London Central Office Rents Show Steady Recovery
Booming Demand for Prime, Sustainable Office Space in London
The London office market is experiencing a surge in demand for high-quality, sustainable office spaces, with companies vying for best-in-class properties to attract and retain top talent. According to recent reports, take-up of office space in Central London reached approximately 2.55 million sq ft in Q2 2025, with an impressive 80% being Grade A. This represents a flight to quality as businesses prioritise well-designed buildings with best-in-class amenities and sustainability credentials.
The robust demand is causing a squeeze in the supply of new high-quality stock. New office space deliveries hit the highest quarterly volume since 2020 with 2.21 million sq ft released in Q2 2025; however, 87% of this was pre-let before completion. A pipeline of 14.4 million sq ft is under construction, but only 33% is pre-let, and a limited amount (6.76 million sq ft) is expected beyond 2026. This suggests that overall supply may fall short of demand, particularly for high-quality, sustainable spaces.
This supply-demand imbalance has led to a sharp increase in prime rents. In the City of London, prime rents reached £88.50 per sq ft, up 7% over the prior year, while the West End saw a 16% rise to £162.50 per sq ft. Tenants are willing to pay premium rents for best-in-class offices with good transport and amenities.
The market is also witnessing a heightened emphasis on high-quality sustainable workspace. The tightening supply for energy-efficient and environmentally compliant Grade A offices is driven by occupier preferences and regulatory requirements that increasingly prioritize energy performance and carbon reduction.
Derwent London, a prominent player in the London office market, has been capitalising on this trend. The company has completed £13.8m of leasing, renewals, and regears in the year to date. Paul Williams, Chief Executive of Derwent London, expects the company's total accounting return outlook to be the strongest for several years.
Derwent's balance sheet is well-positioned for future investments, with plans to commence 50 Baker Street and Greencoat & Gordon House in early 2026. The company's total property return in the first half of the year is 3.1 per cent, outperforming the MSCI Central London Office Index rate of 1.9 per cent.
Demand for office space in London is currently above the long-term average, and the market has been recovering since the end of last year. Derwent's underlying capital growth rate is 1.2 per cent, and the company plans to optimise its portfolio through ongoing strategic asset recycling. Derwent estimates rental yield growth of three per cent to six per cent for the full year.
In conclusion, the top-end London office market in mid-2025 is robust, with escalating demand focused on prime, sustainable office space, constrained supply leading to rent growth, and heightened energy-conscious development standards. The market is expected to remain competitive as businesses continue to prioritise high-quality, sustainable office spaces to attract and retain top talent.
Sources: [1] Savills - London Office Market - Q2 2025 [2] CBRE - London Office Market - Q2 2025 [4] Derwent London - Half Year Results 2025
