Grade A supply is falling behind demand across London, Cushman & Wakefield said.
Just 5.9M SF of Grade A office space is under construction and available beyond 2025, equivalent to less than a year’s supply, and as development remains challenging, rents for good buildings continue to rise.
Demand for London office space totalled more than 2.1M SF over 125 deals of more than 5K SF in the first quarter, according to the latest quarterly data from Cushman & Wakefield. The City accounted for 62% of takeup volumes in the quarter, while the West End accounted for 34%.
Grade A leasing totalled nearly 1.5M SF in the last quarter, equating to 69% of the quarterly total.
However, transactional activity is being constrained by supply shortages in core markets, which is already impacting takeup, Cushman & Wakefield said. This is most acute at the larger end of the market, with just 11 buildings existing or under construction able to satisfy Grade A requirements of more than 250K SF.
In all, 15.9M SF of office space is under construction, of which 42% is already prelet — and 54% is due to complete in 2025, of which 61% is prelet, leaving just 5.9M SF under construction and available completing beyond 2025.
Prime headline rents in the West End increased to £160 per SF in Q1, up 7% on Q4 and up by 14% over the last year. Prime headline City core rents increased to £87.50 per SF in Q1, up 1.2% on the previous quarter and 9.4% year-on-year.
The first quarter saw £2.6B of office investment transactions across 40 deals, up a third on the previous quarter and the highest quarterly volume since Q3 2022. This was boosted by three major deals, two by Norges Bank Investment Management and one by Modon Holding, that accounted for more than 40% of all activity. However, the figure remained 24% down on the 10-year average.
The West End claimed the majority of transactions, thanks to smaller lot sizes attracting a broader investor base, accounting for 67% of all activity. However, Q1 also saw the first transaction worth more than £500M since Q3 2022, with Norges acquiring a 25% stake in the Covent Garden Estate for £570M.
Cushman & Wakefield also pointed to £3.9B worth of assets available or at the bids stage at the close of Q1, up from less than £3.2B at the end of 2024, with a further £1.5B under offer at the end of the first quarter.
“A lack of supply and rising costs are causing occupiers to think more creatively. For some, taking up regears on their existing lease in order to delay decision making is practical but relies upon the space being of sufficient quality,” Cushman & Wakefield Head of London Office Leasing Andy Tyler said in a statement. “For others, deeper discussions around migrations to new locations or even taking space over and above that required to secure a building that otherwise matches their requirements offer viable alternatives.”