Shortage of Premium Office Space Forces Firms into Lower Quality Buildings

A shortage of high-end office buildings is compelling companies to lease older, lower-quality spaces, as experts anticipate a complete lack of prime properties available for rent in London’s Square Mile by 2028. A post-pandemic shift in priorities has inflated demand for premium office spaces, while the supply remains constrained.

Data from CoStar, a property analytics firm, indicates that net demand for offices classified as four-star and below had remained negative from 2020 to 2024. However, 2025 witnessed a slight uptick in demand for such properties, marking a significant shift in market dynamics. Leasing agents in London highlight the difficulties businesses face in securing desirable spaces in high-profile areas, leading to alternatives in less central locations.

With minimal options in areas such as the West End and the City, companies are increasingly turning to secondary or new buildings outside primary business districts. Real estate professionals note a trend where firms are more willing to occupy lower-quality offices if these locations provide better accessibility and prestige.

This climb in demand is driven by the imperative to attract employees back to the office and meet sustainability targets. The development of new high-quality offices has stalled, leading to escalating rental prices. Recent analyses show that prime rents in the West End have surged by 59 percent over the last six years, reaching £182.50 per square foot, while the City has experienced a 38 percent increase to £100 per square foot.

High construction costs and economic uncertainty are contributing factors to the lack of new developments. Reports indicate that starting construction on less than five million square feet of office space in 2025 represents the lowest figure since the financial crisis nearly two decades ago. Developers cite rising material costs and financing challenges as significant barriers to new projects.

While fringe locations may seem increasingly attractive, experts predict that many firms will still opt for poorer-quality offices in preferred areas rather than higher-quality options further away. Observations from market analysts suggest that location continues to take precedence over building quality for numerous businesses.