Knight Frank: £5 billion to be invested in London core offices

Middle Eastern investors will deploy around £2 billion in London’s office market this year to take advantage of lower prices,  strong rental growth and lower borrowing costs, according to a report by Knight Frank.

Global investors will be competing for the best Grade A assets: the KF report said that a total of £5 billion has been set aside by 80 investors from all over the world for core London offices, defined as large, ESG-compliant assets with long-term leases and modern workspaces. Core deals accounted for just £1 billion of London investment transactions in 2024.

“The market can only ignore for so long a severe occupational supply shortfall and rising rents on top of a major correction in prices, and we are now seeing that change,” said Nick Braybrook, head of London capital markets, Knight Frank. “The first month of this year has already seen two very substantial sovereign wealth fund investments into London offices.”

Cushman & Wakefield also reported that the first few weeks of 2025 have already seen a few  “landmark transactions”, a signal that global capital flows will be bringing much-needed liquidity to support the London office.

The shift that started during the Covid pandemic has consolidated into a trend: demand tends to focus on centrally located, high-quality, modern and green assets, while demand for older, less environmentally sound buildings has collapsed.

All-in borrowing costs for prime London assets are about 5.5%, down from a peak of 7% in 2022, making larger deals more attractive, Knight Frank said.

Over the past five years, 77% of London office occupiers vacated on expiry of their lease, compared with about 50% over the past 25 years, pointing to a transition to higher quality space, the report found.

“More businesses than ever before are looking to upgrade their corporate headquarters,” said Philip Hobley, head of London offices, Knight Frank. “The growing momentum behind office-first work policies is underpinning both investor and developer confidence.”