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Central London Office Quarterly

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Whilst leasing activity was off to a subdued start, Q1 saw a pick-up in investment activity, with six large-scale trades exchanging

Contents


Leasing summary

  • Leasing activity in Q1 reached 1.96m sq ft across 187 transactions, which was a slight increase from the levels of activity witnessed during the same period in 2024. Overall take-up for the quarter was up 4% on the five-year average but was down 16% on the long-term average.
  • The volume of transactions completed sized over 50,000 sq ft was the highest quantity we have seen for a first quarter since Q1 2019, reflecting the continued overall positive leasing sentiment for the start of the year, despite tariff-led turbulence.
  • The largest transaction and pre-letting in Q1 was international law firm Simmons & Simmons’ pre-let of 154,536 sq ft at 1–5 London Wall Buildings, EC2, which is expected to be comprehensively refurbished by 2028.
  • In the West End, the largest transaction was also a pre-letting, with the Pt G, Pt 2–5 (85,000 sq ft), at NPS’s 40 Grosvenor Place, SW1, being acquired by Cleveland Clinic, at a rent of c.£100 per sq ft.
  • So far this year, pre-letting activity has accounted for 27% of take-up, illustrating the continued preference for newer quality office space. Another notable pre-let was at Aviva/Allianz Real Estate’s 1 Liverpool Street, EC2, scheme, with Knight Frank acquiring floors 7–10 (72,412 sq ft) on a 20-year lease.
  • Leasing continues to be driven by occupiers acquiring space in BREEAM-rated Excellent and Outstanding office buildings, with this space accounting for 53% of Q1 take-up.
  • With space under offer at 3m sq ft, and some prominent transactions having completed in the City since the end of the quarter, we are anticipating that take-up for 2025 will be at a similar level to 2024. This is, as we expect, the combination of a limited supply of the best space and increased fit-out cost, and lower business confidence in light of heightened economic uncertainty will likely result in a high level of occupiers choosing to renew or delay decision-making.


Take-up by sector

  • The Insurance & Financial sector continues to be the main driver of leasing activity and accounted for 24% of Q1 take-up, with 43 financial sector occupiers acquiring 435,313 sq ft across Central London.
  • In contrast with what we would typically see, most of the leasing activity from occupiers belonging to this sector occurred in the West End market during Q1, with it accounting for 51% of sq ft acquired.
  • This year, we are set to see a more even distribution between the Insurance & Financial sector and the Professional Services sector, with the latter currently accounting for 30% of space that is under offer.
  • The Tech & Media sector followed with the second highest share of take-up, with a 22% share, with a pick-up in leasing demand from smaller-sized Tech & Media sector occupiers occurring in the West End. The largest transaction to complete to a Tech & Media sector occupier was a pre-let of floors 2–4 (61,704 sq ft) to Trainline at Ivanhoé Cambridge’s Stonecutter Street, EC4.
  • Whilst the Professional Services sector only accounted for a 12% share of Q1 take-up, activity is set to pick up, with the Professional Services sector accounting for the largest share of under offers and the largest sector share of active Central London demand (25%).
  • The continued growth of demand for flexibility has seen a further 92,134 sq ft acquired by Serviced Office Providers. The largest acquisition in this sector is The Work Project’s pre-letting of floors 22 and 23 (32,902 sq ft), at Brookfield’s 1 Leadenhall Street, EC3, which is intended to be its first location in London.


Future demand

  • Active demand at the end of Q1 stood at 13.3m sq ft – this was up 39% on the long-term average, with the number of requirements over 15,000 sq ft up 27% on the five-year average.
  • Demand across Central London continues to be boosted by a higher volume of occupiers, who have been in occupation at their current office for an extensive duration, strategically considering their options.
  • Overall, 4.8m sq ft (36%) of active demand consists of occupiers who have been at their current Central London office for 15 years or more. A further 20% of demand consists of those in occupation at their existing premises for 10 to 15 years, which historically increased the likelihood of occupiers opting for signing a new lease.
  • There is yet to be any strong indication that more occupiers are seeking to downsize their office space. Overall, there are more occupiers seeking to increase their space (48%) than seeking to decrease the amount of space they occupy (14%). Whilst the number of occupiers seeking to increase their footprint is down 4% on Q1 2024, the number of those seeking to decrease is down 10% on a year earlier.
  • A further 20% of occupiers are currently seeking to acquire a similar amount of space (5,000 sq ft less or more compared to their current occupation). In addition to this, 17% of active requirements consist of new entrants to the market, companies moving out of serviced office space, or those acquiring additional space.
  • Whilst we expect the rise in business costs and fit-out costs over recent years will likely result in a higher level of lease renewals during 2025, the outlook for new leasing activity remains positive as we expect the high volume of occupiers currently located in older buildings will result in a similar transaction volume to 2024.
  • Currently, the equivalent of around 45% of the 9.1m sq ft of requirements sized over 50,000 sq ft are considering stay vs go options.


Supply and vacancy

  • Supply at the end of Q1 stood at 18.6m sq ft, which equates to a vacancy rate of 7.1%, with the City market seeing a 70 bps fall to supply over the quarter, whilst vacancy in the West End remained at the same level.
  • Q1 vacancy was down 110 bps on Q1 2024 and 40 bps on the previous quarter. This is the lowest Central London vacancy rate since December 2020, although vacancy is 120 bps above the long-term average.
  • Whilst the overall vacancy rate remains above average, strong demand for new office space in well-located, amenity-rich and core locations has seen prime supply levels remain low. For example, at the end of Q1, the average Grade A City tower vacancy rate stood at 4.3%, with the prime top tier City tower vacancy rate even lower at 2.1%, and with the Core West End (Mayfair/St James’s) vacancy rate currently standing at 3.5%.
  • Tenant-controlled space continued to contract, largely because of falling levels of tenant space in the City market, with many pockets of shorter-term tenant space having returned back to Landlords on expiry. This brought tenant-controlled space at the end of Q1 to 2.58m sq ft, its lowest level in eight years.
  • 41% of space available (8.1m sq ft) is BREEAM rated Excellent or Outstanding, which is only up 4% on Q1 2024.
  • 48% of current supply is made up of sub 5,000 sq ft floorplates, and on the larger end of the scale, there are 19 Grade A options that are currently available across Central London for an occupier seeking 100,000 sq ft or more that is available now or will be in the next six months.
  • We are anticipating that supply will continue to decrease in the City market, with just 1.7m sq ft of speculative completions expected for the remainder of the year. Meanwhile, vacancy in the West End is expected to remain at the same level, with 1.9m sq ft of speculative completions expected over the remainder of the year. We are currently forecasting an end-of-year vacancy rate for the City of 6.8% and 7.0% for the West End.


Development pipeline

  • Development completions reached 1.8m sq ft at the end of Q1, with 14 new schemes and extensive refurbishments having completed across Central London, up 5% on Q1 2024.
  • The largest scheme to complete in the City was Cathay Life & Stanhope’s refurbishment of Woolgate Exchange, 25 Basinghall Street, EC2 (c.327,555 sq ft); 88% of this scheme was let prior to completion. In the West End, the largest scheme to complete was Northwood Investors’ The Acre, 90 Long Acre, WC2, refurbishment (c.224,000 sq ft).
  • Over the course of this year, development completions are set to hit a new record level of 8.7m sq ft, with 17 schemes sized over 100,000 sq ft set to be delivered. This quantum is down 7% on the previous quarter, with some schemes having been pushed out into 2026. Already, 38% of schemes set for delivery over the remaining three quarters of this year have been pre-let as a result of the strong demand for newer office space.
  • Based on our analysis of the development pipeline (with a view on schemes with a realistic prospect of delivery over the next four years), development completions are set to reach 21.8 m sq ft, 27% of which has already been pre-let. However, with over a quarter (26%) of anticipated completions yet to start, actual completions are likely to fall below currently anticipated levels, resulting in a fall in new supply during 2027 and 2028.
  • There has been a clear shift in terms of the type of schemes that are driving development activity, with new developments only accounting for 35% of schemes by number (46% by sq ft). This is in comparison to Q1 2024, where new developments made up 47% of the number of schemes in the pipeline, with viability challenges and cost pressures impacting on projects.
  • At present (by number), 45% of extensive refurbishments and new developments are targeting BREEAM Excellent or Outstanding, with the importance and awareness of sustainability and carbon emissions remaining.


City and West End rents

  • At the end of Q1, the average City prime rent stood at £94.25 per sq ft, which was up only 1% on Q1 2024 due to a limited volume of prime tower transactions completing. The highest rent achieved so far in the City, and a new record rent for SE1, was Allfunds Group's acquisition of the sixth and seventh floors at TBC, Tower Bridge Road, at a blended rent of £98.75 per sq ft.
  • The average Prime rent achieved across the West End at the end of Q1 stood at £156.00 per sq ft and was up 2.3% on Q1 2024. Notably, two £200+ per sq ft rents were achieved in Q1 at 77 Grosvenor Street, W1. This is with Viking Capital pre-letting the fifth floor at £220.00 per sq ft and Copenhagen Infrastructure Partners acquiring the fourth floor for £217.50 per sq ft.
  • We are currently forecasting 4.5% rental growth for the City and 4.0% for the West End this year, and overall expect the imbalance between demand for prime office space and supply will continue to sustain a rental differential. However, with several key transactions in the Core currently under offer at present, there is already a strong indication that prime rental growth will exceed this average.
  • Overall, we are currently forecasting average prime rental growth of 4% per annum over the next five years across Central London.
  • With occupier demand expected to remain for the best space, we expect the rental premium paid for best-in-class space to continue, and, in terms of Grade A rents, the average City rent stood at £70.79 per sq ft, which was up 2.5% on the same period last year, whilst the West End market saw average Grade A rents up 4.6% (at £98.48 per sq ft) for the same period.
  • With the sustained preference for Grade A space remaining, the average City Grade B rent at the end of Q1 stood at £41.65 per sq ft, down 20% on Q1 2024, predominantly because of a limited volume of Grade B transactions over the same period during 2024. In the West End, average Grade B rents at the end of Q1 stood at £55.95 per sq ft, down 5% on a year earlier.


Central London investment

  • Following on from 2024, where investment turnover across Central London was at its lowest level in nine years, Q1 investment turnover reached £2.56bn, with 39 assets trading over the quarter.
  • This was down 7% on the five-year average; however, the uptick in activity within the larger lot size range, with six transactions sized over £100m completing, was indicative of a slow but steady recovery to investor appetite. This compares with only one transaction over £100m completing in Q1 2024.
  • The largest transaction to complete so far this year was NBIM’s £570m acquisition of a 25% stake in Shaftesbury Capital’s Covent Garden portfolio. This follows NBIM’s earlier acquisition in Q1 2025 of a stake in a new head lease structure within core assets of Grosvenor Estate for £305.7m.
  • The largest transaction to complete in the City was Broadgate REIT’s (owned in a joint venture by British Land and GIC) sale of a 50% stake in 2 Finsbury Avenue, EC2, to Abu Dhabi-based investor Modon. The newly formed joint venture partnership will continue to deliver 2–3 Finsbury Avenue, which is scheduled to reach practical completion in 2027.
  • Looking at profiles, European purchasers dominated the quarter and accounted for 47%  (£1.2bn) of overall investment turnover off the back of eight transactions, although the two transactions to NBIM detailed above accounted for 72% of this total.
  • This was followed by UK purchasers, who accounted for 49% of assets by number of trades during Q1, which represented 23% of overall turnover.
  • As of quarter-end, Savills prime West End yield has fallen 25 bps to 3.75%; meanwhile, the City prime yield remains at 5.25%.
  • With gradual improvements to liquidity, continued rising rents and values beginning to recover, we expect to see growing demand from buyers.


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