As 2024 progressed, the office market has been buoyed by increasingly firm calls by large occupiers for their employees to return to the office. Indeed, according to the KPMG 2024 CEO Survey, 83% of respondents expect a full return to the office over the next three years, compared to just 63% in 2023. Additionally, occupiers look to have moved past a focus on rightsizing. Focussing on the South West London submarket, in 2024, just 12% of deals were driven by rightsizing, compared to 53% of deals being driven by increasing footprints. There was a notable uptick in leasing activity across the South East office market in Q1 2025, with take-up reaching 909,000 sq ft. This total was 38% above Q1 2024, 26% above the five-year average, and 18% above the ten-year average. These figures highlight the resilience of the market against a backdrop of ongoing economic and political challenges impacting wider occupier sentiment.

Looking to supply, availability in the South East has declined by 18% since the end of 2023. While Prime and Grade A availability remains ahead of where it was pre-pandemic, 2024 marked the first year where the supply of these assets fell. With only one speculative development actively under construction in the pipeline, supply faces an inevitable decline. Supply of poorer quality stock is also being eroded as it is converted to alternative uses. Indeed, with 60 million sq ft of stock now more than 20 years old, the majority of supply can be considered obsolete.

Naturally, for a market undergoing supply constraints, there has been significant rental growth at the prime end of the market. Indeed, occupiers have paid an average increase of 67% on a per sq ft basis when relocating to a prime building in 2024, with 25% of transactions reflecting rental increases in excess of 100%.

Funding for speculative office developments remains an issue, due to viability issues, restricting the development pipeline. This, combined with the fact that new headline rents are being achieved in key regional cities and the yield spread between prime and secondary offices, means investors are increasingly looking to undertake refurbishments of core-plus buildings which are well-located. This allows investors to capitalise on the rental growth opportunities present in the market, with corporate occupiers prepared to pay premium rents to secure best-in-class stock in core locations. Investor sentiment has improved across the region. The prime South East office yield has moved in by 25 bps since the start of the year to stand at 7.50%. This marked the first prime inward yield movement since May 2022, as the market begins to recover after two years of subdued activity.

From a build cost perspective, a challenge comes from the fact the pool of contractors suitably experienced and resourced to undertake significant heavy refurbishment schemes in the regions is limited, leading to increased use of two-stage tendering procurement routes. This can provide programme efficiencies but at the risk of increased build costs affecting the scheme’s viability. 

_{Read the articles within Savills Build: Perspective report below}