Contents

• Across the City market

• Across the West End market

Across the City market

The City market saw a strong first quarter of 2026 despite ongoing macroeconomic uncertainty, with 1.37m sq ft transacting. This was 11% up on Q1 last year, up 15% on the five-year average for Q1 and 4% up on the long-term average – this can largely be attributed to Q1 seeing a strong level of pre-letting activity. The largest transaction of the quarter was Herbert Smith Freehills’ 268,000 sq ft pre-let of the B–9 and 13th floors of 1 Appold Street, EC2 (with options over the rest of the building). A refurbishment that is due for completion in Q4 2028, at a blended rent of £104 psf.

The City Core, particularly EC2, remained the most active submarket in Q1 2026, accounting for 55% and 34% of total take-up, respectively. SE1 has continued the strong momentum seen last year, when it experienced the largest increase in take-up of any submarket. Q1 2026 has seen 278,815 sq ft transacted – more than double compared to Q1 last year – driven by demand for high-quality riverside buildings. A key example is Quantexa’s pre-let of 52,293 sq ft across multiple floors at The Delft, 3–5 Montague Close, SE1, and BP’s acquisition of the Ink Building, Timber Square, 25 Lavington Street, SE1 (191,383 sq ft), a newly completed development with leading sustainability credentials, delivered in March.

The sustained occupier appetite for newer, high-quality stock resulted in pre-lets accounting for 40% of space let in a quarter that was underscored by several landmark transactions. At 550,624 sq ft, this was the highest level of pre-letting activity on record for a Q1, illustrating sustained occupier confidence in the London office market.

Despite the Insurance and Financial Services sector driving take-up for office spaces over the last three years, securing a substantial 31% share in 2023, 38% in 2024 and 34% in 2025. The Professional sector has taken the lead in driving take-up in Q1 2026, accounting for a 25% share of take-up. This was largely driven by US law firms, including the aforementioned Herbert Smith Freehill transaction. The Insurance and Financial Services sector followed as the second most active sector, accounting for 20%.

At the end of Q1, City supply stood at 9.8m sq ft, equating to a vacancy rate of 7.0%. This is 20 basis points (bps) down year-on-year, and no different from last quarter. Significant additions to the pipeline this quarter include some space at 30 St Mary Axe, EC3 (93,000 sq ft) as the building undergoes a floor-by-floor refurbishment, along with space at Cottons Centre, Hays Lane, SE1 (141,981 sq ft).

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 Q1, the average City tower vacancy rate stood at 2.9%. When looking at the prime towers, this vacancy rate is as low as 0.9%. The stronger preference for core submarkets is evident with the City Core vacancy rate at 6.0%, down 210 bps on the 10-year average. This is compared to the City Fringe vacancy rate, which currently stands at 7.9%, 140 bps above its long-term average.

Q1 2026 has been another quarter of strong rental growth, with a handful of trophy transactions boosting the prime rent. Prime rents are up 40% on Q1 2025, sitting at £130.80. Grade A average rents reached £80.43, up 15% on Q1 2025, again boosted by a small number of trophy transactions. The top rent achieved in Q1 2026 was at prime tower 1 Leadenhall, EC3, surpassing the record seen last quarter in 8 Bishopsgate, EC2, where Proskauer Rose expanded into the 46th floor on a 13-year lease, paying £145 psf. This highlights the rental premium paid for best-in-class space, particularly towers with the best sustainability ratings. With limited availability and strong demand for premium tower space, this record may be surpassed in the near future.

Completions totalled 1.1m sq ft in Q1 2026, 8% lower than Q1 2025. Despite the slower start, we expect full-year 2026 completions to surpass 2025, reaching 4.85m sq ft, 39% above the long-term average. Of the remaining 2026 pipeline, 37% has already been pre-let; this rises to 53% in the City Core – underscoring strong demand for prime space in core locations.

City Highlights

Across the West End market

Amidst ongoing macroeconomic headwinds, the West End recorded a steady level of transactional activity with 833,712 sq ft acquired, down just 1% on Q1 last year, and 6% on the 10-year average. Similar to Q4, sub-10,000 sq ft transactions continue to lag the 10-year average by 19% as inflationary pressures and uncertainty weigh on the confidence of smaller occupiers. These occupiers have also shown a clear preference for fitted space, with over two-thirds of sub-10,000 sq ft transactions, and over 80% of those under 5,000 sq ft being fitted.

Positively, mid-size and larger transactions have shown greater levels of resilience and remain at levels close to the 10-year average. The most significant acquisition of space in March (and in Q1) was Databricks’ pre-let of the entire building (135,000 sq ft) at Network, 10 Howland Street, W1, in what was the largest transaction by a Tech & Media sector occupier since 2021. Historically, this sector was the primary driver of leasing activity in the West End. However, following the higher interest rate environment in recent years and the ensuing global downturn in the tech sector, take-up levels have been muted, with much of the activity concentrated in smaller deals.

This quarter saw a marked rise in activity from the Tech & Media sector in the first quarter of 2026, with take-up 30% above the 10-year average, and for the first quarter since Q4 2024, it was the most active sector. This recovery looks set to continue into Q2 following the recent lettings since the end of the quarter to Anthropic and OpenAI at 1 Triton Square, NW1 (158,000 sq ft) and Jahn Court, N1 (88,500 sq ft), respectively. Furthermore, the Tech & Media sector now accounts for over 40% of active requirements, with this predominantly being made up of software and AI companies. By number, the Insurance & Financial Services sector remained the most acquisitive at 31%, having witnessed stronger levels of demand within the smaller size bands than the market as a whole.

Average prime rents were down marginally year-on-year as a result of lower levels of activity in the core markets of Mayfair and St James’s, and currently stand at £165.00 per sq ft. When the core markets are excluded, however, average prime rents have grown 6.3%, largely driven by new record rents achieved in Covent Garden and Soho.

The vacancy rate fell by a further 10 bps to 7.8%, following a relatively robust quarter of leasing activity, as well as several assets in fringe markets gaining planning permission for change of use. Core markets continue to experience persistently low levels of supply. For example, in Mayfair, the vacancy rate has contracted by a further 50 bps this quarter to 3.4%, making it the most undersupplied of the West End submarkets, with just 12 months of supply based on average take-up levels. The constrained future pipeline is unlikely to resolve this, with over half (54%) of the space due for delivery in this submarket by the end of 2027 already pre-let.

Across the West End, just three schemes totalling 303,000 sq ft reached practical completion in Q1 – less than half the amount that was delivered during the same period last year. In fact, three-quarters of the 1.6m sq ft expected to complete in Q1 (as of the end of last year) saw its completion date moved forward, indicating that delays to schemes continue to linger and that the record quantity of space that is currently forecast in 2026 will likely spill over into 2027. By 2028, completions are set to fall to just 1.6m sq ft, which – with the exception of the pandemic-induced slowdown in 2020 – would be the lowest level since 2018. Overall, 8.3m sq ft is scheduled to complete between the remainder of 2026 and 2029, just over one-fifth of which has already been pre-let.

West End Highlights

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