Knight Frank reveals the ‘London Equation’ drawing investors and developers back to London

• 50 million sq ft of London office leases set to expire by 2030, fuelling supply crunch as vacancy for new space sits below 1% in City and West End core
• City core, Marylebone and Soho have less than 15 months of vacant space, threatening to choke the capital’s growth prospects
• 70% of new leases by major corporates in 2025 were expansionary, pushing rents to record levels
• London office take-up hit 12.1 million sq ft across 1,400 deals in 2025, the capital’s strongest performance since 2019
• Investment jumped 45% to £9.3bn as institutions targeted supply starved market, and is forecast to rise above £12bn in 2026

Knight Frank’s research points to a supply crunch that will draw investors and developers back to London offices, which is essential for London’s growth businesses and the UK capital as a whole to compete in the global economy.

Philip Hobley, Head of London Offices at Knight Frank, commented: “When large businesses move today, they are far more likely to expand than shrink. The office is no longer perceived merely as a fixed cost to be minimised, but as a strategic asset worth paying for. Occupiers are making deliberate, long-term commitments to high-quality buildings that can support their operations for the next decade and beyond. London’s business sector’s growth urgently requires new supply to be unlocked in all of its key submarkets in order to meet structural demand over the next five years.”

Strong demand as corporates expand and office-first policies gather momentum

Approximately 70% of major corporate lettings in Central London last year involved companies increasing their office footprint, while key submarkets including the City core, Soho and Marylebone face a supply choke point in the coming years. The findings focus on the bellwether segment of the market – transactions over 20,000 sq ft – where long-term corporate strategy, talent planning and operating models are most clearly expressed. Of the 98 deals in this size bracket signed in 2025, 70 were expansionary, driven by relocations into larger premises, organic growth and new market entrants.

Collectively, these transactions delivered 2.9 million sq ft of net absorption, meaning large businesses took materially more space than they vacated, resulting in a net increase in occupied floorspace. A surge in large-scale demand propelled overall London office take-up to 12.1 million sq ft across 1,400 deals in 2025, the capital’s strongest performance since the start of the global pandemic.

Expansions are also underpinned by a new cohort of global firms. The largest deal of 2025 (nearly 400,000 sq ft at 65 Gresham Street) was signed by Squarepoint, a firm founded only in 2014, highlighting London’s continued appeal to fast-growing businesses. While AI firms accounted for around 500,000 sq ft of take-up, the more significant impact lies in the integration of AI across traditional sectors, as firms launch dedicated AI divisions, reshaping organisational structures and, in turn, the quality and configuration of space they require.

The data points to a fundamental shift in how the UK’s largest employers view their physical footprint. Rather than downsizing, large businesses are increasingly treating the office as a strategic asset essential for productivity, collaboration and talent attraction.

In 2025, 14 transactions exceeded 100,000 sq ft, double the number recorded in each of the previous two years. A similar trend was also evident in mid-market deals, with more transactions above 60,000 sq ft in 2025 than in any year since 2018. This trend is being driven in part by the growing traction of four-day-a-week office attendance models among major employers, which has reintroduced pressure on space planning. By contrast, only seven of the 98 large deals last year involved occupiers contracting their footprint.

Supply shortage drives record rental benchmarks and looming 2030 squeeze

This expansionary demand is colliding with acute supply constraints for prime space following several years of development slowdown. While named active demand stands at over 11 million sq ft (around 20% above the long-term average) availability fell by 3.1% last year. Vacancy rates for new, high-specification offices now stand at just 0.3% in the City Core and 0.8% in the West End Core.  

This tightening supply has triggered a sharp repricing of London’s best buildings with a record 170 deals completed last year at rents above £100 per sq ft. Prime rents in the West End Core surged 15.6% to a record £185 per sq ft. Likewise, prime rents in the City Core reached £102.50 per sq ft, a 7.9% annual increase.

To avoid being priced out or shut out of an undersupplied market, large occupiers are securing space years ahead of lease events. Between now and 2030, up to 50 million sq ft of London office leases are set to expire, intensifying competition in submarkets such as Marylebone, Soho and the City Core, all of which currently have less than 15 months of supply remaining.

This has fuelled a marked increase in pre-letting activity (securing space in buildings still under construction or off-plan with construction yet to commence). In 2025, 2.7 million sq ft was pre-let across 31 deals, with an average deal size of 86,000 sq ft, the highest since 2017. However, a third of occupiers that actively seek out new space will end up staying in their existing building, whether due to lack of choice, costs or economic volatility.

Re-gears now account for 39% of all London office transactions, with 1.7 million sq ft currently under negotiation. Larger occupiers are particularly inclined to remain in situ, with 46% of those requiring more than 100,000 sq ft now likely to stay put, reflecting the growing complexity and cost of relocating sizeable footprints. Looking ahead, supply constraints are set to reinforce this trend, with 65% of occupiers with lease expiries between now and 2030 expected to be limited by available space, making re-gears a lager feature of the market.

Since 2019, 36.1 million sq ft of new and refurbished take-up has outstripped completions of just 27.6 million sq ft, a structural imbalance that has driven vacancy for best-in-class buildings below 1%. This has propelled City rents up 41.4% and West End rents up 60.9% over the period.

Capital returns to unlock future supply

Against this backdrop, London's office investment market has turned a corner. Turnover increased by 45% to £9.3 billion in 2025, with Q4 alone accounting for £3.25 billion; the highest quarterly total for 13 quarters. There were 25 deals over £100 million, including eight above £250 million, compared with none in 2024.

Institutional investors returned decisively, representing almost 40% of all office transactions, 50% of £100m-plus deals, and 65% of £250m-plus transactions. Knight Frank has tracked a 25% increase in sovereign wealth capital targeting London offices for 2026, reflecting confidence in the city's occupational fundamentals.

This resurgence is critical. As rental growth begins to outpace construction cost inflation, development viability is improving, positioning investment capital as the key mechanism to alleviate supply constraints and support London's long-term competitiveness. Knight Frank expects London office investment volumes to surpass £12 billion in 2026.

Shabab Qadar, London Research Partner at Knight Frank, commented: "London's office story is now defined by the interaction of expansionary demand, constrained supply and returning capital. Investor appetite is strengthening precisely because occupier demand is durable and visible. That capital is essential in bringing forward the next generation of high-quality space. Without it, London risks constraining its own growth."

Key statistics:

• Total take-up: 1m sq ft across 1,400 deals in 2025 (strongest performance since the start of Covid)
• The expansion story: 70 of 98 major deals (over 20,000 sq ft) were expansions; only seven were contractions
• Positive net absorption: 9m sq ft (net increase in occupied floorspace from large corporate deals)
• The £100 club: A record 170 deals achieved rents above £100 per sq ft
• Record rents: £185 psf in the West End (+15.6%); £102.50 psf in the City (+7.9%)
• Critical supply: Vacancy for new space is below 1% in both the City and West End cores
• Pre-letting: 7m sq ft pre-let; average size 86,000 sq ft (highest since 2017, 28% above long-term average)
• Lease expiries: Up to 50m sq ft of London office leases expire by 2030, fuelling future demand

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