Chapter 5

Offices

UK Real Estate Market Outlook Mid-Year Review 2025

5 Minute Read

January 2025 Forecast

Prime rental growth

The limited supply for Grade A offices driven by a constrained pipeline and high demand from occupiers is expected to put pressure on prime rents in 2025. We are forecasting prime rental growth in all markets, with London's City sub-market seeing the largest increase in 2025. We expect other factors like public transport and amenities to continue to influence which buildings experience exceptional rental growth.

Mid-year review

Prime rents increased in the first half of 2025 across Central London, with all the five main submarkets seeing an upward movement in rents. Some markets across the South East and regional cities also saw rental growth during H1.
The pipeline remains constrained with lack of availability of high quality stock. Markets with good transport links and amenities are expected to see consistent growth throughout the year.
Prime rental values are projected to increase across all the UK markets tracked by CBRE in 2025. The highest growth for Central London is expected in the West End, followed by the City, with Birmingham and Glasgow expected to take the lead in the regional markets.

January 2025 Forecast

Flex market

The flex office market saw growth and demand diversified across the UK in 2024, leading to strong take-up for serviced offices. We expect a continuation of the same trends throughout 2025, with a further diversification in the pool of occupiers driven by several factors. This includes flexible offices as a solution to short-notice, temporary, or uncertain demand.

Mid-year review

Office take-up by flex operators has been muted in the first quarter of 2025. Nonetheless, we continue to see demand from different occupiers seeking flex space in the UK, and particularly across London. We expect corporate occupiers plan to expand their use of flexible space through the year, likely boosting leasing activity within the flex market.
In regional cities, landlords have started to bring forward their own flex products and are able to deliver a high-quality product at a lower cost than flex operators. We expect this trend to continue throughout the rest of the year.

January 2025 Forecast

Larger lot sizes and overseas investment

There was a return of larger lot-size deals transacting in the second half of 2024. We expect this trend to continue in 2025, as this activity continued into the start of this year and several larger deals across the UK were already secured by January. We also expect to see a mix of European funds, domestic funds, and well-capitalised global family offices to form the buyer pool in 2025 because of an increase in liquidity and greater price discovery expected through the year.

Mid-year review

In Central London, 11 deals over £100m have transacted in the first half of the year, exactly the same number as full-year 2024. London's City submarket in particular has seen significantly more investment activity for larger lot sizes in the year-to-date; so far, there have been six transactions larger than £100m this year (compared to zero in 2024).
We have also seen the return of overseas buyers to the UK office market, accounting for 59% of year-to-date investment volumes as compared to only 36% in 2024.
With the BoE’s first interest rate cut in February and second in May, there is more liquidity in the market, making conditions favourable for investment. Additional interest rate cuts projected for year-end would reduce the cost of debt even further. Consequently, we expect investment volumes in 2025 to be stronger than the previous two years but still remain below the trend level.