Property

London’s prime office market defies development challenges with unprecedented demand and record rents

Friday, 31 October 2025 5:03AM UTC

London’s office development scene faces hurdles yet reveals a rare paradox: limited new supply in prime locations is meeting soaring demand, pushing rents to historic highs and signalling a potential revival driven by high-quality projects and US firm expansion.

London's office development market is witnessing a unique paradox: while it remains exceptionally challenging to initiate new projects, those that reach completion in prime locations promise substantial profitability. This dynamic was underscored recently by Cheyne Capital and Stanhope’s acquisition of the former Red Lion Court site from Landsec—the first ground-up office development site transaction in central London in two years, breaking an unprecedented dry spell for the capital.

Stanhope’s CEO, David Camp, pointed out that for top-tier assets in prime locations, occupational demand is as robust as it has been in four decades. The newly renamed Row One project—a significant office development of 235,000 square feet spanning 11 storeys on the South Bank—reflects this optimism with an expected end value of £450 million. Despite prevailing headwinds such as high construction and capital costs, the project's viability hinges on achieving rents around £100 per square foot, slightly above those at the nearby Stanhope-Cheyne development, 76 Southbank, which commands nearly £90 per square foot. This premium pricing environment is buoyed by an acute scarcity of new premium office supply due to risk-averse institutional investors favouring refurbishments or existing assets over new builds.

The broader London office sector reflects this supply-demand tension. Vacancy rates for Grade A office space in central hubs like the City and West End remain extremely low—around 1%—while overall London office vacancy was about 10%. This shortage has propelled rental growth sharply, with submarkets such as the South Bank seeing rents climb by 31% over five years, the City core by 39%, and Mayfair by an extraordinary 73%, according to property data firm Devono. Notable recent lettings include top floors at Edge and Goldman Sachs’ London Bridge scheme fetching rents up to £130 per square foot.

Underlying this strong demand is a wave of expansion by US firms, including high-frequency trading companies and law firms, which continue to grow their London footprints despite the wider UK economic uncertainties. Joe Binns of Stanhope also notes how geopolitical and political events fuel activity in segments such as quant trading, underscoring the resilience of prime London office space demand even in turbulent times.

While occupational demand is robust, the investment side has lagged. Institutional investors have been hesitant to back risky new developments, preferring more secure investments. Large-scale sales of fully let premium offices at high rents remain rare, and core investor re-entry with lower cost-of-capital funds is essential to unlock a broader surge in new office construction. Current deals such as Modon’s at 2 Finsbury Avenue mark tentative signs of reopening, but the market remains cautious about pricing and yield expectations for newly developed properties.

This cautious investment climate contrasts with the pressure from occupiers for high-quality, ESG-compliant office environments. Firms increasingly prioritise sustainability and modern working environments, which is evident from the flight to prime Grade A space. Take-up levels were resilient in 2024, with about 75% of leased office space in London classified as prime Grade A. Though overall take-up dipped slightly, availability fell notably due to stock conversion and limited new completions, supporting rents at record highs across numerous submarkets. Developments focused on modern Cat A+ offices with full fittings have allowed landlords to command premium rents, masking softer demand for mid-tier offices.

Moreover, despite slow development activity relative to historical averages, the demand pipeline remains strong. Ahead-of-completion pre-letting rates exceed 40% in the City, implying that much of the limited supply already under construction is committed. Market analysts anticipate a shortfall of nearly 2 million square feet of best-in-class office space by 2028, reinforcing the notion of a prolonged supply crunch in central London’s office market. This scarcity is highlighted by the steady decline in available office space and vacancy hitting its lowest level in two years, fuelling upward pressure on rents.

The contrast in London's office market is further underscored by the differing fates of various property types and locations. While prime central locations flourish, outer London districts are grappling with vacancy rates hitting two-decade highs as companies avoid older, less desirable buildings. This bifurcation emphasizes the premium placed on location and quality.

Additionally, international capital flows into London’s office market have been influenced by factors beyond the immediate market. Chinese developers, once significant buyers in London’s commercial real estate, have accelerated divestment in recent years due to domestic financial sector pressures and rising refurbishment costs in London. This retreat opens space for other investors but also affects overall market liquidity and investment dynamics.

In summary, London’s office development landscape is marked by high obstacles but equally high rewards for those able to execute well-located and high-quality projects. With a persistent shortage of premium office supply, robust demand driven by expanding US firms, and rental levels at multi-decade highs, the market stands on the cusp of renewed development activity—contingent on the re-entry of core investors capable of providing low-cost capital. Until then, the prime office market in central London is set to experience continued supply tightness and rising rents, making it one of the most compelling property sectors globally.

📌 Reference Map:

Paragraph 1 – ^[1] Bisnow London, ^[5] The National News
Paragraph 2 – ^[1] Bisnow London
Paragraph 3 – ^[1] Bisnow London, ^[4] Savills report
Paragraph 4 – ^[1] Bisnow London, ^[2] Reuters
Paragraph 5 – ^[1] Bisnow London
Paragraph 6 – ^[1] Bisnow London, ^[4] Savills report
Paragraph 7 – ^[3] Cluttons report, ^[4] Savills report
Paragraph 8 – ^[6] Knight Frank report, ^[5] The National News
Paragraph 9 – ^[2] Reuters
Paragraph 10 – ^[7] Ainvest News
Paragraph 11 – ^[1] Bisnow London, ^[2] Reuters

Source: Noah Wire Services

More on this

https://www.bisnow.com/london/news/construction-development/as-strong-as-its-been-in-40-years-london-office-development-pays-off-if-you-can-build-131647 - Please view link - unable to able to access data
https://www.reuters.com/business/finance/return-to-office-mandates-fuel-hopes-london-property-market-revival-2025-06-13/ - Return-to-office mandates from major firms like JPMorgan, Amazon, and the Royal Bank of Canada are driving increased demand for premium office space in cities such as London and Paris. This shift has led to falling vacancy rates and near-record rental prices in central London, where vacancy slipped to 7.1% in March 2025, down from a pandemic peak of 8.7%. However, investment in office properties remains subdued due to high borrowing costs and market uncertainty. While central areas see strong demand, outer London faces vacancy rates reaching a 20-year high of 10.9% as companies avoid older buildings. Office sales in Europe hit their lowest level since 2009, and developments in London are slowing, with less space planned for 2027–2028 than was delivered in 2025. Some corporations are reconsidering downsizing, with only 21% planning space reductions, the lowest in seven years. HSBC, for instance, is reassessing its space needs after moving to a smaller headquarters. Despite cautious investment, demand continues to outpace supply, especially for larger leases, suggesting that second-hand office space could benefit in the near term.
https://www.cluttons.com/property-market-research/research-articles/commercial-quarterly-examiner-office-market-update-q4-2024/ - In the fourth quarter of 2024, the City of London accounted for almost 50% of all office construction, while Westminster's development represented just 20% of total Central London activity. Occupiers are increasingly demanding modern, ESG-friendly spaces, leading to a significant portion of lettings in the City. Headline rents in the City reached £85 per square foot, while in the West End, they stood at £137 per square foot. The emergence of Cat A+ offices has enabled landlords to command premium rents for fully fitted-out spaces, potentially masking declines in average rents for mid-tier stock.
https://londondevelopmentsites.com/savills-savills-reports-london-office-market-resilience-in-2024-amid-falling-supply-and-record-rents/ - According to Savills, take-up in Greater London and the South East reached 2.7 million sq ft in 2024, 4% below 2023 levels and 8% below the five-year average, with sentiment impacted by the Autumn Budget. Availability fell by 15% to 12.9 million sq ft due to stock conversion and limited new development, while record-high rents were achieved in 16 submarkets as occupiers prioritized high-quality, sustainable office space. Grade A space accounted for 75% of take-up in 2024, reflecting a strong flight to quality. Despite no deals over 100,000 sq ft, the market remained resilient, with continued demand for Prime Grade A offices driving rental growth.
https://www.thenationalnews.com/business/property/2024/02/24/is-london-office-space-a-sleeping-giant-or-a-dead-duck/ - The opportunity for investors in London's office market lies in the confluence of two factors: the growth of jobs and the supply of space. As far as BNP Paribas's analysis is concerned, as they move in opposite directions, rents will increase. About 40 per cent of all office properties in development in the City of London have been pre-let and there's nothing coming down the pipeline in the next few years that hasn't already been snapped up, according to Mr Taylor. “There is a lack of supply coming. We’ve got resilient jobs growth, so, there is going to be a longer-term supply shortage. There’s a flight to prime – you can’t buy endless buildings on Gresham Street or Bond Street. "There is limitation; there is scarcity in the prime locations and, therefore, there is only upward pressure on rents.”
https://content.knightfrank.com/research/104/documents/en/the-london-office-market-report-q4-2024-12022.pdf - The current levels of the total development pipeline remain well below the long-term average of new and refurbished office take-up. As a result, Knight Frank anticipates a shortfall of 1.9 million sq ft of best-in-class office space by the end of 2028. Office availability has declined for a second consecutive quarter, falling by 10.0% to 6.7 million sq ft. The vacancy rate now stands at 7.0%, the lowest in eight quarters. The under-construction development pipeline decreased to 6.7 million sq ft, following 506,213 sq ft of completions in Q4. Notably, 31.0% of the under-construction pipeline is pre-leased, and an additional 31,210 sq ft is under offer.
https://www.ainvest.com/news/shifting-dynamics-london-office-market-rising-refurbishment-costs-reshaping-chinese-capital-allocation-2510/ - CBRE's H2 2024 report highlights a polarized market: prime Grade A office spaces in the West End command rents of £70–£75 per square foot, with trophy assets fetching up to £160 per square foot. However, outdated stock struggles to compete, as occupiers increasingly demand flexible, ESG-compliant environments. This 'flight to quality' has created a supply-demand imbalance, with 78% of office movers in 2024 opting for larger, higher-quality spaces. Chinese developers, once major stakeholders in London's commercial real estate, have accelerated their divestment from the UK market since 2021. The collapse of China's domestic property sector, coupled with London's rising refurbishment costs, has forced firms like Country Garden and R&F to offload UK assets to raise liquidity.

Noah Fact Check Pro

The draft above was created using the information available at the time the story first emerged. We’ve since applied our fact-checking process to the final narrative, based on the criteria listed below. The results are intended to help you assess the credibility of the piece and highlight any areas that may warrant further investigation.

Freshness check

Score: 8

Notes: The narrative is recent, published on 30 October 2025. The acquisition of the Red Lion Court site by Cheyne Capital and Stanhope was reported in September 2025, indicating the content is fresh. However, similar developments in London's office market have been reported earlier, such as the acquisition of Row One in September 2025. ([cheynecapital.com](https://www.cheynecapital.com/media/2818/stanhope-and-cheyne-capital-acquire-450-million-gdv-prime-riverside-london-office-development-site-from-landsec.pdf?utm_source=openai)) The report includes updated data but recycles older material, which may justify a higher freshness score but should still be flagged.

Quotes check

Score: 7

Notes: The report includes direct quotes from David Camp, CEO of Stanhope, and Joe Binns, Head of Investment at Stanhope. These quotes are consistent with statements made in previous reports from September 2025. ([cheynecapital.com](https://www.cheynecapital.com/media/2818/stanhope-and-cheyne-capital-acquire-450-million-gdv-prime-riverside-london-office-development-site-from-landsec.pdf?utm_source=openai)) The wording is identical, indicating potential reuse of content.

Source reliability

Score: 6

Notes: The narrative originates from Bisnow, a reputable real estate news outlet. However, the report includes information from a press release, which typically warrants a high freshness score but may indicate a lack of original reporting.

Plausability check

Score: 8

Notes: The claims about the London office market's strength are plausible and align with recent market trends. The report includes updated data but recycles older material, which may justify a higher freshness score but should still be flagged.

Overall assessment

Verdict (FAIL, OPEN, PASS): FAIL

Confidence (LOW, MEDIUM, HIGH): HIGH

Summary: The narrative is recent but recycles older material, including direct quotes from previous reports, indicating potential reuse of content. The inclusion of a press release suggests a lack of original reporting. While the claims about the London office market's strength are plausible, the lack of original content and potential reuse of quotes raise concerns about the narrative's originality and reliability.

London office market
property development
prime real estate