Central London Offices: 2024 Take-Up Increase
The central London offices market saw increased activity in 2024, with higher take-up and strong demand for prime spaces. New data from Savills shows a 3% rise in office take-up transactions across core central London areas. This includes the West End and the City, compared to the previous year. Leasing activity increased, accompanied by a 1% rise in office space taken. By the end of 2024, it reached 10.1 million square feet.
Growth in Office Take-Up
Despite global and national economic challenges, the central London office market performed well in 2024. More businesses secured office spaces compared to the previous year. The number of transactions increased modestly by 3%. However, the volume of space taken grew by 1%, reaching 10.1 million square feet.
The final quarter of 2024 marked a particularly strong performance. Office take-up in central London for Q4 2024 reached 3.17 million square feet, reflecting a 16% rise compared to Q3 2024. Leasing activity increased in the final quarter, indicating growing confidence in the market. Businesses continued committing to longer-term office leases.
Vacancy Rate and Supply Conditions: Central London Offices
In addition to rising take-up, the office vacancy rate in central London dropped by 70 basis points to 7.5% by the end of Q4 2024. This is a positive sign for the market, indicating that demand is outstripping supply. The decrease in vacancy rates comes amid a backdrop of limited development completions expected by mid-2025 and constrained availability of office space. Total office supply at the end of 2024 stood at 19.6 million square feet, lower than previous years. The forecast indicates further supply challenges as developers focus on completing projects later in 2025.
This tight supply environment is expected to continue into 2025, which could contribute to an even more competitive market. As new office developments are anticipated to be fewer in number, businesses looking to secure office space in central London may face challenges in finding suitable locations.
Active Demand and Sectoral Trends
One of the most significant factors driving the market is the high level of demand from occupiers for office space. At the start of Q4 2024, active demand in the core central London markets stood at 13.5 million square feet. This marks a 44% increase compared to the long-term average, indicating that businesses continue to show interest in expanding their office footprints. Notably, the insurance and financial services sectors are driving a large proportion of this demand. These sectors have experienced substantial growth, and many businesses within them are seeking larger office spaces to accommodate their expanding workforces and operations.
Data from Savills shows that 48% of occupiers are actively looking to expand their office space. This is a marked contrast to the 21% of businesses seeking to downsize. The demand for additional space reflects broader economic conditions. Many companies continue recovering from the pandemic and preparing for future growth.
Rental Growth Across the City and West End
In terms of rental growth, the City of London has seen a modest increase in rents in 2024. The average grade A rent in the City rose by 2.8% compared to 2023, reaching £70.51 per square foot. Meanwhile, prime City rents experienced a more substantial rise, up 7.5% to £98.60 per square foot. These increases reflect the tightening supply in the area and the higher demand for quality office space.
The West End is one of the most prestigious office markets globally. Average grade A rents remained stable at £94.87 per square foot, unchanged from 2023. However, prime rents in the West End reached £157.15 per square foot, demonstrating strong demand for top-tier office spaces in this iconic district.
The increase in rents for prime space, particularly in the City and the West End, signals a trend towards higher prices for the best-quality office spaces. Businesses that are willing to pay a premium for prime real estate are likely to continue driving this upward pressure on rents.
Market Outlook for 2025: Central London Offices
Experts from Savills predict growth in the central London office market in 2025. This is driven by high demand and constrained supply. Josh Lamb, Director at Savills, reports that provisional data for 2024 shows a 22% increase in take-up. The City leased 6.54 million square feet of office space, surpassing its five-year average. Lamb emphasises that the market is facing rising costs and shrinking supply of quality office space. This should lead to further rental growth in the year ahead.
As a result of these factors, Savills expects that some businesses may need to adjust their office expectations. Demand for premium office spaces remains high. However, companies unwilling to pay premium prices may compromise on quality or consider less-central locations.
Hunter Booth, Director in Savills’ West End office agency team, adds that while West End take-up remained stable in 2024, it was slightly down on the five-year average. However, demand in the West End is still strong, with a 9% increase in demand compared to the 10-year average. Booth suggests that the cautious approach taken by many occupiers in 2024 will likely ease in 2025 as businesses begin to feel the pressure of low supply levels and the need to secure suitable space.
One notable trend in the West End is that 20% of development scheduled for completion in 2025 is already pre-let, further limiting the amount of available space. Low supply is expected in the West End market in 2026 and 2027. Therefore, businesses should act quickly, driving rental growth for both prime and grade A office spaces.
Summary of Key Points
- Office Take-Up: The volume of office take-up in central London rose by 1% in 2024, reaching 10.1 million square feet, with Q4 take-up increasing by 16% compared to Q3 2024.
- Vacancy Rates: The office vacancy rate in central London dropped to 7.5% by the end of 2024, reflecting tightening supply conditions.
- Demand: Active demand for office space was 44% higher than the long-term average, driven by sectors like insurance and financial services.
- Rental Growth: Rents in the City increased by 2.8% for grade A offices and by 7.5% for prime space. In the West End, prime rents saw a notable increase to £157.15 per square foot.
- Market Outlook for 2025: Experts anticipate continued rental growth due to rising demand and limited supply. Some businesses may have to compromise on the quality of space or consider non-core locations if they are unable to secure premium offices.
Conclusion: Central London Offices
The central London office market in 2024 demonstrated resilience and adaptability despite ongoing challenges in the global economy. As businesses continue to navigate post-pandemic recovery, demand for office space, especially in prime locations, remains robust. With low levels of supply expected in the years ahead and high demand continuing to drive rental growth, businesses looking for office space in the City or West End will need to act swiftly to secure suitable premises.
Looking ahead to 2025, Savills anticipates that the combination of rising rents, limited supply, and strong demand will lead to further upward pressure on office leasing activity. As companies plan for the future, those seeking expansion or relocation in central London must consider market dynamics. This will help them secure the best available space for their needs.