In a remarkable turnaround, London has rediscovered its passion for the office, with workplace leasing experiencing a significant resurgence in the post-pandemic era. This revival underscores a renewed belief among business leaders that physical office spaces are indispensable for achieving success, as highlighted by industry expert Philip Hobley.
The Office Market's Strong Recovery
While the third quarter of 2025 saw UK business leaders grappling with volatile geopolitics and productivity concerns, leading to defensive strategies like cost reduction, the London office market told a different tale. Last year, office take-up in London reached an impressive 12.1 million square feet across 1,400 deals, marking the strongest performance since the pandemic and exceeding optimistic forecasts.
Notably, of the 98 central London deals exceeding 20,000 square feet, 70 were expansionary, with companies opting for larger office spaces than before. This trend highlights a growing confidence in the value of in-person collaboration and workspace investment.
Driving Forces Behind the Revival
The resurgence can be attributed to a convergence of key factors. Rapid technological advancements, long-delayed needs for modernising facilities, and intensifying competition for top talent have all played crucial roles. Additionally, much of London's existing office stock is becoming obsolete, pushing firms to seek premium, updated spaces.
Classic supply-and-demand dynamics are also at play, as businesses increasingly view high-quality offices as critical assets in an uncertain global landscape. This shift marks a stark contrast to the pandemic era, when remote work led many to question the future relevance of offices.
Hybrid Work and Office Returns Gain Momentum
The momentum behind both hybrid and full-time office returns continues to build. Recent events, such as Knight Frank's annual London Breakfast attended by 400 real estate leaders, showcased this trend. Major employers, including Blackrock, Salesforce, Disney, Intel, and various financial institutions, are now encouraging employees to return to offices for up to four days a week.
Other companies are relocating to access new talent pools or overhauling operations for the AI era, further fuelling demand for quality workspace. However, this renewed urgency comes amid a significant squeeze in available office space.
Rising Rents and Development Challenges
Office development plummeted as build and debt costs surged in 2021, leaving firms with fewer options. Rents for prime West End buildings have climbed to £185 per square foot, while City of London rates stand at £102.50 per square foot, with forecast annual growth of 4.2% and 4.6% respectively until 2030.
Although strong rental growth is positive, the slowdown in development poses a threat to London's global competitiveness. With over 50 million square feet of leases expiring between 2026 and 2030, and an undersupply of new and refurbished space projected to hit 12 million square feet, the market faces significant pressure.
Potential Risks and Future Outlook
This shortage could disproportionately impact larger firms that drive the UK economy. Only 19 buildings capable of accommodating lettings of 100,000 square feet or more are scheduled for delivery by 2030, compared to 54 such transactions completed in the past five years.
While some businesses may choose to stay in their existing buildings due to lack of choice or economic volatility, the shortage risks hampering growth or pushing firms to lease elsewhere. Government efforts to simplify planning policy are commendable, but inconsistencies between local authorities remain a barrier.
Opportunities for Developers and Investors
Developers stand to gain as rising rents outpace inflation, making projects more viable. Prime space is letting quickly, with nearly three-quarters of City offices completed in the last two years being pre-let. This trend, combined with shrinking supply in high-demand areas, suggests a favourable risk-return profile is re-emerging.
Investors are taking note, with over half of 120 global investors surveyed targeting London for capital deployment, and 85% focusing on offices. The fundamentals for speculative development are stronger than in years, offering opportunities for those who act early to meet future demand and support London's long-term competitiveness as a global business hub.
