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Central London Office Market Watch Q2 2025

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H1 sees uptick in leasing activity as the investment market begins to show signs of recovery

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Leasing summary

  • Leasing activity in Q2 reached 2.7 million sq ft across 149 transactions – this was up 16% on the ten-year long-term average for Q2 and 18% on Q2 2024. This brought year-to-date (YTD) take-up to 4.8 million sq ft, up 4% on the long-term average for the same period, though the number of transactions completing was down 9% on the long-term average.
  • The volume of transactions over 50,000 sq ft was the highest recorded since H1 2019, while the number of transactions over 100,000 sq ft reached its highest level since 2017, driven by a combination of the intensified occupier focus on in-person attendance, flight to quality, and with most occupiers increasing their office footprints.
  • The City market continued to see robust levels of demand. At the end of H1, leasing reached 3.1 million sq ft, up 12% on the long-term average, with five transactions over 100,000 sq ft completing. The largest transaction to complete in the City during Q2 was Squarepoint's pre-let of JP Morgan's 65 Gresham Street refurbishment, EC2 (400,000 sq ft), which is currently due for completion in 2028. Notably, three occupiers, State Street, VakifBank and LSE, have purchased buildings for their own occupation, and since the end of the quarter, Ferrero Rocher has also purchased its own office, acquiring St Paul's House 8–12 Warwick Lane, EC4.
  • The West End saw an uptick in leasing activity, with take-up reaching 1.7 million sq ft, which was up 14% on the five-year average and down 9% on the long-term average (although this is in line with our prediction of the medium-term impact of agile working). A key driver of this performance was the resurgence of larger transactions. The number of deals over 50,000 sq ft rose to eight, up from just two in H1 2024, marking the highest volume of large lettings since 2019. The largest transaction to complete during Q2 in the West End was another pre-let, with McDermott Will & Emery exchanging on Lazari's 7 Brook Street, W1.
  • So far this year, pre-letting activity has accounted for 30% of take-up, reflecting the continued occupier preference for new quality office space.


Take-up by sector

  • The Insurance & Financial sector remains the primary driver of leasing activity, accounting for 29% of H1 take-up, with strong demand from hedge funds, international banks, and asset management firms significantly boosting sector activity. At 1.25 million sq ft, Insurance & Financial sector take-up was up 34% on the long-term average, with the number of transactions completing having remained in line with the ten-year average.
  • The Tech & Media sector followed with the next largest share and has accounted for 15% of take-up so far this year across 67 transactions. This has primarily been driven by strong demand from Software/Apps and AI sub-sectors, particularly in the City Fringe sub-market. However, overall demand from the sector remains 24% below the long-term average, with the average transaction size down 16% when compared to the ten-year average.
  • Strong demand from the Banking sector lifted its overall share of leasing activity in H1 to 10%, bolstered significantly by State Street’s acquisition of 100 New Bridge Street, EC4. This transaction single-handedly accounted for 44% of the overall sq ft acquired by the sector.
  • Whilst the Professional Services sector has only accounted for a 9% share of take-up so far this year, it continues to account for the largest share of underlying active demand. Overall demand continues to be driven by the Legal sub-sector, which single-handedly accounted for 56% of H1 Professional Services sector take-up.
  • Meanwhile, the healthcare sub-sector has shown growing momentum, helping to boost the Public Services, Education & Health sector’s share to 8%. With over 370,000 sq ft leased, take-up in this sector has already surpassed the total demand recorded in 2024.
  • Additionally, H1 marked the highest level of take-up for the Retail & Leisure sector since H1 2019. So far this year, we have seen a broad sectoral spread of occupier demand, reflecting overall demand resilience.


Future demand

  • Active demand continued to rise across Central London and at the end of H1 stood at 13.7 million sq ft, up 50% on the long-term average and 15% on H1 2024, boosted by a surge in demand from the Banking sector and the Professional Services sector. 
  • By share, the Professional Services sector continues to account for the largest share of underlying demand, 28%, followed by the Insurance & Financial sector with 25%, and then by the Banking sector with 19%.
  • Demand across Central London continues to be boosted by a higher volume of occupiers who have been in situ at their current office for an extensive duration strategically considering their options. Overall, 5.2 million sq ft (38%) of active demand consists of occupiers who have been at their current Central London office for 15 years or more, a tenure range that has historically correlated with an increased likelihood of relocation. A further 24% of demand consists of those in occupation at their existing premises for 10 to 15 years.
  • There is yet to be any strong indication that more occupiers are seeking to downsize their office space. Overall, there are more occupiers seeking to increase their space (54%) than seeking to decrease the amount of space they occupy (11%). The overall percentage of occupiers seeking to increase their space is up 13% on H1 2024, and the number seeking to decrease is down 31% on the same period in 2024, illustrating the continued resilience of the leasing market.
  • A further 23% of occupiers are currently seeking to acquire a similar amount of space (5,000 sq ft less or more compared to their current occupation). In addition to this, 15% of active requirements consist of new entrants to the market, companies moving out of serviced office space or who are acquiring additional space.
  • Whilst we expect the rise in business costs and fit-out costs over recent years will likely result in a higher level of lease renewals during 2025, the outlook for new leasing activity remains positive, and this has had limited impact on overall leasing activity so far this year.


Supply and vacancy

  • With development completions in 2025 set to reach record levels, and Q4 completions added to supply (2.5 million sq ft), the vacancy rate rose sharply during Q2 to 7.8% (20 million sq ft). This represents a 70 bps increase on the previous quarter and is the largest quarterly outward movement seen since Q4 2020. Despite this rise, the vacancy rate remains 100 bps below the vacancy rate peak recorded during the pandemic and 180 bps below the previous peak during the GFC.
  • Whilst the overall vacancy rate remains above average, strong demand for new office space in well-located, amenity-rich and core locations has seen prime supply levels remain low. For example, at the end of Q2, the average Grade A City tower vacancy rate remained at 4.3%, with the prime top tier City tower vacancy rate even lower at 2.1% and with the Core West End (Mayfair/St James’s) vacancy rate currently remaining at 3.5%.
  • The largest increase to supply was seen in the West End, which saw an 11% quarter-on-quarter rise, though supply in the core remained stable. The most notable uplift was seen in Hammersmith with Yoo Capital / Hines One Olympia, W14, due for completion at the end of this year (which is now 28% pre-let), uplifting the vacancy rate for Hammersmith to 28%.
  • At 7.5%, the City vacancy rate was up 30 bps on the previous quarter. The most notable new addition to supply was Angel Square, Old Street, EC1, which is due for completion in Q4.
  • Tenant-controlled space continued to decline over the quarter, falling by 3.6% to 2.48 million sq ft by the end of Q2, its lowest level in eight years.
  • Smaller floorplates continue to dominate availability, with 53% of current supply comprising of sub-5,000 sq ft floorplates. Almost half (46%) of these sub-5,000 sq ft floorplates are fitted, reflecting the growth in demand for flexibility.
  • 45% of space available (8.6 million sq ft) is BREEAM-rated Excellent or Outstanding, which is up 6% on Q1 2025, with a record level of developments expected to complete this year.


Development pipeline

  • Q2 development completions reached 1.4 million sq ft, with 15 schemes completing. This was down 18% on the previous quarter and brought H1 total completions to 3.3 million sq ft.
  • The largest scheme to complete in the City was Orion Capital’s refurbishment and extension of the fully pre-let Panorama 81 Newgate Street, EC1 (556,000 sq ft). In the West End, the largest scheme to complete was Altius’s 20 Carlton House Terrace, SW1 (142,065 sq ft), 82% of which has already been let.
  • With development completions set to reach a new record high, a further 5.4 million sq ft is scheduled for completion over the course of the remainder of this year. Already 43% of H2 completions have been pre-let, with another 4% currently under offer.
  • Development completions (H2 2025–2029) could potentially reach 25 million sq ft; however, based on our analysis of the development pipeline, focusing on schemes with a realistic prospect of delivery, at present, we anticipate development completions will reach 20.5 million sq ft. There is a lower level of certainty around the prospects of delivery, within the current scheduled timeframe, on the remainder. And with over a quarter (36%) of anticipated completions yet to start, actual development completions are likely to fall below this level.
  • Further to this, development starts during H1, at 3.2 million sq ft, were down 26% on H2 2024. While we would typically expect an uptick in starts for schemes targeting 2027 delivery at this stage, only 14% of H1 starts were schemes that are scheduled for delivery in 2027, a notably low figure.
  • There has been a clear shift in terms of the type of schemes that are driving development activity, with new developments only accounting for 33% of schemes by number (44% by sq ft). This is in comparison to Q1 2024, where new developments made up 45% of the number of schemes in the pipeline, with viability challenges and cost pressures impacting on projects.
  • (By number) 48% of extensive refurbishments and new developments are targeting BREEAM Excellent or Outstanding.


City and West End rents

  • Central London prime rents continued to climb in Q2, with both the City and West End markets setting new records amid sustained demand for best-in-class space. The average City Prime rent reached a new record in Q2, rising to £103.79 per sq ft, the highest quarterly average on record and up 4% on Q2 2024. The City market also witnessed a new record top rent with Banco Master acquiring the 44th floor at 8 Bishopsgate, EC2, at £122.50 per sq ft, surpassing the previous top rent of £122.00 per sq ft achieved on the 56th floor at 22 Bishopsgate last year. This brought the average City prime rent for H1 to £98.73 per sq ft, up 1.5% on H1 2024.
  • The Average West End prime rent in Q2 stood at £178.11 per sq ft, which was up 44% on the average prime rent in Q2 2024. This brought the average West End prime rent for H1 to £171.22 per sq ft, which is up 10% on the average prime rent achieved in H1 2024. The top rent achieved in the West End this year has reached a five-year high, with the fifth floor at 77 Grosvenor Street, W1, being let to Viking Global Investors at £220.00 per sq ft.
  • We are currently forecasting 5.5% average prime rental growth for the City and 4.0% for the West End this year, with the imbalance between demand for prime office space and supply expected to sustain a rental differential.
  • The average H1 City Grade A rent stood at £71.26 per sq ft, up 2.5% on the same period a year earlier, and the average for the West End stood at £101.41 per sq ft at the end of H1, up 6% on H1 2024.
  • With the sustained preference for Grade A space remaining, the average City Grade B rent at the end of H1 stood at £37.00 per sq ft, down 27% on H1 2024. In the West End, average Grade B rents at the end of Q1 stood at £50.83 per sq ft, down 6% on a year earlier.
  • Our rental analysis indicates buildings with a BREEAM certification of 'Excellent' or 'Outstanding' continue to command a premium. In H1, average rents in these buildings were 39% higher than in non-rated buildings in the West End, and 28% higher in the City.


Central London investment

  • Investment activity slowed in Q2 despite improved supply, with ongoing macroeconomic uncertainty during the quarter resulting in increased investor caution. At the end of Q2, investment turnover across Central London stood at £1.83 billion, with 38 assets trading over the quarter. This is up 16% on Q2 2024 and down only 2% on the five-year average.
  • This brought investment turnover for H1 to £4.48 billion, with twice as many assets over £100 million trading compared to the entirety of 2024, marking the gradual recovery to larger lot-size activity. In total, twelve £100 million+ assets trading in H1 compared to four in H1 2024.
  • The largest transaction to complete during Q2 was State Street’s acquisition of the virtual freehold interest in 100 New Bridge Street, EC4, for a headline price of £382 million, reflecting a capital value of £1,964 per sq ft (£333 million after the deduction of a notional rent free top-up). In the West End, Delancey & Aware Super made two notable purchases during Q2, acquiring both 11–12 Hanover Square, W1, from Aviva / PSP and 20 Manchester Square, W1, from Invesco Real Estate for £118.1 million, reflecting 5.20% on a topped-up basis and £1,497 per sq ft.
  • UK purchasers made up the largest proportion of H1 investment turnover, accounting for 33% of turnover (£1.5 billion), but were closely followed by European investors with 30%. However, the City market also experienced strong demand from Asian investors with an increase in Japanese investor activity, with the purchase of 1 Portsoken Street, E1, by a private Japanese client of Sumitomo Mitsui Banking Corporation, and the purchase of a 20% interest in the long leasehold interest in 21 Moorfields, EC2, to a joint venture between Japanese investors Yasuda and Sotetsu.
  • With vendor hesitance beginning to ease, the gradual inflow of available stock saw total availability at the end of H1 at £5.9 billion, up from £3.65 billion at the end of H1 2024. Assets under offer reached £2.25 billion at the end of Q2, the highest quarterly level since Q4 2022, further highlighting improving sentiment.
  • As of quarter-end, Savills prime West End yield remains at 3.75% and the City at 5.25%.


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