Introduction to Future Gazing 2025
Investors are increasingly recognising the long-term growth potential in UK manufacturing and the impact that this will have on real estate demand…
21 January 2025
Investors are increasingly recognising the long-term growth potential in UK manufacturing and the impact that this will have on real estate demand. Respondents to Deloitte鈥檚 2025 CRE survey chose industrial and manufacturing as the top sector for global real estate owners and investors in 2025; this is up from a ranking of sixth in last year鈥檚 survey and ninth in 2023.
The prospects for manufacturing in the UK specifically also appear bright. Oxford Economics forecasts 12% expansion in output over the next ten years. Manufacturing divisions with particularly robust growth prospects include 鈥榦ther transport equipment鈥�, the 鈥榗omputer, electronic and optical equipment鈥� sector, and 鈥榖asic pharmaceuticals鈥�. These high growth subdivisions will drive demand for industrial and logistics space, which will be felt most in the North West, South East, and South West. However, further bright spots of growth exist across other sectors and regions.
Despite the long-term structural growth prospects for the sector, in the near term, the UK鈥檚 manufacturing sector faces some challenges and downside risks. The latest UK manufacturing PMI figures (December 2024) are downbeat. A stalling domestic economy and concerns about future cost increases are weighing on business sentiment. Current global market conditions are also providing headwinds, with lower demand from Europe, Asia, and the US impacting exports. Continued geopolitical uncertainty and potential policy changes following the US elections also threaten to dampen growth prospects.
Manufacturing operations and the real estate they occupy also come with unique and diverse risks and considerations that investors should be mindful of. These relate to individual business/operating models, energy usage, labour requirements, business investment in equipment and facilities, bespoke requirements for facilities, and the potential for high levels of investment in fit-out and customisation. These requirements can mean that tenants wish to remain in situ for longer but can also bring risks associated with reletting.
"Investors are increasingly recognising the long-term growth potential in UK manufacturing and the impact that this will have on real estate demand."
There are also some manufacturing sectors experiencing contraction, which could pose a downside risk for some segments of the market and demand in specific locations.
Investing in manufacturing real estate means navigating the nuances of different segments of the market, with differing growth prospects and considerations, as well as this dichotomy between strong long-term growth, particularly within certain sectors and locations, alongside weaker sentiment over near-term prospects. This report seeks to explore some of the industries and locations poised for growth and considerations for investing in manufacturing real estate, compared with other sectors or asset classes.
