First Quarter 2026
KEY MARKET STATISTICS AT END OF Q1 2026
| Indicator | Q1 2026 Figure | Context |
| Central London take-up | 2.2m sq ft | Up 6% on Q1 2025; 1% above 10-yr average (Savills) |
| Central London vacancy rate | 7.4% | 110 bps above long-term average (Savills) |
| City vacancy rate | 7.0% | Only 10 bps above 10-yr average; City Core 6.0% |
| West End vacancy rate | 7.8% | Down 10 bps on Q4 2025; Mayfair 3.4% |
| City prime rent | £130.80 psf | Record high; up 40% on Q1 2025 (Savills) |
| City Grade A avg rent | £80.43 psf | Up 15% on Q1 2025 (Savills) |
| City tower vacancy rate | 2.9% | Prime towers at 0.9% (Savills) |
| New-build vacancy rate | 1.2% | Lowest in 5 years (JLL) |
| Central London investment | £9.5bn | +52% year-on-year (JLL) |
| Prime investment yield | c.5.75% | Stabilised; improved pricing confidence |
| Pipeline pre-let (2026–2029) | 21% | 4% below typical pre-let level at this stage |
| Refurb share of pipeline | 70% by number | 78% by sq ft (Savills) |
| Flexible workspace share | c.10% of total stock | Up from 6% in 2019 (Langham Estate) |
1. MACROECONOMIC AND MARKET CONTEXT
1.1 Economic Background
The Central London office market entered Q1 2026 in a position of cautious resilience, underpinned by structural supply constraints and sustained demand from large occupiers, against a backdrop of renewed macroeconomic uncertainty. At the start of the year, conditions appeared broadly supportive for the occupier and investment community: US trade policy showed greater clarity, inflation had moderated, market expectations pointed to further reductions in the Bank of England base rate, and business confidence was tentatively improving.
This benign outlook was disrupted in late February 2026 when the United States commenced military action against Iran, with the Iranian regime subsequently blockading the Strait of Hormuz. This closure of one of the world’s most strategically important maritime trade routes triggered a sharp rise in energy prices, with Brent crude oil reaching approximately USD 118 per barrel by the end of Q1 (representing a quarterly increase of approximately 91.5%), before easing to approximately USD 95 per barrel following the announcement of a ceasefire in late March. The oil price shock re-introduced the spectre of inflationary pressure and the possibility of a reversal in the prevailing rate-cutting cycle, creating renewed uncertainty for businesses and investors.
Commentators from Carter Jonas and other leading agents note that, while the energy price shock is a material headwind, the global economy is substantially better equipped to absorb oil price volatility than in the comparable episodes of 1973 and 1979. Oil production is now geographically diversified, with the United States, Russia, China, Norway and Brazil collectively reducing the Organisation of Arab Petroleum Exporting Countries’ historic pricing power. Demand for oil as an energy source has also structurally declined as the energy transition gathers pace. Central banks are also now more experienced in deploying the policy tools required to prevent inflationary shocks from becoming entrenched. The consensus view among market participants, as at the end of Q1 2026, is that the geopolitical disruption is likely to represent a short-term phenomenon, provided that the ceasefire produces a lasting peace settlement.
1.2 London’s Structural Resilience
Notwithstanding the geopolitical turbulence, London’s office market demonstrated its characteristic resilience during Q1 2026, underpinned by its status as a pre-eminent global hub for financial services, professional services, technology and artificial intelligence. Investment in London’s artificial intelligence sector continued to attract major commitments during the quarter: a notable pre-letting agreement was reached by AI data platform provider Databricks, which committed to the entirety of Derwent’s 136,000 sq ft Network building in Fitzrovia — representing a three-fold expansion of the company’s London office footprint and a commensurate increase in its London headcount. This transaction exemplifies the continued appetite of global technology leaders for high-quality, well-located London office space, notwithstanding the prevailing uncertainty.
The structural attractiveness of London as an office market rests on several self-reinforcing factors: the depth and liquidity of the leasing and investment markets; the availability of world-class professional talent; the concentration of complementary financial, legal, technology and advisory services; the strength of the higher education sector; and the city’s time zone advantage, which enables it to serve as a bridge between North American and Asian markets. These characteristics continue to attract corporate real estate commitments from international occupiers at a time of globally elevated risk.
2. OCCUPATIONAL MARKET: TAKE-UP AND DEMAND
2.1 Overall Take-Up
Central London leasing activity totalled 2.2 million sq ft across 152 transactions during Q1 2026. This represented an increase of 6% on the equivalent period in 2025 and was 1% above the 10-year long-term average, according to Savills research. Both the City and West End sub-markets recorded activity above their respective ‘new normal’ demand baselines, with City take-up 4% above the 10-year average.
The headline take-up figure masks a pronounced bifurcation in the market between large and small transactions. Larger occupiers — typically those seeking in excess of 10,000 sq ft — maintained high levels of confidence and decision-making activity during the quarter. Sub-10,000 sq ft transactions, by contrast, were down 25% on the Q1 average, marking the lowest level since 2021. The decline was even more pronounced in the sub-5,000 sq ft size band. This divergence reflects the greater sensitivity of smaller businesses and SMEs to macroeconomic uncertainty, particularly in the context of the renewed inflationary risks presented by the Middle East conflict.
2.2 Sectoral Composition
The Technology and Media sector was the largest contributor to Q1 take-up, but demonstrated notable caution at the smaller end of the market: the number of sub-10,000 sq ft transactions in this sector was approximately half the level typically recorded in Q1, suggesting that technology SMEs are adopting a ‘wait and see’ approach to real estate commitment while the macroeconomic picture remains uncertain. This caution was largely absent from their larger counterparts in the same sector, whose commitment activity — exemplified by the Databricks pre-let — remained robust.
The Insurance and Financial Services sector accounted for approximately 21% of total take-up across 35 transactions during the quarter. In contrast to the Technology and Media sector, Financial Services occupiers demonstrated greater resilience at the smaller end of the market, with sub-10,000 sq ft activity holding up better than the wider market trend. The sector’s strong preference for best-in-class space was evident, with 99% of Financial Services take-up comprising Grade A accommodation. The sector’s average achieved rent of approximately £94.25 per sq ft represented a 13% premium to the overall market average, reflecting its strong weighting toward premium and trophy buildings.
2.3 Flight to Quality
The dominant structural theme in the London office market throughout 2025 and into Q1 2026 has been an unambiguous and continuing ‘flight to quality’. Occupiers across sectors have demonstrated a consistent and growing preference for the best-quality, best-located, best-specified and most sustainable office accommodation, with correspondingly weaker demand for older, secondary and poorly-serviced stock.
According to Savills data, Grade A space accounted for approximately 99% of Financial Services sector take-up in Q1 2026. More broadly, the quality bias has been a consistent feature of the Central London market since the reopening of offices following the COVID-19 pandemic, as occupiers have sought to use office quality as a tool for attracting and retaining talent, reinforcing corporate culture, and demonstrating their environmental and social governance commitments. This dynamic has been amplified by the post-pandemic shift toward hybrid working, which has caused many occupiers to reduce their overall footprint whilst simultaneously increasing their per-capita investment in office quality.
The consequence is a structurally two-speed market, in which prime and Grade A space commands strong demand, rising rents and low vacancy, whilst secondary and older Grade B and Grade C space faces weak absorption, elevated void periods and value erosion. This bifurcation is expected to persist and deepen through the remainder of 2026 and beyond.
2.4 Early Commitment Behaviour
The constrained supply of high-quality, future-ready office accommodation has materially altered occupier decision-making timescales. In 2025, occupiers with requirements for more than 100,000 sq ft committed to new space an average of just over four years ahead of their lease expiry date, compared with under three years in 2022. This acceleration in pre-commitment reflects not expansionary appetite but a rational response to diminishing choice: the most desirable buildings are now letting up years before completion, and occupiers who delay risk being unable to secure operationally suitable space within their budget.
This trend is particularly pronounced in the West End sub-markets. In Mayfair, for example, more than half (54%) of space due for delivery by the end of 2027 is already pre-let, and the available supply represents approximately just 12 months of demand at average take-up levels. Occupiers and their advisers who are active in this segment of the market must therefore plan and act with significantly greater urgency than was the norm in the period before 2022.
3. SUPPLY, VACANCY AND THE DEVELOPMENT PIPELINE
3.1 Overall Supply and Vacancy
Total available supply across Central London at the end of Q1 2026 stood at approximately 19.1 million sq ft, equating to an overall vacancy rate of 7.4% — 110 basis points above the long-term average. Despite 1.3 million sq ft of speculative completions being added to supply during the quarter, headline vacancy remained broadly stable, reflecting continued absorption of newly-delivered space. However, these aggregate figures require careful disaggregation by quality and location to understand the true state of supply.
The City of London sub-market ended Q1 with supply of approximately 9.8 million sq ft and a vacancy rate of 7.0% — only 10 basis points above the 10-year long-term average, and broadly unchanged from Q4 2025. The West End vacancy rate contracted by 10 basis points during the quarter to 7.8%, notwithstanding the addition of speculative completions, as robust leasing activity absorbed new space. These overall rates, however, conceal very significant variations at the sub-market level.
3.2 Core vs. Fringe Divergence
The preference for core, well-connected locations is clearly evidenced in vacancy data at the sub-market level. In the City, the Core vacancy rate stood at 6.0% at the end of Q1, which is 210 basis points below the 10-year long-term average, reflecting the sustained absorption of high-quality stock in the most sought-after buildings and locations. Prime City towers exhibited an even tighter vacancy position, with an average tower vacancy rate of 2.9% and a prime tower vacancy rate of just 0.9%.
The City Fringe, by contrast, recorded a vacancy rate of 7.9%, which is 140 basis points above its long-term average, illustrating the relative softness of demand for fringe office locations, particularly for older and secondary stock. In the West End, the most undersupplied sub-market is Mayfair, where the vacancy rate contracted by a further 50 basis points during Q1 2026 to reach 3.4% — the tightest of all West End sub-markets and 100 basis points below the 10-year average. Only 12 months of supply remains available at current demand rates in Mayfair.
Across Central London, the new-build vacancy rate reached a five-year low of 1.2% at the end of Q1 2026, according to JLL research. This figure encapsulates the acute shortage of brand new, high-quality, immediately available office space across the market, which is one of the primary drivers of both rental growth and pre-letting activity.
3.3 The Development Pipeline
The supply-side constraints described above are structurally rooted in a development pipeline that is insufficient to meet the market’s long-term demand for high-quality space. As at the end of Q1 2026, there was approximately 14.16 million sq ft of space under construction across Central London, according to JLL. However, approximately 35% of this space has already been pre-let, and for larger schemes due for delivery between 2026 and 2029, the pre-let proportion is even higher in core locations.
CBRE research notes that, across all UK office markets tracked, there is only approximately 1.3 years of supply currently under construction relative to annual average take-up of development space. The pipeline is expected to lease at a faster rate than new construction commences, meaning that the current undersupply of Grade A office space is likely to compound through 2026 and beyond. Higher financing and construction costs, tighter planning regulations — which now require developers to justify demolition rather than simply implementing it — and elevated development risk are all constraining the appetite of developers to commence new speculative schemes, particularly in the secondary locations where development economics are most challenging.
There has been a notable and accelerating shift toward refurbishment rather than new build. Comprehensive refurbishments accounted for 70% of the number of schemes set for delivery over the next four years and 78% by floor area, representing a 5 percentage point increase on the equivalent measure at end of Q1 2025. This shift reflects both the planning environment (which favours retention and reuse over demolition) and the economics of refurbishment, which can deliver high-quality, sustainable accommodation at lower capital cost and with a shorter programme than a new build. Retrofitted and refurbished assets are increasingly found to outperform traditional new builds in both lease-up speed and investment returns, as occupiers prioritise environmental credentials and character spaces over standardised new construction.
In total, 21% of the development pipeline scheduled for 2026-2029 has been pre-let at Q1 2026, which is 4% below the level at which pipeline space has typically been pre-let at an equivalent stage in previous four-year outlooks. This reflects the more cautious mood among large occupiers in the face of macroeconomic uncertainty rather than any structural weakness in demand.
4. RENTAL TRENDS
4.1 City of London
Q1 2026 was another quarter of exceptional rental growth in the City of London, driven by sustained demand concentration in trophy and best-in-class buildings and the acute shortage of available prime space. The City prime rent rose to £130.80 per sq ft at the end of Q1, representing a record high for the market and a 40% increase on Q1 2025. The quarter saw a 24% sequential increase from the previous record of £105.26 per sq ft set in Q4 2025.
The highest rent achieved during the quarter was at 1 Leadenhall, EC3, where a top-of-market transaction surpassed the previous record set last quarter at 8 Bishopsgate, EC2 (where Proskauer Rose expanded into the 46th floor on a 13-year lease at £145 per sq ft). These exceptional rents reflect the very significant premium that well-capitalised, quality-focused occupiers are willing to pay for space in the most prestigious, highly amenitised and sustainability-accredited tower buildings at the very top of the market. They should not be taken as indicative of the general City market, but they do exert upward influence on Grade A average rents.
The City Grade A average rent reached £80.43 per sq ft at the end of Q1, representing a year-on-year increase of 15%. Excluding the distorting effect of trophy transactions in the prime towers, average prime rents in the City grew at approximately 6.3%, largely driven by record rents achieved in the high-demand sub-markets of Covent Garden and Soho. CBRE’s forecasts indicate annual average prime rental growth of approximately 3.9% per annum in the City over the 2026-2029 period, with City Core prime rents potentially reaching £93 per sq ft by end of 2026.
4.2 West End
The West End office market continued to command record pricing in Q1 2026, particularly in core locations. Prime West End rents in the most sought-after locations — Mayfair, St James’s and prime Soho — have exceeded £150 per sq ft in recent transactions. The Mayfair vacancy rate of 3.4% (with more than half of the 2027 pipeline pre-let) provides a structural underpinning for further rental growth in this premium sub-market. CBRE’s forecasts suggest West End core prime rents could reach £200 per sq ft by end of 2026.
Across the broader West End, the vacancy rate contracted to 7.8%, with just three schemes totalling 303,000 sq ft completing in Q1 — less than half the delivery volume seen in the same period of 2025. This sharp reduction in new supply is likely to intensify upward pressure on rents for available quality space in the medium term.
4.3 Incentives
An important nuance in the rental picture is the role of incentives. Headline rents — the face rent agreed in the lease — have risen substantially, but the ‘effective’ or ‘net’ rent received by landlords, after allowing for rent-free periods and landlord capital contributions for tenant fitting-out, provides a more accurate measure of the true cost of occupation.
In a climate of renewed macroeconomic uncertainty, there is an expectation among commentators — including Carter Jonas — that landlords are more likely to reflect any softening in demand through the extension of rent-free periods than through reductions in headline rents. Asset values are fundamentally influenced by the headline rent achieved on recent lettings, and landlords have a strong incentive to protect these benchmarks. This pattern was observed in both the 2008-09 global financial crisis and the 2020-21 COVID pandemic, and market intelligence suggests it is likely to be repeated in the current environment. For valuation purposes, it is the effective rent — properly adjusted for the market-standard incentive package — that represents the true market rental value, and the appropriate incentive package must be carefully assessed from comparable evidence.
4.4 The 2026 Business Rates Revaluation
The Valuation Office Agency published new rateable values for commercial properties in England and Wales in November 2025, which came into effect on 1 April 2026 under the new 2026 rating list. During the Autumn Budget, the Chancellor announced a new tiered system of business rates multipliers to accompany the revaluation. The revaluation has increased rateable values for many prime office buildings in high-demand locations such as Mayfair and St James’s, reflecting strong rental growth since the 2021 revaluation date. However, the level at which multipliers have been set has resulted in rates increases in some parts of the London office market that have not been as high as some occupiers and advisers had feared, according to Carter Jonas. Transitional relief arrangements are also available to phase in increases for those facing the largest uplifts. For occupiers in core Central London locations, the business rates liability now represents a very significant component of total occupational cost, and must be carefully assessed in any valuation analysis.
5. INVESTMENT MARKET
5.1 Transaction Volumes and Yields
Central London office investment activity showed a significant recovery in Q1 2026, with JLL reporting investment volumes of approximately £9.5 billion for the quarter, representing a year-on-year increase of 52%. This marked acceleration in investment activity reflects the improved pricing confidence that has accompanied the stabilisation of prime yields, the gradual reduction in the cost of debt finance over the course of 2025, and a renewed appetite among both domestic institutional investors and cross-border capital for London’s structural attributes.
Prime Central London office yields stabilised at approximately 5.75% during Q1 2026, according to Langham Estate and related market commentary. This stabilisation, following the yield expansion of 2022-2023 driven by rapid interest rate rises, has been a key catalyst in reviving transaction activity. The prospect of further reductions in the Bank of England base rate during 2026 — albeit now subject to greater uncertainty following the inflationary implications of the Middle East conflict — provided additional support to investment sentiment.
5.2 Investor Selectivity
Despite the strong headline volumes, investor capital remains highly selective. Active investors are concentrating their allocations on assets that combine three key characteristics: strong, demonstrable leasing performance with high-quality income; clear ESG credentials and a credible pathway to net-zero carbon operation; and visible repositioning or asset management potential. Buildings that struggle to attract quality occupiers, lack energy performance credentials, or require speculative capital expenditure without a credible business plan are finding materially more limited liquidity and are transacting, where deals occur at all, at significant discounts to prime market yields.
The two-speed nature of the investment market therefore mirrors the bifurcation in the occupational market: prime, well-let, sustainable assets command fine pricing and benefit from competitive investor interest, while secondary and transitional assets face a more challenging environment, with a wider bid-ask spread and a more limited pool of potential purchasers.
6. FLEXIBLE AND MANAGED WORKSPACE
6.1 Growth and Market Share
The flexible and managed office sector has continued to grow its share of the total Central London office stock, reaching approximately 10% of total stock by late 2025, up from approximately 6% in 2019. This growth reflects the structural increase in demand for flexible, non-committal workspace from occupiers across a wide range of sizes and sectors, particularly in the context of ongoing uncertainty about long-term space requirements and the persistence of hybrid working patterns.
In the near term, the uncertainty created by the Middle East conflict and the renewed inflationary environment is expected to further boost demand for flexible and managed workspace from smaller businesses — particularly those with fewer than 50 employees — who are adopting a ‘wait and see’ approach before committing to conventional longer-term leases. This dynamic has been a consistent feature of periods of elevated uncertainty in the London office market, as occupiers seek to preserve optionality at the cost of paying a premium over conventional lease rents.
6.2 Role Within the Broader Market
Research and commentary from Langham Estate and others makes clear that flexible workspace has now settled into a defined and structural role within the Central London office market. Rather than displacing or disrupting the conventional leased office sector, flexible workspace is increasingly deployed by occupiers as a complement to their core conventional leased footprint: it is used to manage growth, accommodate overflow capacity, house satellite teams, and provide operational flexibility alongside longer-term conventional commitments. This integration of flexible and conventional space within a single occupier’s portfolio strategy is expected to remain a defining feature of the market.
For valuation purposes, it is important to note the fundamental distinction between managed workspace occupation agreements — such as the Workspace Group agreement that is the subject of this report — and conventional FRI leases. The rent payable under a managed workspace agreement is an all-inclusive figure that incorporates a material services premium over and above the underlying rack rent for the accommodation. Any analysis of managed workspace rents as evidence of open market rental value for conventional leased offices requires careful adjustment to strip out the services component, and should not be undertaken without a thorough understanding of the specific services included within the managed rent.
7. SOUTH LONDON AND THE LAMBETH OFFICE MARKET
7.1 Positioning Within the Wider Market
The Oval, Kennington and Vauxhall sub-market, within the London Borough of Lambeth, occupies a distinct position in the London office market. It sits immediately adjacent to the Central London market but outside the boundaries of what is conventionally categorised as Central London for the purposes of major agency research reports, which typically focus on the City, West End, Midtown, Southbank and Docklands. Occupiers and investors active in the Lambeth market therefore benefit from a materially different cost base relative to the core Central London sub-markets, combined with strong transport connectivity to those centres.
The Oval and Kennington area is particularly well served by the Northern Line (Oval and Kennington stations), which provides rapid and direct access to the City, Waterloo, London Bridge and the West End. It is also accessible from Vauxhall, which offers Victoria Line services and National Rail connections to South West London and Surrey. This combination of accessibility and relative affordability has made the area increasingly attractive to technology companies, professional services businesses, creative sector occupiers and other SMEs that require Central London connectivity but cannot justify — or choose not to pay — the premium associated with core City or West End accommodation.
7.2 Supply and Character of the Local Market
The South London and Lambeth office market is characterised predominantly by managed and flexible workspace operators, business centres and converted industrial buildings, rather than the institutional Grade A office towers that define the core City and West End markets. The dominant managed workspace operator in the Oval and Kennington sub-market is Workspace Group PLC, whose Kennington Park Business Centre on Brixton Road is by far the largest and most prominent managed office campus in the immediate area, providing office, studio and workshop accommodation across eleven buildings totalling a substantial quantum of space.
The local market also includes a number of smaller managed and flexible workspace operators, as well as a supply of conventional leased office space in refurbished commercial buildings. Overall supply of both managed and conventional leased office space in the immediate Oval/Kennington/Vauxhall area is limited, as the district has not historically attracted the volumes of speculative office development that have been seen in core Central London locations. This constrained supply base, combined with growing occupier demand from the technology and professional services sectors, has supported rental growth in the managed workspace sector in the area over recent years.
7.3 Rental Levels
Rental evidence for managed and serviced office space in the Oval, Kennington and Vauxhall sub-market reflects the all-inclusive nature of the managed workspace offer. Headline rents for managed workspace in the sub-market — incorporating building management, services, common parts maintenance and utilities such as gas — are significantly higher on an apparent gross basis than the equivalent conventional office rent, precisely because they bundle in the services component. Workspace Group’s Kennington Park operations provide the primary benchmark for the managed workspace market in the sub-market, and the rents achievable at that campus reflect both the quality of the campus and its management, and the relative premium that the market places on flexibility and convenience relative to conventional leased space.
For conventional office rents in the broader South London and inner-London fringe market, the Carter Jonas Q1 2026 research provides useful guidance. The sub-markets of Southwark, South Bank and Elephant and Castle (which are closer to the Central London core than the Oval sub-market) command prime rents in the range of approximately £55-£75 per sq ft for the best-quality refurbished space, with significant discounts applying to secondary and older stock. The Oval, Kennington and Vauxhall sub-market would typically trade at a discount to the Southwark/South Bank market, reflecting its more peripheral location relative to the City and Waterloo cores. Effective rents, after accounting for rent-free periods and incentive packages, represent the appropriate benchmark for valuation purposes.
8. SUSTAINABILITY AND ESG
Environmental, Social and Governance (ESG) considerations have moved from being a value-enhancing premium feature to a prerequisite for competitiveness in the London office market. In both the occupational and investment markets, sustainability credentials — particularly energy performance, carbon emissions, BREEAM ratings, EPC ratings and WELL certifications — are now essential rather than discretionary attributes of a marketable building.
In the occupational market, occupiers are increasingly required by their own corporate sustainability strategies, and in some cases by regulatory obligations, to demonstrate that their office accommodation meets minimum environmental standards. The Minimum Energy Efficiency Standards (MEES) regulations, which require a minimum EPC rating of E for commercial lettings in England and Wales (with proposed future tightening to B by 2030 under current government proposals), are creating a regulatory pressure point for owners of older, less energy-efficient buildings. Assets with poor energy performance face rising friction in the leasing process and a shrinking pool of potential occupiers.
In the investment market, lender scrutiny of energy performance has increased substantially, with many institutional lenders imposing minimum EPC standards as conditions of financing. Assets that cannot demonstrate a credible and costed route to compliance with the anticipated 2030 minimum standards are increasingly difficult to finance and are consequently commanding lower prices and higher yields than comparable assets with strong sustainability credentials. The consequence is a growing ‘brown discount’ for energy-inefficient stock and a corresponding ‘green premium’ for high-performing buildings. This dynamic is expected to intensify over the remainder of 2026 as the 2030 MEES deadline draws closer.
9. OUTLOOK AND IMPLICATIONS FOR VALUATION
9.1 Market Outlook
The Central London office market is expected to maintain broadly positive fundamentals through the remainder of 2026, underpinned by structural supply constraints, continuing occupier demand for quality space, and improving investment conditions, subject to the resolution of the Middle East conflict and the extent to which the associated energy price shock translates into sustained inflationary pressure.
CBRE’s UK Office Outlook for 2026 forecasts take-up at broadly similar levels to 2025, with risks weighted to the downside given the macroeconomic uncertainty. Prime rents are forecast to grow further, driven by supply constraints: the City Core could see prime rents reach £93 per sq ft by end 2026, while West End Core prime rents could reach £200 per sq ft. Annual average prime rental growth of approximately 3.9% per annum is forecast in the City over the 2026-2029 period.
The shift in demand toward peripheral areas with good-quality managed or refurbished space is expected to gain momentum as Grade A availability in core Central London locations remains critically low. This is likely to benefit well-managed and well-located business campuses in inner London fringe locations, such as the Oval/Kennington/Vauxhall sub-market, as cost-conscious occupiers balance the desire for quality and connectivity against the premium of core Central London rents.
9.2 Implications for Valuation
For the purposes of any RICS valuation of office accommodation in London at Q1 2026, the following key observations are drawn from this market commentary:
- Quality polarity: The market reward for best-in-class, Grade A, sustainability-accredited and amenity-rich accommodation is now very pronounced. Valuations must carefully differentiate between prime, good secondary and secondary accommodation, as the spread between these tiers has widened materially.
- Managed workspace premium: All-inclusive managed workspace rents are not directly comparable with conventional rack rents. An adjustment to strip out the services element is required before managed workspace evidence can be used in the valuation of conventionally leased space, and vice versa.
- Incentives: Headline rents have risen strongly, but the effective rent — after deducting the value of rent-free periods and landlord contributions — is the appropriate measure of market rental value. In conditions of uncertainty, landlords are more likely to maintain headline rents by extending rent-free periods than by reducing face rents.
- Investment yields: Prime Central London office yields have stabilised at approximately 5.75%, but secondary assets face a meaningfully wider yield, reflecting weaker occupier demand, higher void risk and sustainability concerns. Any yield adopted in a valuation must be rigorously justified by reference to current comparable investment transactions.
- Void periods: The appropriate void period assumption in any valuation must reflect the specific asset’s quality, location and specification. In a two-speed market, the void periods for prime and secondary stock have diverged significantly.
- ESG and energy performance: EPC ratings and sustainability credentials now materially affect marketability, tenant demand and investment liquidity. Assets below current or forthcoming MEES standards may require an explicit deduction to reflect regulatory risk and remediation costs.
- Business rates: The 2026 rating revaluation has produced a new rateable value baseline effective from 1 April 2026, which should be reflected in all valuations. The actual rates liability for any specific property should be verified with the VOA.
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