Contents

• Leasing summary
• Take-up by sector
• Future demand
• Supply and vacancy
• Development pipeline
• City and West End rents
• Central London investment

Leasing summary

• Leasing across Central London reached 2.2m sq ft across 152 transactions at the end of Q1. This was up 6% on Q1 2025 and also up 1% on the 10-year long-term average, reflecting sustained levels of occupier optimism currently evident in the market. Both sides of the market operated ahead of the ‘new normal’ level of demand, with City take‑up 4% above the 10‑year average, and West End activity remaining below its historic norm but above the revised baseline.

• Activity, however, remained polarised, with larger occupiers maintaining confidence while smaller-sized transaction volumes pointed towards greater levels of caution among SMEs, amid ongoing uncertainty. This was evident as sub-10,000 sq ft transactions were down 25% on the Q1 average, marking its lowest level since 2021, with the decline being even more pronounced for sub-5,000 sq ft transactions.

• The sustained occupier appetite for newer, high-quality stock resulted in pre-lets accounting for a third of space let, in a quarter that was underscored by several landmark transactions. At 738,000 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.

• The largest pre-let (and transaction) to complete was global law firm Herbert Smith Freehills Kramer’s acquisition of British Land and GIC’s 1 Appold Street, EC2 (268,000 sq ft), at £104 per sq ft, for a term of 21 years. This was followed by BP’s pre-let of Landsec’s Timber Square, Ink Building, SE1, for a rent believed to be in the mid £80s. In the West End, the largest pre-let (and transaction) to complete was Databricks’ acquisition of the entirety of the Network Building, Howland Street, W1 (c.135,000 sq ft), on a 15-year lease.

• Leasing activity continued to be driven by demand for Grade A office space, which accounted for 92% of Q1 take‑up. This demand was predominantly focused on BREEAM-rated Excellent and Outstanding buildings, which together represented 53% of Q1 take‑up.

Take-up by sector

• The Tech & Media sector narrowly overtook the Insurance & Financial Services sector to account for the largest share of Q1 leasing for the first time in six years. At just shy of 450,000 sq ft, Tech & Media sector take-up accounted for a 22% share of take‑up following three consecutive quarterly rises in demand. Q1 activity was significantly boosted by Databricks’ pre‑let, which alone accounted for around 30% of the sector’s total take‑up.

• It should be noted, though, that this rise has been concentrated in the Technology sub‑sectors, with Media and Creative sub‑sector take‑up standing at just shy of 50,000 sq ft, the second‑lowest level of demand seen for the sector in Q1 since 2003.

• At the smaller end of the market, occupier caution in the Tech & Media sector was evident, with the number of sub-10,000 sq ft transactions at half the level typically recorded in Q1, suggesting that SMEs in the sector remain particularly sensitive to ongoing market uncertainty.

• The Insurance & Financial sector followed closely behind, accounting for 21% of total take‑up across 35 transactions, with demand driven by a diverse mix of sub‑sectors. Notably, and in contrast to the Tech & Media sector, the sector demonstrated greater resilience at the smaller end of the market, bucking the broader trend in a slowdown in the sub-10,000 sq ft size band. The sector’s strong preference for best‑in‑class space was evident, with 99% of take‑up comprising Grade A office space. This quality bias was reflected in achieved rents, with a sector rental average of £94.25 per sq ft, representing a 13% premium to the market average.

• The Professional Services sector followed with a 19% share, dominated by global law firm Herbert Smith Freehill Kramer’s pre-let, which accounted for 70% of space acquired by the sector. We also saw a number of law firms acquiring additional space at their existing buildings, signalling confidence within the US legal sector. Overall, the legal sub‑sector accounted for 78% of space acquired by the Professional Services sector, which is broadly consistent with the trend we have observed in recent years.

Future demand

• Space under offer at the end of Q1 stood at 2.8m sq ft, up 7% on the previous quarter and just 2% below the long‑term average. A near‑term pick‑up in leasing activity is expected to be led by the Insurance & Financial Services sector, with this sector currently accounting for 34% of space under offer across Central London, as well as the largest quantum of active demand. This was followed by the Tech & Media sector at 25%, with AI, software and app-related occupiers making up 14% of total space under offer.

• Overall, active demand reached a new record high of 14.6m sq ft, up 17% on Q4 and 57% above the 10-year average. Occupiers remain optimistic about future space requirements, with 47% seeking to increase their footprint compared with just 15% looking to downsize.

• The rise in active demand during Q1 was driven predominantly by the Financial Services sector, which recorded a 23% quarter‑on‑quarter increase. This was supported by further growth in the Tech & Media sector, where demand rose by 18% over the quarter, building on the momentum established in Q4. There was also a notable uptick in requirements from occupiers currently based in flexible workspace or establishing a new London office during Q1, which together accounted for 27% (by sq ft) of new demand.

• The Insurance & Financial Services sector continued to be the main driver of active demand and, at 5.2m sq ft, stood at its third highest level on record. This was up 66% on the sector’s 10‑year average, with 41% of this consisting of occupiers who have been at their existing building for 15 or more years. Such extended periods of occupation have historically increased the likelihood of firms from this sector upgrading into new space. However, this demand is emerging against a backdrop of increasingly constrained supply, particularly across the Core sub‑markets, which we saw result in many larger occupiers choosing to stay put in 2025.

• At 3.0m sq ft, Tech & Media sector demand is now at a record level, with AI‑related occupiers accounting for 19% of the sector total. Four large Tech occupiers are already under offer, illustrating the strong conversion momentum emerging within the sector.

Supply and vacancy

• Supply across Central London remained stable over the quarter at 19.1m sq ft, despite 1.3m sq ft of speculative completions being added to supply. This equates to a vacancy rate of 7.4%, up 30 bps on Q1 2025 and remaining 110 bps above the long-term average.

• The City vacancy rate remained at the same level at 7.0%, just 10 bps up on the 10-year long-term average, whilst the West End market saw a slight contraction to supply, bringing the vacancy rate down 10 bps on the previous quarter to 7.8%.

• The stronger occupier preference for the core was evident with the City Core vacancy rate at 6.0%, down 210 bps on the 10-year long-term average. This is compared to the City Fringe vacancy rate, which stood at 7.9% and was 140 bps above its long-term average.

• In the West End, the Core (Mayfair/St James’s) vacancy rate at the end of Q4 stood at 4.1% and was down 100 bps on the 10-year average. This compares with West End Fringe sub-markets such as Hammersmith and VNEB, where Q1 vacancy stood at 22% and 18% respectively, though Hammersmith has seen a 4% fall in vacancy as a result of office space having been withdrawn from the market following planning consent for change of use.

• 51% of supply comprises floorplates under 5,000 sq ft. At the larger end of the scale, there are currently 24 Grade A options available now or in the next six months, for occupiers seeking to acquire 100,000 sq ft or more, and there are 38 active occupiers with requirements over 100,000 sq ft, reflecting the limited options for those seeking to be located more centrally, with only three of these options located within the City Core and a further six across the West End’s Central sub‑markets, two of which are currently under offer.

• 44% of space available (8.4m sq ft) was BREEAM-rated Excellent or Outstanding, which is down 2% on Q4 2025.

Development pipeline

• Development completions reached 1.4m sq ft, with nine schemes reaching practical completion by the end of Q1. This was down 25% on the level of completions seen over the same period a year earlier, with the largest scheme to complete being GPE’s 2 Aldermanbury Square, EC2 (321,000 sq ft), which is fully pre-let to law firm Clifford Chance. The prevalence of pre-letting activity was reflected by the fact that 61% of new office space delivered in Q1 was let prior to completion.

• With a further 7.1m sq ft of completions expected over the remainder of 2026, total development completions are set to reach a new record, with 51 schemes delivering 8.5m sq ft of office space. However, around two‑thirds of this space has already been pre‑let, with a further 3% currently under offer, meaning that the volume of speculative space still yet to be added to supply, at 1.3m sq ft will be limited, reducing the risk of oversupply of new space to the market.

• Overall, based on our analysis of the development pipeline – with a view on schemes with a realistic prospect of delivery over the next four years – development completions are expected to reach 22m sq ft by the end of 2029, with 1.4m sq ft of schemes having started during Q1. This was down 10% on our Q4 2025 projections, reflecting the ongoing viability challenges that continue to constrain future supply. The City market accounted for the majority (75%) of the Q1 contraction to projected completions. Furthermore, with 25% of the projected pipeline still yet to start on site, the introduction of new uncertainty is likely to reinforce existing viability pressures on the current pipeline.

• There has been a notable shift towards refurbishments, with comprehensive refurbishments accounting for 70% of the number of schemes set for delivery over the next four years (78% by sq ft), up 5% on the proportion at the end of Q1 2025.

• In total, 21% of the development pipeline currently scheduled for 2026–2029 has already been pre-let. This marks a 4% decline compared to the 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 in favour of premium‑quality office space and a number of transactions completing in trophy buildings, the average prime rent for the City rose to £130.80 per sq ft. This was up 40% on Q1 2025 and set a new record rent for the City, with the market seeing a 24% quarter on quarter uplift on Q4’s previous record of £105.26 per sq ft. In addition to this, a new record top rent of £160 per sq ft in the City.

• Q1 saw seven transactions in the City with rents in excess of £100 per sq ft, with other notable prime transactions including Quantexa’s acquisition of part G, part 1, and floors 5–7 at The Delft, 3–5 Montague Close, SE1. At £140 per sq ft, this was a new record rent for SE1. The quarter also saw Monex acquire the part 12th floor (13,408 sq ft) at 40 Leadenhall, EC3, at £130 per sq ft.

• The average prime rent across the West End held steady at £165.00 per sq ft, down 0.7% on Q1 2025, with the top rent achieved over the quarter standing at £201 per sq ft, with SoftBank acquiring the 1st floor at 77 Grosvenor Street, W1. New record rents were also set in West End sub-markets, with Soho seeing a new record rent of £165 per sq ft at 20 Air Street, W1, with Paul Weiss acquiring the 7th floor (21,185 sq ft) and in Covent Garden, with £142.50 per sq ft achieved on the part 6th floor at 90 Long Acre, WC2.

• The gap between City and West End prime rents has narrowed to its lowest level in over 25 years, with a rental differential of just 21%, underpinning the intensified appetite for best-in-class space across the City towers. Based on the assumption of continued polarised occupier demand, we are forecasting prime rental growth of 4.3% across Central London over the next four years.

• The average Grade A rent for the City at the end of the year stood at £80.43 per sq ft, which is up 15% on Q1 2025, and the West End average Grade A rent stood at £102.23 per sq ft, down 0.7% on Q1 2025. We are currently forecasting average Grade A rental growth of 4.3% for the West End and 2.6% for the City over the next four years.

Central London investment

• Investment turnover reached £1.79bn with 48 assets trading during Q1. This was down 37% on the five‑year average and 44% on the 10‑year average. However, despite the slowdown in activity following a stronger Q4, turnover in March accounted for 50% of total turnover with investors taking a more measured and selective approach, amid ongoing macro and geopolitical uncertainty.

• The number of assets traded was also down 12% on the 10-year average, though up 3% on the five-year average, with activity skewed towards smaller lot sizes. With only six assets trading above £100m, the average lot size stood at £37.3m, down 39% on the five‑year average.

• The largest transaction saw Feldberg Capital exchange contracts on Wells & More, 45 Mortimer Street, W1, for £172m, reflecting a 5.00% net initial yield and £1,483 per sq ft. The 116,000 sq ft mixed-use property, located on the corner of Wells Street and Mortimer Street, is let to six office tenants and four medical/retail tenants.

• In the City, the largest transaction to trade was Meadow Partners' purchase of 1 Wood Street, EC2, acquiring the long leasehold interest (139 years at 10.85% gearing) from German fund KanAm Grund for £132m. Located a few minutes’ walk to the east of St Paul’s station, 1 Wood Street comprises 184,184 sq ft of office and retail accommodation, with the offices single let to Eversheds Sutherland until 2033.

• Assets under offer across Central London stood at £2.78bn, across 52 assets, including eight exceeding £100m. The volume of under offers was 6% above the typical Q1-end level seen over the past decade, providing evidence of market liquidity and suggesting delayed transactional activity as opposed to a collapsed to deal flow.

• The longevity of the delay will partially be determined by the interest rate outlook and on the volume of larger assets that trade over the remainder of the year. However, with greater pricing transparency and improved financing conditions, the market response has been markedly different from that seen in 2022.

• Savills prime West End yield remains at 3.75% and the City at 5.25%.

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