London Office Market Defies Construction Slump as Rents Soar

By the Editorial Team · Monday, July 27, 2026

The UK office construction sector has hit its lowest activity level in nearly 20 years, with under 4.5 million square feet begun in the year ending June 2026, largely due to rising costs and economic uncertainty. This slowdown has concentrated development in London, where high demand is pushing prime office rents sharply higher, while regional markets struggle with weaker demand and lower rents.

The United Kingdom’s office construction sector is experiencing its lowest level of activity in nearly two decades, as rising construction and financing costs continue to constrain new development. In the 12 months ending June 2026, just under 4.5 million square feet of office space began construction nationwide, according to data from real estate analytics firm CoStar. This figure represents only half the volume of office development seen following the global financial crisis and a sharp decline from the peak of nearly 24 million square feet started in 2007.

The reduction in office projects has been particularly pronounced outside London, with the capital now accounting for 73 percent of all office space under construction—a proportion CoStar described as among the highest recorded in at least 20 years. This reflects a shift away from regional towns and cities, where the market for new office space has weakened considerably.

Patrick Scanlon, senior director of analytics at CoStar, attributed the slowdown to a combination of ongoing economic uncertainty, elevated debt costs, and increased expenses for materials and labor. These pressures have also affected housebuilders, who have curtailed development plans amid stagnant house prices and squeezed profit margins. Broader industry indicators support this trend, with S&P Global’s UK construction purchasing managers’ index remaining near six-year lows and well below levels indicating growth.

Despite these challenges, there has been a notable rise in rental rates for newly constructed, high-specification offices, particularly in London. Companies are increasingly seeking premium workplaces in the capital, generating a shortage of prime office space that has driven rents upward. Knight Frank estimates that prime rents in the City of London have risen by 46 percent since 2020, while rents in the West End have grown by 68 percent over six years. Some new office buildings now command rents exceeding £100 per square foot annually, improving the commercial case for developers in London.

However, this trend is not mirrored across the UK’s regions, where rental rates remain significantly lower despite similar construction and financing costs. For instance, prime office rents in Manchester averaged around £45 per square foot last summer, according to Savills. This disparity raises concerns about the long-term viability of office developments outside London, an issue that may challenge efforts by figures such as Greater Manchester Mayor Andy Burnham, who has emphasized economic growth across all parts of the country.

Scanlon also noted that political uncertainty in the UK, coupled with unclear regional development strategies, has further dampened developers’ appetite for launching new projects, adding to the overall slowdown in office construction activity.

This article was reported by synthesizing coverage from multiple independent news outlets to present a balanced, unbiased account. Read about our editorial standards. Spotted an error? Let us know.