Research article

Central London Office Market Q2 2026

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Contacts & Related Research

Q2 2026 points to resilient occupational demand, but investment activity continues to lag the long-term trend

Contents


Leasing summary

  • Central London continued to witness robust levels of occupational demand in Q2, with take-up reaching 2.4 million sq ft across 192 transactions. While take-up was down 13% on Q2 2025, it remained 9% above the 10-year Q2 average. AI-related demand continued to drive leasing activity, increasing North of Oxford Street East’s share of take-up to 18% and shifting the quarterly City/West End balance in favour of the West End for the first time since 2021.
  • As a result, H1 take-up totalled 4.68 million sq ft, 4% above the 10-year H1 average. Four transactions exceeding 100,000 sq ft completed during the first half of the year, while activity in the 15,000–50,000 sq ft size band reached a four-year high, signalling a resurgence in mid-market leasing demand. Leasing activity continues to be driven by demand for Grade A office space, which accounted for 94% of H1 take-up, while BREEAM Excellent and Outstanding-rated space accounted for 65% of space acquired.
  • Overall, AI sub-sector-related occupiers accounted for around 645,000 sq ft of H1 2026 take-up, which is equivalent to almost half of the total space acquired by AI-related companies across Central London since the sector first became active in the market. Prior to 2026, 70% of transactions linked to this sector were below 10,000 sq ft; however, with venture capital raised by London firms reported to have reached £6.7 billion in H1 2026, occupier activity is increasingly translating into larger leasing requirements.
  • Notable Q2 transactions to AI occupiers include Anthropic’s acquisition of the 3rd to 6th floors at 1 Triton Square, NW1 (158,138 sq ft), OpenAI at Jahn Court, 34 York Way, N1 (77,521 sq ft) and Humanoid at 1 Triton Square, NW1 (43,500 sq ft).
  • West End leasing reached 2.2 million sq ft in H1, its strongest first half since 2022 and 32% above the 10-year average for this period. Leasing across the City market was comparatively softer, reaching 2.6 million sq ft, down only 4% on the 10-year long-term average.


Take-up by sector

  • Boosted by record levels of activity from the AI sub-sector, the Tech & Media sector accounted for the largest share of H1 leasing activity, capturing 31% of take-up. This was 64% above the long-term H1 average for the sector and marked its strongest first half since 2017. Overall, AI-related occupiers accounted for almost half of all Tech & Media take-up.
  • However, the improvement in demand has not been solely AI-led. Having reached a 30-year low in H1 2025, Creative sub-sector take-up rebounded to 255,000 sq ft in H1 2026, 7% above the five-year average. Activity was anchored by United Talent Agency and Curtis Brown's acquisition of an assignment of the second and third floors (68,000 sq ft) at 1 Rathbone Square, W1.
  • The Insurance & Financial sector followed with a 20% share of take-up across 76 transactions. At 878,112 sq ft, this was down 21% on the five-year average and the lowest take-up to the sector seen since H1 2021. Only two transactions over 50,000 sq ft completed to this sector during H1: Natixis taking the G, 1st and 4th floors at Thames Court, 1 Queenhithe, EC4 (88,500 sq ft) and NTT Finance securing 58,000 sq ft at Fresh Wharf, 3 Lower Thames Street, EC3. However, demand from the Insurance & Financial Services sector is set to pick up over the second half of the year, with the sector currently accounting for 41% of space under offer.
  • The Professional Services sector accounted for 549,000 sq ft let across 24 transactions in H1 2026, 12% above the 10-year H1 average, though activity was heavily concentrated in a single transaction: global law firm Herbert Smith Freehills Kramer’s pre-let in Q1. The Legal sub-sector continues to be the key driver of overall demand to this sector and has accounted for 74% of sector take-up, with US law firms including Paul Weiss, Bracewell, and Hunton Andrews Kurth among those taking additional space.
  • A further 338,000 sq ft has been acquired by Serviced Office Providers during H1, 16% up on H1 2025. Twelve centres have been acquired by a diverse mix of operators, including Convene taking 57,000 sq ft at 1 Rathbone Square, W1; Landmark securing 50,000 sq ft at 1 Great St. Helens, EC3, and Runway East expanding with two deals totalling 58,000 sq ft.


Future demand

  • Space under offer at the end of H1 stood at 3.1 million sq ft, with the Insurance & Financial Services sector underpinning demand. This was up 11% on the previous quarter and 6% on the 10-year long-term average. Further to this, at the end of H1, a further 1.4 million sq ft is currently known to be under offer to regear, with 93% of this total consisting of occupiers currently occupying 50,000 sq ft or more, illustrating the increasing prevalence of large occupiers opting to renew and extend at their existing offices amid constrained supply of prime office space and growing 'stay versus go' considerations.
  • Overall active Central London demand rose to a new record level of 15.7 million sq ft, up 69% on the long-term average, driven in part by AI-related requirements, a growing proportion of which are seeking occupation in the near term. Of Technology sub-sector requirements with a known timing, 71% by number and 56% by sq ft are seeking occupation in 2026–2027 or are expected to transition from serviced offices to conventional space imminently. By comparison, only 55% of requirements from other sectors by number and 23% by sq ft fall within this near-term timeframe.
  • Our analysis of active occupier requirements exceeding 10,000 sq ft indicates that the number of occupiers seeking to expand their office footprint (43%) continues to outweigh the number of occupiers seeking to decrease their office space (12%). In addition, 15% of active requirements originate from new market entrants, occupiers moving out of serviced office space, or companies seeking additional space, including those establishing their first London office.
  • Whilst overall demand has been boosted by the Technology sub-sector, the largest increase to demand since the start of the year has been across the Financial & Banking sector, which has increased by 30% to a new record of 5.8 million sq ft at the end of H1, driven primarily by a growth in demand from the FinTech sector, which has accounted for a quarter of new requirements.
  • This was followed by the Tech & Media sector, where demand has risen 26% since the start of the year to a record 3.1 million sq ft. Demand from the Professional Services sector has also reached a record high, with active demand standing at 3.58 million sq ft, up 23% over the past six months.


Supply and vacancy

  • Supply across Central London fell to 18.7 million sq ft during the quarter, down 0.5 million sq ft on Q1 2026. As a result, the vacancy rate declined by 20 bps to 7.2%, although it remains 80 bps above the long-term average.
  • The City vacancy rate remained unchanged at 7.0%, just 10 bps above the 10-year average, while the West End vacancy rate contracted by a further 30 bps over the quarter. Despite this improvement, West End vacancy remains 190 bps above its 10-year average, with a record level of development completions expected to keep supply elevated over the near term.
  • The stronger occupier preference for the core was evident with the City Core vacancy rate at 5.9%, down 200 bps on the 10-year long-term average. This is compared to the City Fringe vacancy rate, which stood at 8.0% and was 150 bps above its long-term average.
  • In the West End, the Core (Mayfair/St James’s) vacancy rate at the end of Q2 stood at 4.4% and was down 70 bps on the 10-year average. This compares with West End Fringe sub-markets such as Hammersmith and VNEB, where Q2 vacancy stood at 22% and 18% respectively.
  • 51% of supply comprises floorplates under 5,000 sq ft and at the larger end of the scale, there are currently 21 Grade A options available now or in the next six months, for occupiers seeking to acquire 100,000 sq ft or more compared to 41 active occupiers with requirements over 100,000 sq ft at present, reflecting the limited options, particularly for those seeking to be located more centrally, with only five of these options in Core sub-markets.
  • The prevalence of fitted and turnkey space is notably higher among smaller floorplates, with 42.5% of sub-10,000 sq ft options across Central London now offering Fitted, CAT A+ or Managed space. This trend is particularly pronounced in the City, where half of all sub-10,000 sq ft floorplates (50%) are available on a fitted basis, compared to 36% in the West End.
  • 43% of space available (8.0 million sq ft) of supply is BREEAM-rated Excellent or Outstanding.


Development pipeline

  • Development completions reached 1.4 million sq ft in Q2 2026, with 11 new developments and major refurbishments delivered across Central London. This brought total completions in the first half of the year to 2.8 million sq ft, 11% above the 10-year average for the period. Notable completions during the quarter included Yoo Capital and Hines' One Olympia, W14 (522,321 sq ft), Ramsbury's The M, 334 Oxford Street, W1 (276,715 sq ft), and 6 More London, SE1 (147,000 sq ft).
  • With a further 4.9 million sq ft scheduled for delivery during H2, development completions for this year are set to reach a new record of 7.7 million sq ft, up 43% on the 10-year average. However, 35% of this space has already been pre-let, which has limited the volume of newly available office space that has been added to supply.
  • Overall space under construction stood at 16.1 million sq ft at the end of H1, with only a quarter already pre-let. The scale of speculative development underway continues to reflect confidence in occupier demand for best-in-class space. However, development starts fell sharply in H1 2026, with just 1.5 million sq ft commencing, as persistent construction cost inflation, labour and MEP constraints, increasing compliance requirements, and wider geopolitical uncertainty continue to weigh on scheme viability. Only one new-build scheme broke ground during the period, Delta at Paddington (234,000 sq ft), which is being delivered by TfL and Helical. The remaining 14 starts were refurbishments.
  • Overall, based on our analysis of the development pipeline (with a view on schemes with a realistic prospect of delivery), development completions are expected to reach 22 million sq ft by the end of 2029, with 148 schemes scheduled for completion over this period. However, 28% of this future supply has yet to commence construction and therefore remains vulnerable to further delays or potential withdrawal as viability pressures persist. This risk is particularly relevant for 2029, where 77% of schemes scheduled for completion have yet to start on site.
  • In total, 18% of the development pipeline currently scheduled for H2 2026–2029 has already been pre-let. This marks a 5% decline compared to the five-year average proportion of the pipeline that has typically been pre-let at this stage, based on previous four-year outlooks.


City and West End rents

  • With occupier demand remaining polarised towards premium office space, the City prime rent stood at £116.73 per sq ft, up 19% year-on-year, having reached a new record in Q1. Leasing activity at the top end of the City market has remained robust, with 11 transactions above £100 per sq ft recorded so far this year, almost matching the total achieved during the entirety of 2025. In addition, the City Northern Fringe saw a further letting matching the highest rent previously achieved, with Fractile AI acquiring the fifth floor (21,734 sq ft) at the JJ Mack Building, EC1, at £115 per sq ft.
  • The West End average prime rent at £175.10 per sq ft was up 2.3% on H1 2025, with Softbank’s acquisition of the 1st floor at 77 Grosvenor Street in Q1 at £201 per sq ft remaining the top rent achieved so far this year. Overall, average prime rental growth in the West End is forecast to reach 5.9% in 2026. The highest Q2 West End rent achieved was £182.50 per sq ft, with Strategic Value Partners acquiring the part 2nd floor (8,785 sq ft) at Devonshire House, 1 Mayfair Place, W1.
  • With occupier demand remaining firmly polarised towards higher-quality office space, average Grade A rents continued to rise, with the City average Grade A rent reaching £76.21 per sq ft, up 7% on H1 2025. In the West End, the average Grade A rent stood at £106.17 per sq ft at the end of H1, up 4% year-on-year and surpassing the £100 per sq ft threshold for the first time, as occupier demand remained focused on central locations.
  • By contrast, average Grade B rents continued to soften, with City rents falling 2.6% year-on-year to £45.66 per sq ft and West End rents declining 11.3% over the same period. With significant capital expenditure often required to reposition older buildings, the performance gap between prime and secondary accommodation is expected to widen further, and we are currently forecasting Grade B rental growth will remain negative in the territory for the next two years.
  • Our rental analysis indicates buildings with a BREEAM certification of 'Excellent' or 'Outstanding' continue to command a premium. In H1, average rents in these buildings were 49% higher than in non-rated buildings in the West End, and 39% higher in the City.


Central London investment

  • Q2 investment turnover reached £2.06 billion across 43 transactions, up 12% on the previous quarter, as activity was supported by a number of larger deals and a continued recovery in market liquidity. However, the increase was heavily influenced by Barclays’ £750 million acquisition of the 999-year-long leasehold interest in 1 Churchill Place, E14, which represented 36% of quarterly turnover. The deal ranks among the most significant owner-occupier office acquisitions in the Central London market in recent years. Excluding this transaction, volumes would have been £1.31 billion, 29% below Q1.
  • Overall, Q2 turnover was 3% below the five-year average and 27% below the 10-year average and bought H1 turnover to £3.89 billion across 94 transactions. This was down 15% on H1 2025 and 35% below the 10-year average. While transaction numbers remained resilient, turnover continued to be concentrated in a limited number of larger transactions. Improving pricing alignment between buyers and sellers has, however, supported a more cautiously optimistic tone, despite ongoing macroeconomic uncertainty.
  • The average lot size remained below historical norms at £41.3 million. Activity at the larger end of the market remained relatively subdued, with 11 transactions above £100 million completing during H1 2026 compared with 12 over the same period in 2025, reflecting both limited stock availability and selective investor demand.
  • At the end of H1, available stock totalled £9.39 billion across 169 opportunities, while a further £2.38 billion was under offer across 50 assets, reflecting continued investor engagement.
  • Domestic capital remained the dominant source of investment activity during H1 2026, accounting for 48% of turnover, followed by European investors who accounted for 25%. While overseas investor participation remained below longer-term norms, there were early signs of international capital re-engaging, particularly for prime and value-add opportunities.
  • Savills prime West End yield remains at 3.75% and the City at 5.25%.


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