foot. This underscores the UK capital’s ongoing appeal, despite cost pressures. High demand for limited prime space, strong infrastructure and proximity to a dense and affluent consumer base continue to drive high rents.
Since undertaking our initial global study in 2021, total warehouse occupational costs have risen by an average of 12%. With that in mind, it is no surprise that occupier behaviour has changed to try and mitigate for some of these increases.
According to our latest survey of the Savills global network, the most common response to recent geopolitical uncertainty is a delay in leasing decisions, cited by over 80% of respondents across 54 markets. This reflects a mood of caution, as businesses consider their options amid policy uncertainty and unpredictable demand. For those signing leases now, flexibility is paramount. Across all regions, occupiers are pursuing lease structures that offer greater agility, including short-term commitments, break clauses and expansion rights.
Whilst occupier demand has wavered recently in London and vacancy has trended upwards, there remains pressure on land from competing uses and a lack of prime stock for occupiers to choose from, so we expect London to remain at the top of the tree for the foreseeable future. To read more about this research, please click here.
The Government’s green light for a new Universal Studios theme park in Bedford could spell good news for the industrial and logistics sector. Set to open its doors in 2031, it is expected to welcome up to 8.5 million visitors within the first year of opening, bringing in £50 billion of economic value to the British economy.
Examining job creation forecasts, Savills research has found that over 2.2 million sq ft of warehouse space will be required to support the park when operational. Examining historical speculative development trends in the local area suggests that warehouse speculative construction rates need to double to meet the demand. Working with Savills USA, we have also found that net absorption in Orlando increases following the opening of new theme parks in Florida.
To read more on this topic, please view the research here.
To further discuss the latest insights, please contact the UK Investment or Commercial Research team via the Authors panel