Contents
Overview of Current Market Conditions
Data from early March 2025 shows that overall vacancies have risen to a 20‐year high of 10.6% – nearly double the pre‑pandemic rate of about 5%. This significant increase is driven by the continuous surge in new supply, with nearly 16.2 million sq ft of office space under construction across the capital.
Despite a rebound in leasing activity since the Q1 2024 low – with an average of around 4.3 million sq ft leased over the last three quarters – overall net absorption remains under pressure at a negative 1.4 million sq ft on an annual basis. In other words, more space is being vacated than leased. However, the best‑quality, 5‑star office buildings are bucking this trend, recording strong positive absorption and a seven‑year low vacancy rate by the end of 2024.
For landlords, this divergence by building quality means that while lower‑rated assets are under pressure to offer longer rent‑free periods and additional concessions, premium properties in the City and West End continue to command high rents – exemplified by a record £122 per sq ft achieved in November 2024.
Key London Office Market Stats:
| Metric | Value | What are the implications? |
|---|---|---|
| Annual Take‑Up | ~9.7 million sq ft | Flat year‑on‑year; Q4 2024 was the strongest quarter |
| Vacancy Rate | 10.6% | A 20‑year high indicating increasing market slack |
| Prime Rent (West End) | £155–£160 per sq ft | Up ~10% YoY; premium demand remains robust |
| Prime Rent (City) | ~£82.50 per sq ft; peak at £122 per sq ft | Reflects strong resilience in top‑quality assets and “flight to quality”. |
| Investment Volume (2024) | £6–£6.2 billion | Record low overall, though Q4 saw a 22% uptick to ~£1.6bn |
| Prime Yields | ~4.0% (West End), ~5.25–5.5% (City) | Stabilised yields amid market repricing |
Data sources: CoStar London Office Market Report (Feb–Mar 2025), JLL, Knight Frank, Cushman & Wakefield Marketbeat
Leasing and Vacancy Trends
Leasing in London is showing signs of recovery, but the market remains segmented by location and asset quality. Overall leasing has improved from the three‑year low seen in early 2024 – with approximately 4.3 million sq ft leased over the past three quarters – yet the net annual absorption remains negative at 1.4 million sq ft because new supply continues to outpace demand.
Notably, the highest‑quality 5‑star buildings are performing strongly. Demand in these super‑prime spaces is bolstered by major pre‑let deals – with firms like Legal & General and Evercore securing leases on over 100,000 sq ft since April 2024 – while lower‑rated stock has experienced cumulative losses of over 10 million sq ft in recent years.
There is also a marked divergence between central prime and secondary locations. In the West End and City, vacancy levels remain extremely low – even dipping below 0.5% for Grade A properties – enabling landlords to command higher rents and stricter lease terms. In contrast, areas like Docklands and parts of west London continue to struggle, with vacancy rates approaching 20% and longer void periods.
Additional market shifts include downsizing by major banks and rightsizing by tech giants. For instance, HSBC is set to shed half of its Docklands space in 2027 after pre‑leasing 556,000 sq ft in the City, while tech companies are repositioning their footprints, further contributing to the flight-to-quality trend.
Investment and Development Trends
Investment activity remains subdued after a period of rapid growth, with overall volumes in 2024 falling to around £6–£6.2 billion – the lowest levels seen in decades. However, a notable 22% increase in Q4 2024 (to approximately £1.6 billion) indicates that market participants are beginning to reposition as yields stabilise.
The investment narrative is also being shaped by a shift in ownership profiles. Asian investors, who had dominated in previous years, are now net sellers, while American buyers are increasingly snapping up premium assets in the West End and St James’s. These dynamics have contributed to the rebalancing of prime yields, which now hover around 4.1% in the West End and 5.25–5.5% in the City.
On the development side, 2025 is expected to be the busiest year since 2009, with net deliveries approaching 4 million sq ft if projects are completed as scheduled. The City remains the focus of speculative, tower‑heavy construction – including landmark projects such as 50 Fenchurch Street and 2 Finsbury Avenue, each delivering around 700,000 sq ft – while conversion and refurbishment activity is surging in the West End, where department stores and older office stock are being repurposed to meet modern standards.
These developments highlight a market in transition. With nearly 16.2 million sq ft currently under construction, the ongoing influx of new supply will likely continue to pressure rents and absorption in the near term, while encouraging tenants to negotiate more flexible terms.
Workplace Trends, Fit‑Out Implications & Future Outlook
Evolving Workspace Demands & Flexible Fit‑Out Requirements
The evolution of the workplace remains a major driver in London’s office market. Hybrid and remote working models continue to shape space requirements, prompting many companies to seek flexible, high‑quality environments that can adapt to evolving operational needs. This trend is particularly evident in the premium segments, where modern fit‑outs play a critical role in attracting top talent.
Sustainability, Energy Efficiency & Modernisation
Energy efficiency and sustainability are now core imperatives. As the market moves toward net‑zero targets, regulatory pressures are compelling landlords to invest in major refurbishments to boost building performance. Iconic assets such as 110 Bishopsgate (Heron Tower) are already undergoing multi‑million pound upgrades to achieve higher energy ratings. In fact, research indicates that over 80% of commercial properties in England’s largest cities could become unlettable by 2030 without significant capital investment.
This push for modernisation is also transforming workspace design. Smart-fit out solutions—from energy‑efficient lighting and HVAC systems to real‑time data monitoring—are becoming the norm, helping landlords reduce operating costs while enhancing tenant satisfaction. For tenants, the promise of lower energy bills and improved work environments is a strong incentive to move into upgraded, sustainably certified buildings.
Leasing, Vacancy & Investment Trends
Looking ahead, leasing activity is forecast to gradually recover as tenant demand shifts further toward modern, flexible, and sustainable spaces. However, with new supply expected to push overall vacancies even higher in the short term, tenants may secure stronger concessions and more attractive lease terms—especially in lower‑rated submarkets. Despite current vacancy rates at 10.6%, premium assets in the West End and City are expected to maintain robust rent levels, with prime yields stabilising around 4.0% to 5.5%.
Investment is also set to rebound after a subdued 2024, with global investors remaining attracted to London’s quality assets. Properties that meet strict energy efficiency standards are likely to command a premium, while shifting investor profiles—with Asian sellers and American buyers active in the market—are expected to rebalance yields and transaction volumes.
Market Challenges, Opportunities & Long‑Term Implications
In the near term, the continued influx of new supply, combined with subdued demand, will keep the market in a state of flux. Landlords face the dual challenge of mitigating rising vacancies while investing heavily in energy upgrades and modernisations. Yet, these challenges also present opportunities: properties that successfully transition to meet modern standards will not only attract higher‑quality tenants but may also secure higher valuations and more stable, long‑term returns.
Beyond 2025, the convergence of regulatory, economic, and technological drivers is poised to transform London’s office market. Long‑term success will depend on the ability of landlords to deliver flexible, sustainable, and technologically advanced workspaces that meet current tenant needs and future regulatory requirements. For tenants, the benefits will include lower operating costs, enhanced workplace environments, and improved overall asset quality—factors that will be critical in a competitive market landscape.
Forecast for 2025 and Beyond
While short‑term challenges persist due to oversupply and evolving tenant demands, the long‑term outlook remains promising for quality, adaptable assets. As investments in modernisation and sustainability ramp up and market yields rebalance, the forecast for 2025 and beyond points to a gradual recovery driven by improved asset quality, more flexible lease structures, and continued global investor interest.