London Office Market Insights Q1 2025

London's office market is experiencing a period of significant change, with vacancy rates climbing to 10.3% as we head into 2025, the highest in 20 years. While leasing activity has shown improvement since early 2024, new office supply is pushing vacancies higher. However, London's vacancy rate still lags behind New York's 14%, signalling some relative resilience. With 16.1 million square feet of office space under construction and subdued demand, vacancies are likely to rise further in the near term. Despite this, premium office buildings continue to see strong demand, particularly those offering sustainable, high-quality space, while lower-rated properties are facing more vacancies and obsolescence. Companies are downsizing but upgrading to better locations and greener buildings, such as HSBC’s significant reduction in space in Docklands. Submarket performance is uneven, with the West End maintaining low vacancy rates, while Docklands and West London face higher rates.

Rents in London's office market remain elevated, particularly in prime locations where features like roof terraces and upper floors command premiums. However, the broader market is showing signs of softness, with rent-free periods of two to three years being offered in many leases. While the gap between top-tier and lower-quality office spaces widens, demand for prime spaces in sought-after areas continues to drive high rents, especially in locations like Soho, Farringdon, and Mayfair. Meanwhile, weaker submarkets like Docklands and Hammersmith are struggling with downward pressure on rents. London's office investment market slumped in 2024, hitting a 20-year low, but activity showed signs of recovery toward the end of the year, with American investors becoming more active, particularly in the West End. The outlook remains cautious, with high borrowing costs and a mismatch between buyer and seller expectations hindering larger deals. However, the return of UK institutions and an increased focus on value-add and redevelopment opportunities, particularly in office-to-hotel or life sciences conversions, signal a potential for a longer-term flight to quality.

On the economic front, London’s GVA growth of 1.3% in 2024 is outperforming the national average, and further growth of 1.7% in 2025 and 1.9% in 2026 is expected. The information and communication sectors, along with business services, are driving recovery. Employment is forecast to rise by 1.3% annually over the next five years, with an additional 440,000 jobs, primarily in business services. London's infrastructure projects, such as Heathrow’s third runway and major housing initiatives, are expected to further boost economic activity. The city remains a global hub for finance, insurance, and creative industries, attracting American tech and venture capital firms due to its favourable tax environment.

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