Jumping the development hurdles tripping up UK industry

2026 has been a difficult year for UK industry. Costs are up and clients have become more risk averse, resulting in a long list of stalled investment decisions across manufacturing, logistics, and industrial property.

Understanding the trends that are driving this caution, where the market is heading, and what manufacturers need to take into consideration moving forward is essential to helping businesses navigate today’s industrial landscape.

Justifying growth

At the crux of whether an expansion happens is whether it can be justified.

For example, Vertical Aerospace has an order book worth billions, and that scale makes new facility investment justifiable internally.

Without an order book like that behind you, the business case for new capacity is hard to make as developers and occupiers typically want payback within one to two years, but costs have risen so much that the return on investment is taking far longer to wash its face.

This lack of short-term incentive is making it increasingly difficult to get new projects signed off.

Added to this is the fact that construction tends to be the first thing to wind down in any adverse economic climate, especially when politics or regulations are shifting, as uncertainty hits site activity before almost anything else.

When a business doesn’t have the luxury of a robust order book and still commits to new developments it’s usually because leadership is taking a longer, more transformative view rather than chasing a quick profit.

A similar story can be seen in the automotive sector. BYD have an exceptionally strong cash flow and the benefit that practically all their product is patented by them, which has led to a spate of expansions.

In contrast, the well known OEMs like Volkswagen, BMW, and Ford are all facing a much more challenging outlook due to complex supply chains and thin margins, making it much harder for them to sign-off new developments.

These cases underline the decision-making dynamic within the market today, which is that investment needs either a locked-in reason to spend or a leadership team that is focused on longevity and willing to look 10 to 15 years ahead.

Small margins, low bids

That caution feeds a second problem further down the supply chain. With margins already thin across the board, consultants and suppliers are pricing bids low just to win the work, which leaves them with little room and, on some jobs, a finished product that suffers for it. It’s a race to the bottom that gets harder to break out of the longer it runs.

It also reflects a real step change in how the market works. Clients now expect more for less, and quotes that would have looked competitive four or five years ago appear higher today for a smaller scope. While this is a problem that many will recognise regardless of sector, manufacturing is arguably more exposed given how many suppliers are involved in building and operating a single factory.

Powering problems

Access to power sits underneath a lot of these problems. A well-located site is worthless without a grid connection, and the best-connected sites are mostly already spoken for, or expensive because demand for them is so high. Getting power to anywhere that isn’t already well connected can be costly enough to make a project unviable before it starts.

With energy making land and new developments cost prohibitive, some firms with large footprints are instead concentrating on internal restructuring so they can do more with less.

Indeed, many manufacturers have come full circle and realised that not everything in their current set-up is broken, so they don’t need to replace it all with a new factory brimming with the latest automation. Instead, they are looking to improve what they already have without reinventing the wheel or stopping production to do it.

The businesses getting this right are the ones that see the value in their existing interfaces rather than getting sidetracked chasing the latest AI-led fix. On top of this, they’re aware that implementing such transformations without a comprehensive plan risks deploying technology in isolation, which rarely delivers results.

Opportunities for optimism

While these issues are complex and liable to remain with us for some time, there are rays of hope on the horizon for UK industry, with certain sectors having more cause for optimism than others. The defence industry for example looks set to benefit from increased government spending as of next year. This has the potential to stimulate a range of domestic manufacturers, with drone technology in particular generating real demand for production and storage space.

There is also an often underplayed opportunity in what Covid left behind. While it was an undeniably hard period for industry overall, it pushed e-commerce forward fast enough that warehousing and logistics demand has stayed elevated ever since.

Powering the solution

The small modular reactor (SMR) programme could also be a genuinely big opportunity for the UK. Done well, it could power cities, ease the pressure data centres are putting on the grid, and generate new exports. The first reactor is still several years from delivery, but this development could play a significant role in solving the UK’s industrial energy issues.

As the wider grid electrifies, there’s a big push by logistics and industrial occupiers to electrify their estates. This is especially visible in sectors like automotive and logistics, which are investing in increasingly electrified fleets - although heavier vehicles such as HGVs remain a challenge.

It’s worth bearing in mind that businesses which don’t electrify now could be storing up a bigger problem for later if the process ends up being hurried.

Design and development get compressed under time pressure, and shorter timelines tend to bring more variations and higher costs, simply because decisions haven’t been thought through properly. When a project is being driven by programme, time is money, so this isn’t only about securing power at the right point for the business, it’s about making sure the facility is ready to run exactly when it’s needed.

The long view

Across all of this, the message for UK industry is that businesses must resist the pressure to think short term. The ones that win out don’t dismiss the value of what they already have, and they plan on their own timescale rather than someone else’s.

Getting this right means weighing up every option rather than jumping for the newest one and remembering that approaches which have worked for decades often still have life left in them.

Longer-term planning, valuing existing assets, and giving proper planning the time it needs rather than rushing it, remain some of the most reliable ways to get the best value from any investment.