14th July 2025 | Christopher Piggott | Commercial Property, Real Estate, Office Market Update

Despite economic headwinds and the legacy of hybrid working, the UK office market is showing surprising resilience. From central London to the Southeast and the regions, market activity is picking up, with a flight to quality, a scarcity of prime stock, along with rising expectations from occupiers (and their staff), expecting near boutique hotel level comforts.

Key Takeaways for Landlords and Tenants

Landlords

Tenants

Limited prime supply creates strong rent growth prospects

Hybrid working still dominates, but quality now trumps quantity

ESG compliance is no longer optional: retrofit planning is vital

Negotiating lease flexibility and break clauses is increasingly common

The investment market demanding Grade A space

Workplace experience is as important as location or rent

A Deeper Look…

 

Lettings on the Rise

The first half of 2025 has seen a rebound in office lets. In the Southeast, Lambert Smith Hampton report occupier take-up reached around 2 million sq ft by mid-year—roughly 9% above the long-term average. Cushman & Wakefield report that Central London, long considered a bellwether for the sector, recorded more than 2.1 million sq ft of take-up in the first quarter alone, slightly exceeding its ten-year norm.

Despite slower return-to-office rates in some sectors, many large employers are reaffirming their need for physical space (particularly Grade A), sustainable, and centrally located. Occupiers aren’t necessarily taking more space, but they are being more selective about where and what they take.

Scarcity of Supply

Improved demand has not been matched by supply. New office construction is at its lowest in a decade, with UK-wide development pipelines shrinking to just 23 million sq ft—down by 3 million sq ft year-on-year. According to Savills, the City’s vacancy rate has eased to 7.0%, its lowest since 2020, while vacancy in the West End has remained broadly stable.

Outside the capital, Lambert Smith Hampton note the imbalance is more pronounced. In the Southeast, only 10% of current office stock is considered “prime,” yet it accounts for nearly a quarter of all leasing activity. With limited speculative development, except in the innovation clusters of Oxford and Cambridge, landlords holding high-quality space are in a strong position.

Rents Trending Upwards

The supply/demand tension is driving rents higher, particularly for best-in-class assets. According to JLL, prime office space in central London is now achieving around £160 per sq ft, which is a 14% increase year-on-year. Regional centres aren’t far behind. Lambert Smith Hampton report that Reading has seen prime rents climb to £56 per sq ft (up 45% from previous peaks), and Basingstoke has also recorded double-digit growth.

Investment Still Cautious

Investor sentiment is cautiously optimistic. After a prolonged slowdown, capital is beginning to flow again – particularly into Central London. Cushman & Wakefield report office investment volumes rose to £2.56 billion in the first quarter of 2025, marking the strongest quarter since 2022. Elsewhere, regional volumes remain subdued, though activity is ticking up, with Southeast transactions hitting their highest quarterly count since late 2021.

Yields, however, are holding steady. In the City, Cushman & Wakefield report prime yields remain at 5.75%, while the West End is tighter at 4.00%.

With interest rates expected to ease in the second half of the year, some investors are already positioning themselves for a more active market in 2026.

Key Themes: ESG, Hybrid, and Regulation

Three forces are shaping the office sector: sustainability, flexible working, and regulatory reform.

  1. ESG
    Occupiers are placing growing emphasis on energy efficiency and green credentials. By 2030, all commercial properties in England and Wales must meet at least EPC ‘B’ standard. Many existing offices, particularly older stock in regional centres, will require significant retrofitting to comply—creating risk for some landlords and opportunity for others.
  2. The Changing Role of the Office
    The hybrid working revolution appears to be cooling. Major employers, especially in finance and law, are encouraging (and in some cases even mandating) a return to the office. However, flexibility remains the key. Occupiers want flexible layouts, excellent connectivity, and amenities that make the office experience worth returning for.
  3. Policy Under Review
    The potential reform of upward-only rent reviews and wider commercial lease regulation could significantly alter how office leases are structured. While nothing has yet been confirmed, both landlords and tenants should watch this space closely in the months ahead.

Conclusion: Quality is Key

The UK office market is far from uniform. While older stock continues to struggle with weak demand and the rising risk of obsolescence, prime, well-located, ESG-compliant property is in high demand.

For landlords, there is an opportunity in upgrading assets to meet the rising demands of occupiers. For tenants, now is the time to review your space needs, align leasing strategy with ESG policies, and take advantage of favourable terms that are there for the taking.

 

If you would like to find out more, please get in touch with Christopher Piggott, or contact the Commercial Property team.

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