London Office Rents Reach Record High Amid Supply Shortage

The London office market is experiencing unprecedented rental growth as a severe shortage of prime workspace drives prices to record levels. Developers and landlords report that demand for best-in-class offices continues to soar, with limited new developments unable to meet this rising need.

Great Portland Estates (GPE), a key player in London’s commercial property market, revealed that rents in its prime buildings have increased by almost 8 per cent over the past year. Expectations are that rents could rise another 10 per cent in the coming 12 months, with the supply-demand imbalance at the heart of the issue.

Toby Courtauld, chief executive of GPE, attributes this lack of supply to several factors, including costlier construction and financing, alongside sluggish planning processes. Planning departments, Courtauld noted, are underfunded and often unable to operate efficiently, slowing the creation of new office space further.

The pandemic’s lasting impacts also contributed to the delay in project development, as turbulence in the early days of remote working led to hesitancy among developers and investors. Despite early fears of widespread downsizing in office spaces, this trend has reversed. Current data shows that only 14 per cent of firms seeking new premises are looking to reduce their office size, with many preferring to upgrade to eco-friendly and premium environments.

Demand for these offices is being driven in part by the need for sustainability credentials. Companies are increasingly motivated to secure spaces that assist in achieving net zero targets and help to attract and retain top talent. GPE’s ongoing developments, such as its London Bridge project, are drawing significant interest despite completion being years away. Courtauld highlighted examples of office spaces being pre-let well in advance of their availability.

Matthew Bonning-Snook, chief executive of Helical, another commercial property developer, noted that rental growth is poised to continue. He remarked that the persistent supply shortage cannot be quickly resolved, making the upward trend in rents likely to persist. This echoes GPE’s experience, with over £38 million in prime office lettings secured last year alone. The market for London’s top-tier offices remains competitive, reflecting the growing demand for sustainable and high-quality workspaces in a constrained supply environment.