London office market showing unmistakeable signs of life, especially for Grade A space

The London office market is demonstrating strong signs of recovery, with declining vacancy rates and robust demand for high-quality spaces. Both occupier and investor activity surged in the third quarter of 2024, reflecting renewed confidence in the capital’s commercial real estate sector. Despite challenges posed by elevated supply levels, the market’s recovery trajectory points to a potential upswing in rents and investment activity heading into 2025, driven by stabilising vacancy rates and continued demand for Grade A office space.

Vacancy rates in Central London dropped to their lowest point in a year, reaching 6.9 percent in Q3 2024, according to a report from Avison Young. Office take-up across Central London totalled 3.2 million square feet, a 44 percent quarterly increase in the City and an impressive 87 percent above the 10-year average in the West End.

Meanwhile, another report from Cushman & Wakefield suggests that Grade A space accounted for 70 percent of all leasing activity, with take-up surpassing pre-pandemic averages by 4 percent. Financial services dominated leasing demand, contributing 33.5 percent of total take-up, followed by professional services at 13.9 percent.

The City’s vacancy rate fell sharply from 10.4 percent to 7.2 percent, fuelled by over a million square feet of leasing activity, while the West End reached its lowest vacancy level since 2020 at 3.1 percent. Grade A leasing was particularly strong, with 1.8 million square feet traded in Q3, reflecting the sustained appeal of premium office space. Cushman & Wakefield noted that supply has broadly stabilised, with 27 million square feet available across Central London, though vacancy remains above the ten-year average at 9.3 percent.

Investor sentiment in the London office market also showed signs of improvement, with European and Asian investors leading the charge. Avison Young reported £482.2 million in office deals from European investors and £35 million from Asian buyers, underlining confidence in London’s recovery. However, overall trading volumes remain historically low, with expectations for a more active 2025 as interest rates ease and tenant demand strengthens.

With 15.9 million square feet of new office construction underway and nearly half of it already pre-let, future supply constraints could drive rental growth, particularly for premium spaces. Both Avison Young and Cushman & Wakefield anticipate a sustained recovery, pointing to a brighter outlook for London’s office market.