Why Now is a Prime Time to Invest in the UK Office Market

Despite 2023 marking a new low for London office investment values since 1995, demand for office space in 2024 has surged to a 10-year high, with companies seeking nearly 12 million square feet of new office space in the capital - a 34% increase on 2023. 

Coupled with recent reports of the UK retaining its spot among the top ten easiest countries for doing business, Savoy Stewart present findings on why now is an opportune moment for investors to consider venturing into the UK office market.

1. London’s Economy is Poised to Outpace Key Global Peers 

By 2030, Central London’s economic output is projected to surpass major global cities, including New York, Paris, Berlin, and Hong Kong. With forecasts indicating that the UK will experience a 1.9% rise in Gross Value Added (GVA) between 2024 and 2027 - the value generated by the production of goods and services - this economic expansion is expected to fuel job creation and attract further investment in the UK office market.

Having weathered numerous domestic and international shocks including Brexit, COVID-19, and the cost of living crisis, London’s economy has proved exceptionally resilient, underpinning its allure as a place for making connections and cementing its status as one of the few cities that can truly be called ‘global’.

2. Rising Rental Yields due to Supply and Demand Imbalance

Office occupancy levels in London have seen the highest jump among European peers as companies invest in high-quality spaces to encourage employees to return to the office. With increased demand for premium spaces in prime locations and a supply squeeze from a depleted development pipeline, competition for best-in-class buildings is intensifying. Currently, 37% of the space under construction, and due for completion in 2024 across UK office markets, has already been snapped up by occupiers. 

This scarcity is expected to drive rents upwards, giving investors the opportunity for lucrative returns. Hence, for investors seeking high income returns, the UK office market now offers an attractive prospect, with prime office assets projected to achieve annual total returns of up to 11% by 2028, and key regional markets like Bristol, Cambridge, Edinburgh, Oxford, and Manchester, anticipating annual gains of 7%.

3. Falling Interest Rates in the Second Half of 2024

The Bank of England is expected to reduce interest rates later this summer in response to cooling inflation, which means lower borrowing costs. This allows investors to finance properties more affordably, favouring investors who are looking to leverage capital to maximise property investments as returns on investment (ROI) increase. 

Besides, the UK’s office market has undergone a correction over the past few years, with prices and rents adjusting to new economic realities and work trends. Investors who act now can position themselves to reap significant rewards as the market recovers and fully rebounds.

4. Surge in Tech and Innovation Investments

Seeing over £2 billion invested in the UK by world-leading tech firms in May, attracting major AI firms like CoreWeave and Scale AI to establish their European headquarters in the capital, London has solidified its status as a prime hub for global technology and innovation. Over the past decade, London has outpaced all other global cities in attracting new international tech companies, with more than 1,700 tech foreign direct investment projects recorded since 2014. 

This trend persists despite global economic challenges, highlighting the city’s resilience and enduring appeal as a destination for international tech firms. As tech and AI sectors continue to flourish, the demand for office space is expected to rise, especially in areas close to talent and collaboration hubs. This upward trend in demand is expected to boost rents and occupancy rates, presenting an enticing investment opportunity in the UK office market.