London office occupancy costs, which include rent, business rates and service charge outgoings, have reached record highs, with new prime West End space now typically costing £262.50 per sq ft per annum. That’s according to the latest London Office Market report from national property consultancy Carter Jonas, which benchmarks occupancy costs for new and refurbished Grade A space over 5,000 sq ft. Occupancy costs, in the City of London’s prime core (Bank, Leadenhall Street), by comparison, are typically £143 per sq ft for new mid-rise space, reflecting the different rental costs and supply and demand dynamics in London’s financial district.
Headline rents in Mayfair and St James’s – the West End’s prime districts – are up 12.5% year-on-year and 63.64% over five years, underlining the strength of demand for new, well located, Grade A space. The report finds that constrained supply and strong pre-letting activity across the capital continue to squeeze choice, underpinning prime pricing.
Demand Drivers
The report identifies two key drivers behind the demand for Grade A floor space: growing business focus on sustainability performance alongside demand for high-quality spaces that promote the employee experience and support recruitment, retention and office attendance. Despite ongoing economic and geopolitical uncertainty, Carter Jonas’ latest research shows that occupier demand for new office space in Central London remains remarkably resilient.
Michael Pain, Head of Carter Jonas’ London Tenant Representation Team, comments: “The shortage of premium office space is being reinforced by a combination of tighter planning regulations, financing pressures and inflation in construction costs, which are all weighing on the rate of new development starts. A significant proportion of new developments have already been let before construction completes, creating a more competitive leasing environment, with occupiers engaging earlier to secure premium space.”
The Supply Pipeline
Carter Jonas’ latest analysis of the development pipeline indicates that supply-side constraints will persist until at least the beginning of the next decade. Based on current take-up trends, the firm expects no new Grade A floor space of scale to be available before Q3 2027, with availability likely to remain limited throughout 2028 and 2029.
Michael Pain added: “Perhaps unsurprisingly the imbalance of supply and demand continues to be seen in higher headline rents. At the same time, we’re seeing a two-tier market across the capital. In the most supply constrained districts, Mayfair and St James’s being good examples, rental growth is strongest, with landlords retaining pricing power, especially for best-in-class Grade A space. Meanwhile, we can expect incentives and discounts to widen for lower grade accommodation with poorer environmental credentials, reflecting weak demand in this market segment.”
For further information or to download The London Office Market Q1 Report in full click here
