Central London office vacancy rates decline further as market recovery gains momentum in Q3 2024

• West End vacancy rates fall to their lowest level since 2020, with professional services driving take-up to 87% above the 10-year average.
• City vacancy rates see their largest decline in a year, fuelled by robust financial and professional sector leasing activity.
• European investors inject £482.2m into office deals, followed by Asian investors at £35m, indicating renewed confidence in Central London’s recovery.

New analysis from Avison Young reports that total Central London office take-up for Q3 2024 reached 3.2 million sq. ft, bringing vacancy rates down to 6.9%, a 0.2% decrease from the previous quarter, and closer to the 10-year average. The market also continued to see an uptick in investor activity, with European investors leading the improving sentiment in the market.

Financial services emerged as the leading tenant sector, with significant growth in leasing activity, accounting for 33.5% of the overall take-up. Professional services showed a boost in activity, accounting for 13.9%, with technology and creative sectors following at 8.8%.

City office take-up reached 1.0 million sq. ft, marking a 44% increase from the previous quarter and standing 15% above the 10-year average. The financial services sector was the primary driver of this demand, accounting for 45% of all take-up for the quarter, followed by professional services at 24% and business services at 6%. The vacancy rate saw its largest fall since the third quarter of 2023, from 10.4% to 7.2% in Q3 2024, showing a promising sign for future rental growth and a boost to market confidence. The City Core prime headline has increased by 3% to £82.50 sq. ft, after remaining unchanged for the previous two quarters. The largest deal of the quarter was Legal & General’s 179,000 sq. ft space at 25 Basinghall Street.

In the West End, take-up was 87% above the 10-year quarterly average in Q3 2024 at over 1.1 million sq. ft, with vacancy rates falling to 3.1%, its lowest level since 2020. The market has witnessed strong take-up with two deals in excess of 100,000 sq. ft, the first of this size since Q4 of 2022. The largest transactions included BDO Services’ lease of 220,000 sq. ft at 334-348 Oxford Street and Evercore Partner’s 132,000 sq. ft lease at 105 Victoria Street. Professional services sector was the most active source of leasing demand accounting for 33.3% of take-up, followed by financial services at 21.4% and technology and creative industries at 10.9%. The vacancy rate in the West End fell to 3.1% in Q3 2024, its lowest level since 2020. Prime headline rents in the core Mayfair were unchanged on the previous quarter at £160.00 per sq. ft.

London’s Midtown, encompassing the Chancery Lane and Bloomsbury sub-markets, reached 254,000 sq. ft, which was 39% higher than the previous quarter at 183,000 sq. ft, 52% above the 10-year quarterly average. The professional services sector was the most active during the quarter accounting for 26% of take-up, followed by consumer and private services at 20% and manufacturing and industry at 20%. The largest deal was by Il Bottaccio, taking 51,158 sq. ft at Judd Street in Camden, followed by a deal signed by Associated British Foods for 30,710 sq. ft at 1 Bayley Street. Midtown’s vacancy rate declined to 5%, down from 6.3% in the previous quarter. Prime headline rents in Bloomsbury increased by 10%, from £77.50 in Q2 to £85.00 in Q3, which is the highest achieved rent. Also, Chancery Lane witnessed a 7% increase in prime rent, reaching its peak at £82.50 per sq. ft in Q3.

Meanwhile, investment activity in London’s office market continued to remain cautious in Q3, with volumes at £564.85m. Among the largest investment deals were Oval Real Estate’s acquisition of 14 St George Street for £125m in August, and global investor YellowTree Real Estate’s purchase of 10 Back Hill for £101m in July.

Dominic Amey, Principal and Managing Director, London Markets at Avison Young, said: ‘’Falling vacancy rates, and take up across London being substantially above 10-year average, speaks volumes about the ongoing strength and attractiveness of London as a global business destination, and surely lays to rest any further debate about the future of offices.

“It’s clear to see that businesses want and value office space. We believe that Q4 will be an equally active quarter, resulting in a very positive year end take up figure. In contrast, London’s investment market has been remarkably quiet, with some of the lowest trading volumes on record. However, it’s evident that investor confidence is returning, and there is no doubt that trading volumes will improve through Q4, and that we will see a much more active 2025, buoyed by lower interest rates and the exceptional levels of tenant demand.’’