Muted Q3 leasing due to lack of large transactions completing, though underlying demand levels remain robust
Leasing summary
- Leasing activity slowed in Q3, with take-up reaching 1.9 million sq ft across 167 transactions. This was down 30% on the previous quarter and is down 28% on the long-term average for Q3. The lower overall volume of activity was primarily driven by the absence of larger transactions, with no transactions exceeding 100,000 sq ft completing in the City and none over 50,000 sq ft in the West End.
- This brought year-to-date take-up to 6.8 million sq ft, which is down 2% on Q1–Q3 2024. Whilst take-up is currently 8% below the long-term average, it is 2% ahead of our ‘new normal’ for post-hybrid working expectations.
- In total, there were three transactions over 50,000 sq ft that completed, the largest being law firm Bristows’ acquisition of the fourth to seventh floors of Bow Bells House, 11 Bread Street, EC4 (70,000 sq ft), on a 15-year lease at a rent in the mid-£80s. This was followed by BMS’s relocation into 30 St Mary’s Axe, EC3 (64,000 sq ft) and RWE’s letting of the first and second floors at Northcliffe House, Tudor Street, EC4 (55,864 sq ft).
- Overall, year-to-date (YTD) City leasing continues to remain above the long-term average by 1% and despite West End take-up being 19% down on the long-term average, the number of transactions over 50,000 sq ft that have completed so far this year remains at its highest level since 2021.
- The preference for newer quality offices is reflected by the fact that recently redeveloped or comprehensively refurbished office space accounted for 70% of space acquired so far this year, with BREEAM-rated Excellent and Outstanding offices representing 61% of space acquired.
- Rising demand for flexibility, coupled with the increase fit-out costs observed over recent years, has driven an increase in fitted space take-up. YTD, fitted space has accounted for one-third of all transactions that have completed in London and was up 3% on 2024.
- We are anticipating year end take-up will be in line with the ten-year long-term average at just over 10 million sq ft.
Take-up by sector
- The Insurance & Financial sector remains the primary driver of leasing activity, accounting for 27% of take-up, with strong demand from hedge funds, asset management and insurance firms significantly boosting sector activity.
- At 1.73 million sq ft, Insurance & Financial sector take-up was up 20% on the long-term average, while the number of transactions completing remained in line with the ten-year average. The largest Financial Services sector transaction to complete in Q3 was Mitsui & Co’s acquisition of 49,700 sq ft of an assignment of the seventh to ninth floors from Numis at Gresham St Paul’s, EC2.
- The Tech & Media sector followed with the next largest share and has accounted for 18% of take-up so far this year, driven primarily by Software, App, and AI sub-sectors. At 112 transactions, the number of leasing completions to the Tech & Media sector is at its highest level since 2018, although the average transaction size is down 29% when compared to the ten-year average.
- The Professional Services sector followed with an 11% share of take-up. And whilst it only accounts for the third largest share, the sector continues to account for the largest share of space under offer at present (39%), and as a result, we expect to see a pick-up in leasing activity from this sector. The sector also continues to account for the largest share of active demand, boosted by activity from lawyers and accountancy firms.
- We have also seen growing demand from the Public Services, Education and Health sector this year, and despite the fact the sector only accounts for 8% of leasing, take-up to this sector has already surpassed the annual levels of demand we have seen over the past three years, and this has been driven by strong levels of demand from the Education and Health sub-sectors.
- A notable change to sector take-up this year is that we have seen a fall in demand from the Serviced Office Provider sector, with 383,500 sq ft acquired so far this year, down 23% compared with the same period in 2024.
Future demand
- At the end of Q3, Central London active demand stood at 13.2 million sq ft, down 4% on the previous quarter. However, overall demand remains 43% above the long-term average, buoyed by several larger requirements linked to lease events in 2030 and beyond.
- Demand is further boosted by occupiers reviewing their options after long tenures. Overall, 5.0 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, with the City Core market accounting for the majority of this (44%). A further 19% of demand consists of those in occupation at their existing premises for 10 to 15 years.
- The Professional Services sector continues to drive underlying demand, accounting for the largest share at 30%, followed by the Insurance & Financial Services sector at 27%, and then by the Tech & Media with 14%. At 3.9 million sq ft, Professional Services demand is 99% above the long-term average, with 72% of this space coming from occupiers with tenures of 15 years or more.
- There is yet to be any indication that more occupiers are seeking to downsize their office space. Overall, there are more occupiers seeking to increase their space (55%) than seeking to reduce it (14%). Occupiers seeking to decrease their office space fell by 1% compared with Q3 2025, while the overall percentage of occupiers seeking to increase their space is up 5% on Q3 2024.
- The proportion of occupiers that are seeking to acquire a similar amount of space (5,000 sq ft less or more compared to their current occupation) has remained stable over the past year.
- In addition to this, 11% of active requirements are from new entrants, companies moving out of serviced offices, or acquiring additional space.
- Central London under offers at the end of Q3 stood at 3.0 million sq ft, up 9% on the previous quarter and 6% above the ten-year average.
Supply and vacancy
- Supply across Central London remained stable over the quarter, with overall supply standing at 20.2 million sq ft, equating to a vacancy rate of 7.8%, down 40 bps on Q3 2024.
- Although vacancy remains stable, this was largely due to falling supply in the City, while the West End vacancy rate rose by 20 bps over the quarter to 8.3%, driven by an increase in Grade B space. The City vacancy rate stood at 7.4%, down 10 bps on the previous quarter.
- While the overall vacancy rate remains above average, strong demand for new office space in well-located, amenity-rich and core locations has kept prime supply levels low. For example, at the end of Q3, the average Grade A City tower vacancy rate stood at 2.6%, falling further to 1.9% when under-offers are included.
- The stronger preference for core sub-markets is evident with the City Core vacancy rate at 6.5%, down 160 bps on the ten-year long-term average. This is compared to the City Fringe vacancy rate, which currently stands at 8.3% and is up 180 bps above its long-term average. In the West End, the Core (Mayfair/St James’s) vacancy rate currently stands at 3.6%, down on the ten-year average of 5.1%.
- Currently, 47% of space available (9.5 million sq ft) is BREEAM-rated Excellent or Outstanding, which is up 7% on Q3 2024.
- Nearly half (49%) of supply comprises of floorplates under 5,000 sq ft. At the larger end, there are 15 Grade A options that are currently available in the West End for an occupier seeking 100,000 sq ft or more available now or will be in the next six months, four of these options are in Hammersmith, two in White City, and two in VNEB. In the City, there are eight options that could satisfy a >100,000 sq ft size requirement, with only two in the City Core.
- With less than 1 million sq ft of speculative completions scheduled for completion in Q2 2026, we expect Central London supply to remain broadly unchanged in Q4.
Development pipeline
- New development starts accelerated in Q3, with a further 2.1 million sq ft commencing construction during the quarter. This brought the YTD figure to 5.7 million sq ft, close to the full-year figure of 5.9 million sq ft recorded in 2024. A notable scheme starting in Q3 was Brockton Everlast’s Dovetail, 115–123 Houndsditch, EC3 (465,000 sq ft). The majority, 73% of new schemes that have started so far this year have been extensive refurbishments, highlighting the ongoing multifaceted shift toward refurbishments, with elevated cost pressures, regulatory changes and labour shortages impacting projects.
- At present, just over a third of developments due for completion during 2027 have commenced. Further to this, only an additional 2.3 million sq ft of schemes anticipated for completion in 2028–2029 have commenced this year. As a result, new supply during this period is expected to fall well below the average annual delivery level, with 70% of schemes due for completion over this timeframe still to commence.
- Q3 new completions reached 1.3 million sq ft and brought development completions to 4.4 million sq ft. This is up 15% on the same period in 2024. The largest scheme to complete during Q3 was British Land & GIC’s 1 Broadgate EC2 (388,000 sq ft), 96% of which has already been let, illustrating the strong demand we continue to see for new office space. In the West End, the largest scheme to complete was Derwent / The Portman Estate’s redevelopment of 25 Baker Street, W1, which is fully pre-let.
- With 3.6 million sq ft scheduled for completion during Q4, development completions are expected to reach a record 8 million sq ft by year-end. We are currently anticipating that development completions between now and 2029 will reach 25.1 million sq ft, although 31% of this pipeline is yet to start.
- Based on our analysis of the development pipeline (with a view on schemes with a realistic prospect of delivery over the next 4 years), development completions are set to reach 25.1 million sq ft, 27% of which has already been pre-let. A further 6% is currently under offer.
City and West End rents
- Exceptionally low vacancy in Grade A towers has led to a new record rent being achieved in the City market. Law firm Proskauer Rose has expanded within 8 Bishopsgate, EC2, acquiring the 46th floor at a reported rent of £145.00 per sq ft. With limited availability and strong demand for premium tower space, this record is likely to be surpassed in the near future.
- As a result of the sustained preference for best-in-class space, the average City prime rent at the end of Q3 stood at £99.75 per sq ft, up 2% when compared to the same period in 2024. The average West End prime rent at the end of Q3 reached £168.58 per sq ft, which is up 11% on Q1–Q3 2024.
- The top rent achieved in the West End this year remains Viking Global Investors' letting of the fifth floor at 77 Grosvenor Street, W1, at £220.00 per sq ft, earlier in the year.
- With occupier preference for best-in-class space and continued market polarisation expected, we are currently forecasting average prime rental growth of 4.6% for the City and 4.3% for the West End in 2026. Overall, we are currently forecasting average prime rental growth of 4.1% per annum for the West End and 4.2% per annum for the City over the next five years.
- With the sustained preference for Grade A office space remaining, the average Grade A rent for the City at the end of Q3 stood at £72.22 per sq ft, which is up 3% on the same period in 2024, and the average West End Grade A rent stood at £99.58 per sq ft, up 5% on 2024.
- By contrast, City average Grade B rents stood at £37.15 per sq ft and were down 19% on 2024, and the West End average Grade B rent at £51.34 per sq ft is down 5% on the previous year.
- Our analysis indicates there continues to be a rental premium for office buildings with a BREEAM certification, with rents achieved so far this year on BREEAM-certified Excellent or Outstanding buildings up 27% when compared with the average rent on lower- or non-rated buildings.
Central London investment
- Q3 continued to see subdued levels of investment activity, partly due to the seasonal summer slowdown and partly reflecting persistent macroeconomic uncertainty, with Central London turnover reaching £1.5 billion across 47 transactions.
- This brought Q1–Q3 turnover to £6.2 billion, across 137 transactions, which is up 38% on the same period in 2024. Despite this, overall investment turnover continues to remain 11%, down on the five-year average and 35% on the ten-year long-term average.
- The largest transaction to complete during Q3 was Arora Group’s purchase of 102 Petty France, Westminster, SW1, for £245 million. The property on Petty France is let to the Ministry of Justice until 2028, producing £15 million per annum of net rental income. The building has been acquired with the expectation of securing planning for hotel use.
- Domestic purchasers continue to account for the largest share of turnover (39%) with £2.78 billion trading and an average lot-size of £35.89 million.
- Whilst the average lot size, at £45.34 million, was down 12% on the five-year average and 19% on the ten-year, so far this year, 14 transactions over £100 million have traded, this is up from six over the same period in 2024.
- Crucially, improving investor confidence is underscored by assets under offer reaching £4.62 billion (across 77 assets) at the end of Q3. This is the highest level of under-offers seen since Q2 2022 and 54% above the five-year average. With this, we are currently tracking 14 assets priced over £100 million that are currently under offer. As at the end of Q3 2025, £6.6 billion of stock remained available – this is up 99% when compared to Q3 2024, with vendors looking to capitalise on improving demand.
- As of quarter-end, Savills prime West End yield remained at 3.75% and the City at 5.25%.