The effects of geopolitical instability across the globe are strengthening the long-term structural forces driving industrial and logistics capital markets, according to a report from Montagu Evans, first shared with Property Week.

Logistics City Whiteley

The report explores how the closure of the Strait of Hormuz has boosted long-term demand factors in the sector, with businesses seeking to hold larger inventories along with increased government emphasis in defence spending and energy security.

Montagu Evans predicts that savvy investors could be set to potentially benefit from this long-term growth.

The Iran war has created short-term uncertainties, the report acknowledges, with the conflict dampening the industrial and logistics capital markets.

However, at the end of 2025 and start of 2026, investment in UK industrial and logistics property was showing signs of improvement. The £5.2bn transacted in Q4 was the highest quarterly total since Q1 2022, while this year’s Q1 figure was less than half of the previous quarter at £2.4bn – a clear reflection of the effects of the US attack on Iran.

Jon Neale, director of research and insight at Montagu Evans

“Despite short-term uncertainty, geopolitical events have reinforced the structural drivers underpinning industrial and logistics,” Jon Neale, director of research and insight at Montagu Evans, told Property Week.

“As firms hold larger inventories onshore, governments increase defence spending and the need to ensure energy security grows ever more pressing, competition for industrial sites is growing – including from new sources.”

He added: “Against a backdrop of constrained development and limited supply of the highest-quality space, we are confident that the sector is well positioned to outperform in the medium to long term.”

Following a series of supply chain disruptions – the Covid pandemic, Russia’s invasion of Ukraine and conflicts in the Middle East – many companies have moved away from ‘just-in-time’ to ‘just-in-case’ logistics, according to the report, and the increased inventories held by businesses will continue to create demand for modern logistics space.

The MoD recently announced a major lease at Panattoni Park Swindon

The Iran war has also added fresh urgency to the UK’s ambition to increase defence spending to 2.7% of GDP by the end of the decade and by 3.5% by 2035, the report says, with the results of this shift in urgency starting to materialise.

For example, last month, the Ministry of Defence announced it had signed for 500,000 sq ft at Panattoni Park Swindon to develop NATO’s largest indoor drone testing facility in Europe.

The energy shock created by the Iran war has placed a new emphasis on energy resilience, according to the report, which is likely to accelerate the move towards more renewables on and around industrial and logistics facilities, as well as battery storage, all of which will create even more demand for the sector.

Simultaneously, the UK industrial and logistics development is at a low point, with little grade-A supply being built, with viability squeezed by higher debt and build costs, Montagu Evans reports. The amount of industrial space started and completed over the past two years has been steadily falling, the firm says, and is now at its lowest rate for at least a decade, with average rents rising nationally.

Montagu Evans concludes: “While there will be ebbs and flows in take-up, pricing and investment volumes, it [industrial and logistics] still has the best relative growth prospects among the major commercial sectors, underpinned by structural drivers of demand and constrained supply.”