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Five years ago, in the depths of the Covid pandemic, a frenzied \u201crace for space\u201d propelled London\u2019s residential property market. City dwellers were falling over themselves to swap one beds in town for detached houses in the \u2018burbs with gardens, home studies \u2014 and room to breathe. Now London is facing a new property stampede. But this time, remarkably, and against virtually all expert predictions during those work-from-home years of 2020 and 2021, it is office space<\/a> that is in hottest demand \u2014 and worryingly short supply.<\/p>\n Just as London seems incapable of solving its housing crisis<\/a>, now it faces a potential office crisis as well. And it is going to get worse.<\/p>\n Such is the scale of the shortage that records are being smashed for office rents in the City as occupiers snap up the space that does become available. Last week it emerged that a new high of \u00a3160 a square foot was achieved for the 32nd and top floor of the One Leadenhall tower.<\/p>\n According to reports from CoStar News, San Francisco-based cryptocurrency group Ripple Labs has leased 90,000 sq ft of space in the development, next to Leadenhall Market. One analyst estimated the firm will be paying \u00a310\u2009million a year in rent for its swanky new quarters, which come with a large roof terrace.<\/p>\n Lettings above the \u00a3100 per sq ft level \u2014 once unheard of \u2014 are becoming commonplace<\/p>\n The deal has set a remarkable new high watermark for the Square Mile<\/a>. But across the City lettings above the \u00a3100 per sq ft level \u2014 once unheard of \u2014 are becoming commonplace, particularly in the most in-demand area around Liverpool Street station, now Britain\u2019s busiest rail terminal.<\/p>\n According to research from Knight Frank, 170 deals with three-figure per square foot rent were completed in central London last year. Prime rents in what property folk call the West End Core rose 15.6 per cent to a record \u00a3185 per sq ft, while those rents in the City Core reached \u00a3102.50 per sq ft, a 7.9 per cent annual increase.<\/p>\n Knight Frank even goes so far as to predict that the vacancy rate for Grade A office space \u2014 the stuff blue chip occupiers actually want \u2014 will fall to zero in the City by 2028. Literally no room at the inn. Whether that rather apocalyptic scenario comes to pass remains to be seen. Other analysts are sceptical. But all agree that the imbalance between supply and demand is at its greatest since, at the very least, the boom years before the global financial crisis \u2014 and possibly even further back than that.<\/p>\n Demand for office space in the City is far outstripping supply<\/p>\n Getty Images \/ Howard Kingsnorth<\/p>\n According to James Nicholson, head of occupier transactions for London at CBRE, \u201crealistically with the current development pipeline you\u2019ve only got supply for about one and a half years of demand\u201d. Typically, the development pipeline has been enough to soak up three years\u2019 worth of demand.<\/p>\n The problem does not have an easy \u2014 or quick \u2014 fix: conception to completion on a major London office typically takes 10 years. The office crunch means some major tenants have set off on the hunt for new space many years earlier than would be considered normal. <\/p>\n BlackRock, the world\u2019s biggest fund manager, began the search for a new 300,000 sq ft home for its 3,000 London workers last year, a full decade before the lease on its current building, near the Bank of England, expires in 2035.<\/p>\n That process normally begins two or three years before expiry. BlackRock\u2019s boss Larry Fink said: \u201cI need an office tomorrow, but there is nothing here.\u201d Perhaps most symbolically of all, property bosses at Microsoft have reportedly been shuttling along the Elizabeth line \u2014 from Paddington in the west to Canary Wharf in the east \u2014 in search of a new London headquarters of between 200,000 and 250,000 sq ft. To date its searches have been in vain.<\/p>\n What has caused the shortage of office space?<\/p>\n So what has caused this desperate shortage of office space \u2014 which looks set to get worse before it gets better? The seeds were planted during the pandemic, when a new paradigm assumed workers would never return to offices in the same numbers. The idea of thousands of people commuting into central London on crowded trains to share the same air in crowded offices seemed to belong to a different age. Many employers wrongly assumed they would not need as much space in the post-pandemic world and planned to reduce their office requirements. <\/p>\n But workers have come back<\/a>. Bosses in financial and professional services \u2014 both hugely represented in central London \u2014 have put pressure on staff to come into the office. In return, and as a draw, employers have made sure their buildings are fitted with the best facilities, with sustainability and wellness high up the list of priorities. <\/p>\n 40 Leadenhall has a gym, a wellness suite and 17 terraces and green spaces<\/p>\n Outdoor space in the form of terraces has become non-negotiable, even if London\u2019s fickle weather means that they are unused for much of the year. Josh Lamb, of Savills\u2019 central London agency team, points to the development at 40 Leadenhall as perhaps the most \u201camenity rich\u201d in London, with facilities \u2014such as a gym, a wellness suite and a screening room \u2014 that would not disgrace a Mayfair luxury residential development, as well as no fewer than 17 outdoor green spaces and terraces.<\/p>\n At the same time, the cost of construction has rocketed, reducing the pipeline of new schemes to well below long-term norms.<\/p>\n According to Mark Stansfield, senior director of UK Analytics at CoStar, last year was the weakest for new construction in London for a decade and a half, with the amount of space started down 35 per cent on 2024. The strength of demand compared with the limited supply was illustrated by the rapid take-up of the \u201cBishopsgate sisters\u201d, two towers at 8 and 22. Despite being completed on either side of the pandemic, with naysayers predicting they would be white elephants, they are both effectively fully occupied and achieving stellar rents.<\/p>\n Similarly, when new schemes have come on the market this year, the space is quickly snapped up. Three large occupiers have already earmarked the \u00a31.2 billion development at 75 London Wall as their first choice for a new HQ, according to property industry site Green Street News: investment manager Jane Street, Australian bank Macquarie and BlackRock.<\/p>\n The \u201csuper green\u201d development is claimed to be one of the lowest carbon workplace towers in the UK. Construction started in 2024 and the building is expected to be completed in 2028, making it the only major City office scheme confirmed to come available that year.<\/p>\n At the same time, despite Brexit, London has thrived as a financial and business centre, with an estimated 676,000 workers now based in the City alone. That compares with 542,000 before the pandemic, a rise of 134,000 in seven years. Tech, insurance and legal services have all prospered, increasing the squeeze on space. <\/p>\n The lack of supply in the City has benefited its rival Canary Wharf, which has seen a remarkable renaissance after half a decade in the doldrums. But even here the huge spaces needed for the biggest companies are limited.<\/p>\n Kings Cross: What\u2019s next for the king of London’s regeneration projects?<\/a> The extraordinary reinvention of the once- derelict railway land to the north of the station has become a blueprint for the revival of decaying former industrial sites all over Europe. <\/p>\n Such has been the success of the King\u2019s Cross story it is becoming hard to recall just what a grim and grimy area it was, rife with drug dealing and prostitution.<\/p>\n Now the regeneration of the 67 acres of the King\u2019s Cross Central estate is almost complete. Some 50 buildings have been constructed from scratch or refurbished. More than 40,000 people live, work or study there.<\/p>\n![\"The](\"https:\/\/www.europesays.com\/uk\/wp-content\/uploads\/2026\/03\/City-of-London-looking-west.jpeg\")
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