As we look ahead to 2025, we explore the key trends influencing the commercial office market across the UK’s six major cities; Manchester, Birmingham, Leeds, Bristol, Edinburgh, and Glasgow.
In this piece we’ll cover:
- The Flight to Quality: The growing demand for prime, ESG-compliant office spaces.
- Rising Rental Growth: How rental rates are expected to surge, especially for top-tier properties.
- Strategic Investment Opportunities: Insights into how overseas investors and changing market dynamics are creating new potential.
- Employment-Driven Demand: How increasing office-based employment is fuelling the need for additional space.
Development Management has a critical role in navigating these trends. From financial appraisals and ESG integration to project delivery, it ensures that your investments are aligned with market demands and deliver long-term value.
So, let’s look back at what happened in 2024 and some of the crucial trends facing the commercial office market as we move into 2025.
2024 Investment Dynamics and a look ahead to 2025
- Q3 2024 saw £1.02 billion invested in UK offices, nearly double the previous quarter’s total, indicating improving investor sentiment.
- Total investment for the first three quarters reached £2.1 billion, which is 7% above the same period in 2023, though still 50% below the five-year average.
- Office take-up in the big six regional cities has shown significant improvement, with H1 2024 figures 10% above H1 2023 levels.
- This increased leasing activity and limited pipeline is putting pressure on existing supply, driving rental growth for both prime and standard Grade A space.
Key Investment Trends from 2024
- Overseas investors are particularly active, accounting for 44% of investment volumes in 2024.
- There was a clear “bifurcation” in the market, with investors strongly favouring:
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- Best-in-class office spaces
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- Buildings with high ESG ratings primarily shown by accreditations such as BREEAM (Outstanding rating), NABERS (5 stars minimum), ActiveScore, Wired Score and WELL as examples.
Rental Growth in 2025
Strong rental growth is forecast across the big six markets:
- In 2024 Prime rental growth across the big six city centres was 9% on average. By the end of 2028, rental growth for top-quality space is projected to be between 21% and 27% in these key markets.
- This presents challenges and opportunities for 2025. The rising demand for high-quality space highlights the need for strategic planning, thorough project execution and market aligned design to maximise returns.
- Our team plays a critical role in navigating this growth, ensuring evolving tenant expectations for design, environmental credentials, active travel and technological integration are met. This expertise is vital to capitalise on market trends, ultimately delivering long term value in an increasingly competitive environment.
Employment Trends for 2025 onwards and Investment Outlook
Office-based employment is expected to grow significantly:
- UK office employment outside Greater London is forecasted to grow by 10% over the next ten years. This growth in employment is expected to drive demand for office space, with a conservative estimate suggesting an additional 50 million sq ft of office space will be needed across the UK in the next decade.
- Investor sentiment is set to improve in 2025, with capital market activity forecast to strengthen in the second half of the year as interest rates stabilise.
- The UK’s swift price adjustment has made it an attractive market, dominating European H1 activity with a 29% share of investment volumes.
Occupier Trends & Yields
- There’s a growing demand for high-quality, ESG-compliant spaces. With flexible leasing solutions becoming increasingly popular.
- Some CEOs expect a full return to the office over the next three years, potentially offsetting the impact of hybrid working on space requirements. JPMorgan Chase the most recent example of this.
- The general trend suggests yield compression in 2025 with Manchester and Birmingham expected to drop from 6.3% in 2024 to 6.1% 5.2% in 2024 to 5.0% respectively.
Unlock Asset Value: Tailored Development Management for Maximum Returns
We at Hollis are currently assisting clients in unlocking the value of their existing assets, working on de-stranding challenges and delivering new schemes.
Our newly established development management service complements our existing professional delivery teams. We take on the responsibility of conducting financial appraisals at the outset to determine the optimal commercial use case and brief for our clients, ensuring alignment with their capital goals and expected returns.
Working closely with our project management and sustainability and innovation teams we can appropriately model and evaluate key strategies in line with the market trends and occupier demands to set the brief and manage the project from inception to completion.
Get in touch with Sarah Trahair-Williams, our Head of Development Management, for expert guidance to achieve maximum value and personalised solutions from start to finish.