Supply tightens as occupier demand strengthens and new construction slows, signaling a shift in market dynamics.
Big-box warehouse supply across the Midlands is beginning to show clear signs of contraction after reaching a peak at the turn of the year, marking an important shift in the region’s industrial and logistics property market. New data from CoStar, a leading global provider of real estate marketplaces, information, and analytics, highlights how the balance between supply and demand is gradually tightening following several years of expansion and elevated availability.
In recent months, total availability of large-scale warehouse space—commonly referred to as “big-box” logistics units—has fallen by approximately 5 million square feet. This decline reflects a combination of strengthening occupier demand and a slowdown in new construction activity. While the reduction is notable, overall supply remains historically high, standing at roughly 30 million square feet across the Midlands. This suggests that although the market is moving toward rebalancing, it has not yet fully transitioned into a constrained supply environment.
The recent shift is being driven largely by changing occupier behavior. Companies are becoming more proactive in securing logistics space, particularly in prime distribution locations where connectivity and infrastructure are key advantages. According to Grant Lonsdale, senior director of market analytics at CoStar Europe, businesses are increasingly moving earlier in the leasing cycle to lock in suitable facilities. This trend is especially evident in areas with strong motorway access, which remain highly attractive for distribution and fulfillment operations.
As a result of this renewed activity, take-up levels have shown encouraging momentum. Around 6 million square feet of warehouse space has already been absorbed across the Midlands in the opening months of the year. This early surge in demand indicates a degree of confidence among occupiers, particularly in sectors reliant on efficient logistics networks such as e-commerce, retail distribution, and third-party logistics providers. It also suggests that businesses are planning ahead, anticipating future operational needs rather than reacting to immediate pressures.
At the same time, the supply side of the equation is undergoing a significant adjustment. Construction activity has slowed considerably compared to previous years, when developers ramped up building in response to surging demand and limited availability. Today, around 70% of the big-box space currently under construction in the Midlands has already been pre-let. This high level of pre-commitment is limiting the amount of speculative space that will come to market in the near term, effectively reducing the flow of new available stock.
The development pipeline has also shrunk substantially. Currently standing at approximately 9.3 million square feet, it is around 40% smaller than it was two years ago and roughly half the size of its peak in 2022. This contraction reflects a more cautious approach from developers, who are responding to a combination of economic uncertainty, higher financing costs, and a more measured outlook for demand growth. The shift away from speculative development toward pre-let projects indicates a more risk-averse market environment.
This interplay between declining supply and steady demand is beginning to reshape market dynamics. After a period characterized by rising vacancy rates and subdued leasing activity, conditions are now tightening. According to Lonsdale, this could lead to greater stability in both rental levels and incentive packages. Over the past couple of years, landlords have often had to offer attractive incentives to secure tenants in a more competitive environment. However, as availability decreases and demand strengthens, the need for such concessions may diminish.
Rental growth, however, is expected to remain uneven. Rather than broad-based increases across all types of warehouse space, growth is likely to be selective and dependent on the quality and location of individual schemes. High-specification warehouses in prime logistics hubs are expected to perform best, benefiting from strong occupier interest and limited supply. In contrast, secondary assets or those in less strategic locations may continue to face more muted demand and pricing pressure.
Importantly, the evolving conditions suggest that the balance of power in the Midlands big-box market may be starting to shift—albeit gradually—back toward landlords. Owners of modern, well-located warehouses are particularly well-positioned to benefit from this change, as occupiers compete for a shrinking pool of high-quality space. This could result in improved leasing terms and greater negotiating leverage for landlords, especially as the pipeline of new supply remains constrained.
Despite these positive indicators, the market is not without its uncertainties. Broader economic factors, including interest rates, inflation, and global trade conditions, will continue to influence both occupier demand and development activity. Additionally, while demand has strengthened in the early part of the year, it remains to be seen whether this momentum can be sustained over the longer term.
Nevertheless, the current trajectory points toward a more balanced and potentially healthier market. The reduction in supply, combined with disciplined development and steady demand, is helping to correct the oversupply that built up during the previous expansion phase. If these trends continue, the Midlands could see a gradual return to more stable market conditions, with improved confidence among both occupiers and investors.
In summary, the Midlands big-box warehouse sector is entering a new phase marked by declining availability, reduced construction activity, and strengthening demand. While supply remains elevated by historical standards, the recent contraction signals a turning point. As occupiers act earlier to secure space and developers adopt a more cautious approach, the market is moving toward equilibrium. For landlords, particularly those with high-quality assets, this shift presents an opportunity to regain some leverage, while occupiers may need to adapt to a more competitive landscape in the months ahead.
About CoStar Group
CoStar Group is a global leader in commercial real estate information, analytics, online marketplaces, and 3D digital twin technology. Founded in 1986, CoStar Group is dedicated to digitizing the world’s real estate, empowering all people to discover properties, insights, and connections that improve their businesses and lives.
CoStar Group’s major brands include CoStar, a leading global provider of commercial real estate data, analytics, and news; LoopNet, the most trafficked commercial real estate marketplace; Apartments.com, the leading platform for apartment rentals; Homes.com, the fastest-growing residential real estate marketplace; and Domain, one of Australia’s leading property marketplaces. CoStar Group’s industry-leading brands also include Matterport, a leading spatial data company whose platform turns buildings into data to make every space more valuable and accessible; STR, a global leader in hospitality data and benchmarking; Ten-X, an online platform for commercial real estate auctions and negotiated bids; and OnTheMarket, a leading residential property portal in the United Kingdom.
