Leasing activity in Q1 reached 1.96m sq ft across 187 transactions, which was a slight increase on the levels of activity witnessed during the same period in 2024. Overall take-up for the quarter was up 4% on the five-year average but was down 16% on the long-term average.

Supply at the end of Q1 stood at 18.6m sq ft, which equates to a vacancy rate of 7.1%, with the City market seeing a 70 bps fall to supply over the quarter, whilst vacancy in the West End remained at the same level. Q1 vacancy was down 110 bps on Q1 2024 and 40 bps on the previous quarter. This is the lowest Central London vacancy rate since December 2020, although vacancy is 120 bps above the long-term average.

Take-up in the years since the pandemic in Central London has largely been characterised by a focus on prime space in well-connected locations as companies sought to lure workers back to the office, and this largely remained true in 2024, with eight of the ten largest transactions being pre-lets.

With this intensified focus on prime, record rents have been achieved in the City and several West End submarkets, with Prime rents in these locations experiencing double-digit growth over the last two years. Demand for ‘Green Buildings’ remains strong, and Savills is currently retained on several ‘whole building’ retrofits targeting best-in-class green credentials. The latest Central London development data shows that there were 5m sq ft of completions in 2024 and a further 1.8m sq ft of completions in Q1 2024, with 14 new schemes and extensive refurbishments completed across Central London – up 5% compared to Q1 2024. The sustained appetite for newer stock is reflected by the fact that 51% of 2024’s extensive refurbishments and new developments were let before completion.

Development completions are set to hit a new historic high, with 8.7m sq ft scheduled for delivery in 2025. In total, 44% of 2025’s development pipeline has already been acquired before completion due to the strong occupational demand for newer office product.

With occupiers increasingly focusing on Grade A stock, and the pipeline for both new build and retrofit projects growing, material costs and labour shortages are forecast to drive significant growth in construction tender prices. The BCIS forecasts a 19% increase between 2024 and 2029, reflecting these constraints. Rising tenant and investor focus on ESG-compliant buildings is increasing base specifications, compounding cost pressures. Additionally, the Building Safety Act and Gateway 2 approvals are causing delays and increasing compliance costs. While new construction orders fell by 2.4% in Q4 2024 to £9.3bn, commercial construction, particularly in office space, remained strong. Despite this, challenges such as uncertainty around planning reforms, capacity constraints among Tier 1 contractors, and ongoing labour shortages could impact future growth in the sector.

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