The demand for premium office space in Central London has reached unprecedented levels, according to new research. Between April and June, occupiers sought approximately 13 million square feet of office space, a figure consistent with the previous two quarters, based on the latest findings from Cushman & Wakefield’s Central London Marketbeat Report.
The research highlights a particularly strong preference for top-tier office spaces, with Grade A properties, known for their high-quality finishes and superior amenities, accounting for a remarkable 77% of leasing activity. This represents the highest proportion ever recorded, underscoring the ongoing trend of businesses gravitating towards premium office environments in what has been dubbed a “flight to quality.”
A key driver behind this demand is the growing emphasis on sustainability and environmental standards. Buildings with superior environmental credentials are seeing the greatest demand, driven in part by upcoming changes in energy efficiency regulations. Many offices in London are at risk of falling short of these new minimum standards within the next four years, prompting businesses to secure environmentally compliant spaces before the regulations take effect.
Increased Leasing Activity
Leasing activity in Central London saw a notable uptick during the second quarter, with total leasing volumes reaching 2.13 million square feet. This marked a 29% increase compared to the previous quarter. However, when measured against the ten-year average, overall leasing volumes in the first half of 2024 were 21% lower. That said, Grade A leasing volumes showed resilience, surpassing the ten-year average by a percentage point.
The City of London, one of the capital’s primary financial districts, continued to lead the way in leasing activity, outpacing the West End by nearly 70%. This trend is indicative of the growing appeal of the City for businesses seeking larger, more flexible office spaces, particularly in the face of hybrid working patterns.
Supply and Vacancy Rates
Despite the heightened demand, the supply of office space across Central London decreased slightly during the quarter, falling to 27.3 million square feet. While this is still significantly higher than the ten-year average of 16.92 million square feet, it does represent a step towards stabilizing supply levels. Consequently, the overall vacancy rate in Central London declined by 18 basis points to 9.4% in the second quarter, with the vacancy rate for Grade A spaces standing at a lower 5.4%.
This reduction in vacancy rates, while promising, still reflects the broader challenges facing the office market, particularly in the wake of the COVID-19 pandemic and the shift toward hybrid working models. Many companies are reevaluating their office space needs, and some are downsizing in favor of more flexible, agile work environments. However, the demand for top-tier, environmentally friendly spaces remains strong, suggesting that companies are willing to invest in quality over quantity.
Market Outlook
Andy Tyler, head of London office leasing at Cushman & Wakefield, commented on the current state of the market: “While the historically high vacancy rates highlight the ongoing challenges facing the office sector, we have seen supply levels begin to stabilize over the past five quarters. The focus of most occupiers remains on securing Grade A spaces, and there is increasing awareness that the availability of these best-in-class offices is becoming more limited.”
Looking ahead, Tyler predicts that the development of new premium office space in Central London will slow, resulting in a gradual decrease in vacancy rates, particularly for Grade A properties. “With a constrained development pipeline, we expect a tapering off of new office space entering the market. This will likely lead to a reduction in both overall and Grade A vacancy rates over the next year and could fuel rental growth, particularly at the top end of the market.”
As businesses continue to prioritize high-quality, sustainable office spaces, the outlook for premium office real estate in Central London appears strong. While overall vacancy rates remain elevated, the demand for Grade A spaces—especially those that meet stringent environmental standards—suggests that the market is poised for continued growth in this segment. Companies looking to secure prime office locations may find themselves facing increasing competition as supply tightens and rental rates rise in the coming months.