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A Tale of Two Cities: London’s Office Divide

3/3/2025

Rosie Hunt

Property Market Research

Ruben Bos

Head of Real Estate Investment Strategy

IN A NUTSHELL

Location matters more than ever: Occupiers are gravitating towards well-connected submarkets with strong amenities, reinforcing the critical role of location.
While asset quality remains key, submarket selection is paramount. Well-located assets, even if not considered ‘best-in-class’ should continue to thrive. In weaker location, however, even Grade A offices face challenges.
In prime areas, active asset management may help enhance long-term performance and targeted improvements can unlock significant value. Owners of poorly located assets may need to consider alternative uses or an exit strategy.

London Office Market: A leader or lagger?

The answer is both… dependent on where you’re looking. In our latest house view, DWS identified the London City submarket as the European office market expected to enjoy the strongest prime rent growth over the coming five years. Whilst this may appear upbeat for the UK capital, towards the very bottom of the pack sits London’s Docklands submarket.

Our latest rent growth forecasts highlight the widening divergence in performance that we expect to see across London’s office stock over the coming years. Whilst we only forecast the three main London markets of West End, City and Docklands, a deeper dive on London’s individual submarkets would likely show an even starker divergence.

Location, Location, Location

Competing with the ‘home office’, in order to entice staff back to the office, the post-Covid environment has seen companies prioritise central locations, well-connected to public transport links and rich in amenities and after-work entertainment. This trend has undoubtedly strengthened the traditional ‘core’ markets.

London’s City submarket is one such example and Property Market Analysis even went so far as to label the City occupier market as a ‘Boomtown’. It’s true that the demand dynamics have been remarkably strong in recent years, with office take up in 2024 running nearly 20% higher than pre-Covid averages. In addition, pre-letting is at an all-time high.^[1]As such, prime rents in the City core saw an increase of nearly 7% over 2024, to reach £85.40 psf (pound per square feet). Exceptional rents, exceeding over £100 psf, are becoming increasingly common in best-in-class stock and we anticipate this trend to persist, with such rents likely to be standard in prime buildings by 2028.^[2]

The City has benefitted to the detriment of Docklands (Canary Wharf). A number of high-profile occupiers, including HSBC and Clifford Chance, are relocating to the City, while others, such as Morgan Stanley and Barclays, are downsizing their office footprints. As a result, the Docklands is grappling with a vacancy rate of over 16% and rents have been trending down. Although there are plans to rejuvenate the area through a mixed-use development strategy, removing office stock in the process, we expect further challenges for the Docklands over the coming five years, with continued underperformance likely.

In the West End, rent growth has averaged 8% per annum over the last four years, driven by strong demand for limited Grade A space. Mayfair and St James, long valued for their prestigious postcodes, continue to attract private equity and hedge fund occupiers, willing to pay top rents despite prime rents now comfortably exceeding £140 psf. In Soho, less than nine months’ worth of supply^[2] and a subdued development pipeline should ensure prime rents continue their robust upward trajectory. Nearby Fitzrovia has also solidified its position as a highly desirable office location, offering a vibrant mixed-use environment, proximity to world-class retail, and relatively more affordable rents compared to other core West End submarkets.

Beyond the traditional core, newer office submarkets such as Kings Cross and Farringdon have emerged as notable success stories. In particular, these submarkets have benefitted from their appeal to the tech and creative sectors, with high-profile tenants like Google and Facebook taking space in Kings Cross. Prime rents in Farringdon have been bolstered by the enhanced connectivity provided by the Elizabeth Line. Both submarkets stand out for their strong transport links and vibrant mixed-use environments.

In contrast, Aldgate, a newer submarket in East London, has not experienced the same level of success in recent years. Despite more affordable rent levels, the lack of robust infrastructure and amenities has made the area less attractive to office occupiers. Demand has remained low since 2020, and Aldgate is currently struggling with a vacancy rate exceeding 20%. As a result, it is the only Central London submarket where rent levels have yet to surpass their pre-pandemic peak.^[1]

Lastly, the outer London office submarkets are also showing divergent trends. In Hammersmith, prime rents have fallen by over 5% since the beginning of 2020^[3] driven by a significant drop in office demand post-Covid and the relocation of key occupiers, leaving vacancy rates near 30%.^[1] Conversely, White City has seen a 5% increase in prime rents over the same period, bolstered by demand from the life sciences and education sectors given its proximity to Imperial College London.^[3]

A Tale of Two Cities: London’s Office Divide

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104648_1.0 (03/2025) (03/2026)

A Tale of Two Cities: London’s Office Divide

IN A NUTSHELL

London Office Market: A leader or lagger?

Location, Location, Location

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