Investor sentiment builds as regional offices reclaim momentum in H2 2025
Investment market: signs of recovery emerge
Following a turbulent period in the regional office investment market, signs of renewed optimism are beginning to emerge. Although investment volumes in H1 2025 were 4% lower than the same period in 2024, over £600 million was placed under offer in Q2, indicating a shift in sentiment.
This recovery is already evident in the Central London office market, particularly in the City, where investment volumes surged 98% year-on-year. A similar trajectory is anticipated across the regional markets, underpinned by strong fundamentals and improving occupational performance. Oxford Economics forecasts two base rate cuts in the second half of the year, which are expected to further stimulate investor appetite and drive increased turnover by year-end. In this context, we explore the key factors likely to support renewed investment activity across the regional office market.
Pricing disconnect: Prime vs. Secondary
The disconnect between the occupational and investment markets remains stark, particularly in pricing. According to the latest MSCI monthly Capital Growth Indexes, office values in the ’Rest of South East’ and ’Rest of UK’ segments have declined by 39% since June 2022. However, the pace of decline is slowing. Since the start of 2025, MSCI has reported only a 2% and 1% fall in values, respectively, suggesting that price discovery is beginning to take hold. It’s important to note that the MSCI index includes all grades of property, which has skewed reported values. The bifurcation between prime and secondary assets has distorted market perception in what is now an increasingly nuanced landscape. Furthermore, when compared to other asset classes, regional offices remain attractively priced. According to Savills prime commercial property equivalent yields data series, only shopping centres and leisure parks currently offer softer yields than South East and regional offices.
Rental Growth Defies Economic Headwinds
Despite sluggish economic growth, prime rental values have surged, driven by a persistent lack of supply. The Big Six regional markets have delivered an average of 5% per annum prime headline rental growth over the past three years. This trend was evident in Q2, where a new record headline rent of £49.00 per sq ft was achieved in Bristol, with further expected rental growth this year.
Occupier Market: Resilience and Recovery
The occupational market has demonstrated continued resilience. In Greater London and the South East (excluding Central London), take-up reached 1.5 million sq ft by the end of H1 2025 – 10% higher than H1 2024 and 16% above the five-year average. This represents the strongest first-half performance in three years. A similar trend was observed across the regional city markets, with Big Six H1 2025 take-up exceeding the H1 five-year average by 4%. Manchester, Edinburgh, and Glasgow all outperformed, each surpassing their respective five-year averages. Notably, Manchester’s recorded take-up was 32% above its five-year average, the highest H1 total since 2019, highlighting the market’s robust performance.
Demand Outlook: Large Requirements Lead the Way
Over the second half of 2025, regional office requirements are expected to remain robust, particularly in the larger size bands. Requirements for spaces over 20,000 sq ft now account for 44% of total demand, highlighting the continued importance of large-scale occupiers in shaping market activity.
Supply Constraints: New Build Delivery Falls Short
Despite this demand, the development pipeline remains constrained. Viability challenges and a lack of developer confidence are limiting the delivery of new stock. There is only 400,000 sq ft of new-build space being delivered across the Big Six regional cities, which is occurring against a backdrop of rapidly falling availability. In Greater London and the South East, supply is forecast to reach its lowest recorded level by the end of 2025.
Refurbishments Rise to Fill the Gap
With new-build delivery slowing, landlords are increasingly turning to repositioning strategies to meet occupier expectations for quality, ESG compliance, and flexibility. Refurbishments are stepping in to fill the gap. In fact, 84% of the speculative office space expected to be delivered across the Big Six over the next three years will come from refurbished stock, highlighting the ongoing impact of development viability challenges across the market.
Outlook: A Market Poised for Repricing and Recovery
The imbalance between demand and supply is continuing to drive rental growth, a trend expected to persist through the remainder of 2025. With fewer options available and occupiers competing for best-in-class space, refurbished offices are well-positioned to experience significant rental growth and outperform legacy stock. Decisive investors can capitalise on this market dynamic at current pricing levels and potentially realise enhanced returns.