The multi-let industrial sector
Industrial and logistics real estate has increasingly become a core component of institutional investors’ allocations.
Demand for the sector has been and continues to be shaped by a convergence of structural forces, including technology-led changes to distribution, evolving population patterns, adjustments in global supply chains and the transition to lower carbon operations. Continued growth in online retail and data driven logistics is reshaping requirements, while urbanization is increasing the premium on space that can efficiently serve end consumers.
In parallel, a renewed focus on supply chain robustness is supporting demand for domestically focused warehousing and light industrial space, even as activity levels ease from the extraordinary post pandemic peak. Against a backdrop of a constrained development pipeline and higher construction and financing costs, the emphasis is increasingly on the quality and adaptability of existing assets. Future performance is therefore likely to depend less on broad sector expansion and more on location, scarcity and the ability to upgrade older stock to meet changing occupier needs.
Industrial and logistics sub-sectors
Industrial and logistics underpin modern supply chains, providing the physical infrastructure for the production, storage and movement of goods. Within industrial and logistics, there are two main sub-sectors, which we define below.
Logistics, referring to warehousing and distribution, covers large-scale regional distribution centers typically larger than 100,000 sq. ft. These assets are often leased long term to major retailers or third-party logistics firms.
In contrast, multi-let industrial (MLI) refers to estates made up of smaller industrial units, generally < 50,000 sq. ft., let to a diverse range of tenants, from local trade suppliers and light manufacturers to e-commerce distributors and service businesses. The sub-sector offers diversified income, with frequent lease events capturing rental upside potential on a regular basis.
Case for MLI
In this article, we discuss the structural tailwinds currently present in the MLI sector, with a focus on supply and demand dynamics in the UK market. These factors, we feel, present a compelling case for further growth and investment in the sector.
The supply story: a structural opportunity
A key theme characterizing the MLI market currently is an undersupply of new development, despite a relatively low vacancy rate, which remains below the long-term average.
In the UK, the development pipeline stands at 11.9 million sq. ft. – less than 1% of existing MLI floor space. Of this, only 29% is actually under construction, as development viability constraints mean a significant number of planned projects are not being taken forward into the construction phase. At historic take-up rates, the current level of construction equates to around just one month of demand.
This is also reflected in the completion of new build assets, which, as can be seen in Figure 1, have shown a sharp downward trend in recent years. As a result, occupiers are increasingly competing for existing assets.
Looking ahead, we believe that new construction is likely to remain at compressed levels due to higher construction and financing costs, combined with competition for well-located urban land from residential, mixed-use and social infrastructure.
Figure 1: UK annual delivery of MLI floorspace (% of total stock)
Diversified demand across industries
On the demand side, MLI’s resilience is underpinned by the depth and diversity of its occupier base, which materially limits concentration risk and stabilizes cashflow through the economic cycle. Trade counter operators account for around a quarter of occupied space, alongside third-party logistics, light manufacturers and a long tail of regional small-to-medium enterprises (SMEs). These businesses typically serve local or national end markets and are embedded in day to day economic activity.
In tandem, and driven by the diverse demand pool, re-leasing periods have remained structurally low, even throughout recent macroeconomic volatility, reducing the downtime when tenants vacate units. This is illustrated in Figure 3, with the average re-leasing period of six months in MLI compared with 20 months in larger logistics units.
Figure 2: UK MLI occupiers by industry (%)
Figure 3: UK tenant concentration and average re-leasing period, by industrial subsector
Crucially, this demand resilience is playing out against the same structural supply constraints outlined above.
Rental growth – here to stay
These strong supply and demand dynamics have contributed to an environment which is supporting sustained rental growth across MLI assets. Average rents across the market have increased by 129% since 2010, a compound annual growth rate (CAGR) of over 5% per annum. While growth has moderated from the exceptional pace seen in 2021–22, the market is still expected to deliver above-inflation growth over the next five years.
An interesting dynamic is the current rent differential between prime new build and good quality secondary stock. Since 2022, prime rents have grown by 29%, compared with 22% market-wide, pushing the grade A premium to around 39% above all grade levels, the highest spread on record. We see this as an opportunity for good quality secondary rents to catch up, especially as development of new build stock remains constrained.
Figure 4: Rent spread between average and new-build UK MLI assets (GBP, psf)
A compelling entry point
Industrial valuations have stabilized throughout 2025 following the rate driven repricing of 2022–23. Market consensus is that selective yield compression is likely to resume over the medium term if debt markets improve, lending margins tighten, and institutional capital that paused during the correction reenters the market, assuming geopolitical events subside.
What makes the current entry point particularly compelling to us is the level of unrealized rental growth in many assets. Across many established MLI estates, we believe the gap between passing rents and estimated rental value (ERV) has yet to be fully captured. Income growth is therefore not solely reliant on market wide rental inflation but is also already embedded in forthcoming lease events. Investors acquiring assets at today’s pricing are buying both current income and the compounding that the lease cycle is expected to deliver over the next five years.
For investors allocating to UK real estate in 2026, we believe the MLI sector offers a rare combination of constrained supply, deep and diversified occupier demand, and frequent rent reset opportunities to capture rental reversion. The asset class requires active management, disciplined capital expenditure, and focused leasing execution. For managers with the capability to operate it effectively, it may be one of the more compelling risk adjusted opportunities within UK commercial real estate.
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