London's commercial property market is experiencing a significant resurgence, with overseas investors driving a major recovery in office investment for the second consecutive year.
Market Confidence Returns to the Capital
According to a new report from global real estate consultancy CBRE, total real estate investment in London is projected to surpass £14 billion in 2025. While this figure remains below the ten-year average of £18.1 billion, it represents a substantial increase compared to the investment levels seen in both 2023 and 2024.
Richard Smart, Managing Director of London Markets at CBRE, captured the prevailing sentiment, stating: "It does feel like London's back. It feels like it has got its swagger back." He attributed the renewed confidence to a combination of falling interest rates, government initiatives to stimulate housebuilding, and the widespread implementation of return-to-office mandates across numerous industries.
The 'Perfect Storm' Subsides
Smart described the previous few years as a "perfect storm" of escalating costs that rendered many London development projects unviable. Office construction had been particularly hampered by high taxes, rising labour expenses, and stringent regulations.
A critical turning point came with the government's decision to reduce the mandatory quota for affordable homes in new developments from 35 per cent to 20 per cent. This policy shift, coupled with the Bank of England's steady reduction of UK interest rates and a governmental focus on cutting red tape, has dramatically improved development viability.
"What we've seen this year is the return of a normalised market… we're back to what we used to see pre-Covid," Smart observed.
Office Take-Up Drives Remarkable Growth
Investment in office spaces, especially within the banking and finance sectors, now accounts for approximately one-third of all real estate investment in the capital. After activity plummeted in 2020 during the pandemic, the market has regained momentum as companies, particularly in financial and professional services, increasingly require staff to return to the office for most of the working week.
Research from both Savills and CBRE indicates renewed confidence in larger transactions. The volume of deals exceeding 50,000 square feet in the first half of 2025 reached its highest level since the first half of 2019. Furthermore, the number of transactions over 100,000 square feet hit a peak not seen since 2017.
"Last year [there were] virtually no transactions over £100 million… this year we're well into double digits – we did about three last week," Smart revealed.
Prime rents have surged by more than 10 per cent year-on-year as investors target high-quality assets in established areas like the Square Mile. However, interest is now broadening to emerging locations such as Thameside and South Bank.
In a landmark deal this week, UAE developer Arada demonstrated this expanding geographical interest by acquiring an 80 per cent stake in the Thameside West mixed-use development for £2.5 billion. Arada's chair, Sultan bin Ahmed Al Qasimi, stated the purchase was "grounded in our unwavering faith in London."
The market revival is further bolstered by investments in the Life Sciences sector, including projects like One North Quay. London's Life Sciences ecosystem now ranks third globally, supported by strong demand for data centres and hotels.
"It feels very buoyant at the moment in the capital," Smart concluded. "It's nice to see."
