AI leasing reinforces London's pull

The UK's annual rate of inflation picked up to 3.3% in March, up from 3% the previous month, driven largely by an uptick in the price of fuel due to the conflict in the Middle East. The rise was in line with economists' expectations, so is unlikely to have a meaningful impact on borrowing costs in the short term. 

The data only captures the early weeks of the conflict, which began on February 28th. Still, all 62 economists surveyed by Reuters during the six days to April 21st expect the Bank of England to hold the base rate at 3.75% next week. Around 53%, or 33 of 62, see it unchanged for the rest of the year. Fourteen expect at least one rate hike and 15 see one or more cuts.

Previous shocks

The major high street lenders have cut mortgage rates in the past fortnight, taking leading fixed rates to a little over 4.6%. That's still meaningfully higher than at the onset of the Middle East conflict, which has had a clear impact on sentiment, though the hit has been far smaller than previous shocks (see chart).

Asking prices for newly listed homes increased by 0.8% in April, according to Rightmove, which is surprising, though the rise was less than the 1.2% increase we typically see at this time of year.

Buyer demand was 7% lower than last year, while the top end – where buyers are discretionary are more likely to pay in cash – outperformed. For more housing market data, see our latest UK Residential Market Update, out this week.

Deep minds

London's claim to be Europe's dominant AI hub took a few leaps forward this month after Open AI and Anthropic signed substantial office leases in and around the Knowledge Quarter. 

British Land and Royal London Asset Management signed Anthropic for 158,000 sq ft at One Triton Square, the former confirmed in a trading update yesterday. That follows Open AI's decision to take 88,500 sq ft at Regent's Quarter. 

Both deals illustrate the draw of London and the power of clustering. Google DeepMind, Meta, Synthesia, Wayve and others are clustered around the Knowledge Quarter, which has become an AI hub. Venture capital firm Sequoia estimates that London is home to more than 20,000 engineers with some AI expertise, more than double any other European city.

The Triton Square lease is the sixth deal British Land has signed with Anthropic, "as our campus proposition supports their UK growth," the company said. Its London campus business signed 215 deals covering 1,692,000 sq ft during the financial year. Momentum accelerated in Q4 with 834,000 sq ft of deals (c.50% of the total by floor area), including Herbert Smith Freehills Kramer signing at Broadgate's latest development, 1 Appold Street, setting record rents for the campus.

The company raised its earnings guidance for both 2026 and 2027.

Challenges 

London's AI scene breathes rarefied air – the sector is awash with funding and firms are reportedly on the hunt for AI talent at salaries north of £600,000. Small and medium-sized companies by contrast face surging costs and are often at the sharp end of cost-cutting when geopolitical turbulence hits. 

Workspace, the London flexible workspace firm, said last week that a decrease in rent roll and reduction in pricing over the second half of the financial year would have a negative impact on the valuation of its property portfolio. It also issued guidance that full year 2026/27 trading profit would be a "step down" compared to FY 2025/26. 

The company plans to reposition its portfolio: "In doing so, we will own the value category and be the first-choice provider of space for the start-up, SME and scale-up market," said chief executive officer Charlie Green. "This will require investment in our portfolio and our scale will then give us the platform to create a significant market advantage in how we provide for our customers."

Elsewhere in trading updates: Crest Nicholson said yesterday it "is taking a more cautious view of sales rates for the remainder of the financial year," following the increase in mortgage rates since February. It cut its volume expectations to 1,400 to 1,500 units (previously 1,550 to 1,700 units). The shares fell 40%. 

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Inner London primary schools to be hit by 11% fall in pupils by 2030 (FT).