Commercial Quarterly Examiner – office market update Q2 2026

Office attendance has stabilised at just over three days a week, concentrated Tuesday to Thursday, according to Remit Consulting. Return-to-office mandates have increased attendance but are unlikely to restore the five-day working week. Transport for London data corroborates this.

Weekday Zone 1 station footfall in Q2 2026 is 21% below Q2 2019 levels with Tuesdays, Wednesdays and Thursdays remaining the most popular days.

This is driving greater polarisation in the office market, with demand and investment favouring high-quality, well-located buildings that offer strong amenities and support modern working patterns, while secondary stock faces increasing obsolescence. Commute costs, transport reliability, childcare and workplace quality are also increasingly important influences on office attendance.

Ahead of its move into 90,000 sf at the Welcome Building at Temple Quay, Hargreaves Lansdown, is ordering employees back to the workplace three days a week. The new building will offer extensive communal amenity space, including cafés, collaboration areas and wellness facilities, creating a workplace better suited to hybrid working.

Nationwide, the underlying macro-economic drivers of office demand strengthened in Q2. Office based economic output increased by 0.58% in the second quarter having been effectively flat a quarter earlier. The annual rate of growth decreased to 0.95% from 1.02% in Q1 2026 reflecting a period of weakness at the end of last year and start of 2026.

Central London offices: Occupational view

• Grade A availability is tightening across Central London, with supply particularly constrained in the West End; the development pipeline offers limited relief in the near term.
• Demand remains concentrated on high-quality, well-located offices with strong amenities, supporting rental growth and giving landlords of “super-prime” buildings strong pricing power.

Conditions continue to improve for the Central London office occupational market. Central London office availability decreased for the third consecutive quarter in Q2 by -4.0% to 27.7 million sf which represents 20 months’ supply at the post-Covid average rate of take-up. The occupational market for “Grade A” space is tighter. Availability for the best office space decreased by -5.5% in Q2 to 5.2 million sf Docklands and Midtown both registered quarterly rises.

As occupational demand continues to focus on “high-quality, well-located buildings that offer strong amenities” the development pipeline is shrinking. Office developers have been under pressure from the rising costs of construction materials. Across the Central London office market, an average 859,000 sf of new space has been delivered every quarter over the last 10 years but in Q2 no development completions were recorded. New construction starts in Q2 amounted to just 93,000 sf compared to average starts of 828,000 sf over the last 10 years.

A slowing in the supply of new buildings is placing downward pressure on vacancy rates which have descended from their peak at the end of 2025.It is also likely that other consequences of the shrinking supply of new space are a reduction in leasing activity, increased competition for the right space and strengthening rents. Central London MRV growth amounted to 4.6% in the last 12-months with the City seeing a 3.6%increase in MRVs and West End rental values up5.2% over the same period.

A slowing in the supply of new buildings is placing downward pressure on vacancy rates which have descended from their peak at the end of 2025. It is also likely that other consequences of the shrinking supply of new space are a reduction in leasing activity, increased competition for the right space and strengthening rents. Central London MRV growth amounted to 4.6% in the last 12-months with the City seeing a 3.6% increase in MRVs and West End rental values up 5.2% over the same period.

All Central London office take-up remained relatively steady, at 3.1 million sf in Q2 compared to 3.1 million in Q1. Quarter-on quarter increases were limited to Docklands and Midtown.

Given the scarcity of supply and relatively strong demand for upper floors in newly completed buildings and towers in prime locations, landlords of these buildings have strong bargaining power. Premium rents are being paid for buildings in core locations. 8 Bishopsgate, EC2 was developed by Mitsubishi Estate London and Stanhope. It has 550,000 sf on 50-floor and facilities occupying 75,000 sf including an auditorium, meeting facilities, food and beverage space and The Lookout viewing gallery. In June US law firm King and Spalding, who already occupied Levels 27–31 and Level 41, took the final available floor on Level 47 on a 12-year lease at £155 psf.

Central London offices: Investment view

• Prime / Grade A offices are continuing to outperform secondary stock, with capital values supported by strong occupational demand, rental growth and more resilient investor appetite.
• Investor demand remains selective, with liquidity focused on prime assets and the West End continuing to outperform secondary stock and weaker City assets.

As the Central London office occupational market has improved the investment market has deteriorated, faced by geopolitical uncertainty, higher risk-free rates and an increased cost of debt. Although, capital growth decreased to 0.19% in Q2 from 0.46% in Q1, the West End office market is the only part of the capital’s office market that is benefitting from improving capital values. City office valuations fell for a fourth consecutive quarter and are down by 2.43% in the last 12 months.

Compared to older, poorer located secondary stock, Prime / Grade A offices are enjoying stronger levels of performance. MSCI’s analysis by yield quartile range, reveals that prime Central London office capital values have risen by 4.7% in the last 12 months whilst more secondary assets have suffered from declines in capital values of -9.5%.

As top rents in the West End surge past £200 psf and City tower floors let for £150 psf, Docklands is enjoying a resurgence in demand for available space in Canary Wharf’s towers at £50 – £60 psf. It is likely that this relative value was behind Barclays’ acquisition of its Canary Wharf headquarters, One Churchill Place, from Canary Wharf Group jointly owned by the Qatar Investment Authority and Brookfield Property Partners. The £750 million transaction is Europe’s largest office deal for almost four years.

A reduction in the number of overseas investors has reduced the turnover from investment sales arguably since the Brexit referendum in 2016. Central London office investment transactions numbered 56 in Q1, a decrease from 80 in Q4 2025, and the value of Q1’s transactions decreased by -53.6% from £2.842 billion in Q4 to £1.32 billion. Preliminary estimates suggest that the value of transactions in Q2 rose 18.7% to £1.57 billion in 48 transactions.

More recently, as global economic turbulence increases, Central London has re-emerged on the radar of overseas investors. In Q2, four transactions represented a combined FDI into the UK of £585.8 million providing evidence of the enduring attraction of prime West End office investments. 14 George Street, W1, a Grade A office building located north of Hanover Square near Bond Street’s Elizabeth line entrance, comprises 52,000 sf across four floors let to Antin Infrastructure Partners, Trafigura, Ellerman Investments, and Aleph Capital. It has recently been refurbished and upgraded to include an enhanced reception area and the mandatory end-of-journey facilities. In April, Oval Real Estate sold it to a private Singaporean investor represented by BNP Paribas Real Estate for approximately £173 million with a 3.4% NIY having previously acquired it from Chinese Estates in 2024 for £125.39m at a 4.12% NIY.

Rest of UK offices: Occupational view

• Supply is easing but remains elevated. Availability declined across both South East and Rest of UK markets in Q2, although overall supply still equates to around four years of average demand.
• Grade A and specialist space remains limited. Grade A vacancy is very low in key markets, while development activity is increasingly focused on science, R&D, life sciences and innovation-led accommodation.

Office availability in the South East decreased for the fourth consecutive quarter by -1.4% in Q2 and fell by -6.7% y-o-y, representing 41 months supply at the post-Covid average rate of take-up. Availability across all Rest of UK office markets outside London and the South East decreased for the second consecutive in Q2 by -1.1% and decreased by -0.6% year-on-year representing four years of supply.

South East Grade A availability increased by 3.0% in Q2 but has decreased by -40.0% y-o-y representing 20 months of supply. Rest of UK Grade A office availability decreased by -5.3% in Q2 and -18.0% y-on-y and there is now 26 months supply.

By the end of Q2 the vacancy rate across the UK’s largest regional office markets increased by 20 bps to 12.0% and ranged between 8.6% in Edinburgh and 14.3% in Bristol. However, the vacancy rate for Grade A space across all “Big 6” centres is 1.5%. Grade A vacancy rates across the key South Eastern centres are just 0.9%.

“Big 6” market rental value growth has increased to 4.5% in the year to June from 3.0% in the year to March. Birmingham has replaced Bristol as the strongest regional office market. Birmingham y-o-y rental growth has increased from 3.9% in March to 6.8% in June compared to 4.5% in Bristol. Y-on-y MRV growth is 3.8% in Leeds, 4.3% in Manchester but -1.3% in Glasgow. South East office market rental value growth has increased from 1.6%
y-o-y in Q1 2025 to 2.1% in Q2.

Major development proposals in Cambridge and Oxford emphasise the importance of specialist science and R&D accommodation within the South East development pipeline. In Cambridge, the Crown Estate plans to transform the 9.5-hectare Cambridge Business Park at Cowley Road into a major innovation campus providing up to 1.8m sf of office, laboratory and R&D space. In Oxford, redevelopment on the Innovation Park and the adjoining Science Park, will provide 287,000 sf of R&D, laboratory and office space.

At the end of Q2, the Big 6 development pipeline amounted to 1.8 million sf in 10 buildings. More than half of this new space will be in Manchester and here again the pipeline is becoming more diversified, with purpose-built R&D and life-science accommodation emerging alongside conventional Grade A offices.

Kadans Science Partners is developing Plus Ultra Manchester at 60 Upper Brook Street as the first 217,000 sf phase of a much larger c.490,000 sq ft campus. Construction started in November last year. It will provide 217,000 sq ft of laboratory and office space designed for life sciences, biotech, advanced materials, AI/data, quantum and other knowledge-intensive businesses. The larger science and innovation campus will eventually deliver over 490,000 sq ft of specialist laboratory and technical space. Kadans is a Dutch specialist real-estate investor, developer backed by AXA IM Alts/Real Assets, focused on science and innovation property providing laboratories, R&D facilities, clean rooms and associated offices.

Rest of UK offices: Investment market

• Returns are improving but still subdued. Regional office total returns strengthened year-on-year, but quarterly performance weakened as capital values continued to soften.
• Investor demand remains selective. Manchester continues to attract the largest share of regional office investment, while recent transactions highlight the extent of repricing across secondary regional assets.

Despite support from strengthening occupational markets, the average total return performance across all “Big 6” centres fell to 0.4% in Q2 from 1.2% in Q1 as capital growth slipped to -0.9% from -0.3% in Q1. “Big 6” office total returns for the year to June increased to 3.5% from 3.3% in the year to March and out-performing June’s All Office y-on-y performance of 2.3%.

Performance has weakened as investment volumes in the South East decreased in Q1 by -84% to £180 million after a strong end to 2025 saw transactions climb above one billion GBP. Preliminary estimates suggest that investment volumes in Q2 fell back by a further -2.0% to £175 million.

Although, the UK’s major regional office investment markets strengthened in the first quarter of the year when investment volumes increased by 63% to £420 million, preliminary estimates suggest that investment volumes Q2 shrank back by -65% to £147 million. Manchester was the destination for 33% of investment in the “Big 6” markets in Q1 as investors bought 16 assets worth £162 million and investment volumes reached £122 million in 13 transactions in Edinburgh.

Transactions in Q2 include the sale by receivers of Birmingham’s Lewis Building and Priory Court, which nicely illustrates the substantial repricing of regional office investments. The combined assets which have 254,000 sf of predominantly office accommodation that produces a yearly income of £7.0m secured against the Ministry of Justice and others, was previously acquired by Gulf Islamic Investments from Legal & General for £140m in 2019. After an earlier transaction at just below £70m fell through, it has now been reported that a sale to Martley Capital Group, a UK and European value-add and opportunistic real-estate investment manager founded by former members of the M7 Real Estate team, was finally completed at £60 million.

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