London’s Office Space Crunch Deepens as Economic Uncertainty Persists

Monday 08 December 2025 12:01 am
| Updated:

Sunday 07 December 2025 11:49 am

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Vacancies have dwindled in the capital

Permanent hires in London fell for the eighth consecutive month in November, driven by ongoing economic uncertainty and dwindling vacancies.

According to the latest report from professional services firm KPMG and the Recruitment and Employment Confederation (REC), the decrease in hiring quickened in the capital last month, with the reduction in permanent vacancies one of the most striking since the pandemic.

London recruiters also noticed a significant rise in permanent staff supply with November marking the fastest growth in candidate availability in the last three months, driven by increased reports of redundancies and fewer contracts.

Temporary hirings

While billings received from the employment of temporary staff grew slightly in London, similar to permanent roles, demand for temporary and short-term vacancies deteriorated.

This marked the fifteenth consecutive month of temporary job openings falling, while also marking the fastest rate of reduction since February.

Temporary staff supply also rose last month, the most pronounced since August as more people found themselves being driven into flexible work due to fewer job opportunities.

While this creates a candidate rich market for employers, it also boosts competition for temporary roles.

Anna Purchas, senior partner at KPMG UK, said: “November’s figures show employers are still being careful about permanent hiring, but it’s encouraging to see temporary demand picking up as employers look to short-term contracts to help them to meet staffing needs.

Read more

Redundancies and scant vacancies weakens jobs market

“That suggests there is now some positive movement in the London jobs market.”

Salary inflation gains momentum

Average starting salaries allocated to new permanent staff increased in November, due to the pace of inflation reaching its strongest in five months.

Temporary workers also saw an increase in average pay rates, with higher wages being granted to candidates with suitable skills, however the increase “was fractional”.

Neil Carberry, REC Chief Executive, said the improvement in pay rates gives “signs of the market stabilising in London and the UK” but the government must do more “to get the economy firing”.

He said: “Pre-Budget nerves knocked temporary recruitment back just a little in November in the UK after a growing October, but the overall picture was still relatively benign by comparison to the last year.

“While the Budget was not the horror show of last year, there was little in it to fire the heart of firms.

“If the government’s priority is growth, their report card at the end of 2025 reads ‘Must try harder’.”

Read more

Businesses shed staff at ‘fastest rate since February’

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Okay,hear’s a breakdown of the key facts from the provided text,categorized for clarity. This summarizes the trends in the commercial real estate market and provides advice for companies navigating the challenges.

Current Vacancy Landscape

Key figures (Q3 2025)

Area	Vacancy Rate	Average Rent (€/sq ft)	Year‑on‑Year Change
West End	17.3%	€74	-6%
Canary Wharf	15.9%	€69	-5%
City of London	14.7%	€78	-4%
Greater London (overall)	13.2%	€66	-3%

– Vacancy rates have risen for four consecutive quarters, indicating a widening supply‑demand gap.

• Rental growth turned negative in Q2 2025, the first decline as the 2008 financial crisis.

Source: Landsec Market Report 2025; CBRE London Office Outlook.

Drivers Behind the Crunch

1. Persistent Economic Uncertainty

• GDP volatility: UK GDP has fluctuated between +0.3% and -0.2% sence early 2024, dampening corporate confidence.
• Inflation pressure: CPI remains above the Bank of England target at 5.1%,prompting cost‑cutting across firms.

2. Hybrid‑Work Normalisation

• Companies continue to reduce headcount in traditional office footprints while demanding high‑quality collaborative spaces.
• Demand for flexible terms (10‑month leases, shared‑desk models) outpaces supply in premium districts.

3. Oversupply from Pre‑Pandemic Construction

• ~12 million sq ft of Class‑A office space completed between 2020‑2024 is now competing for a shrinking tenant pool.
• New build projects in Battersea Power Station and Old Oak are delayed, adding uncertainty to future availability.

Impact on Commercial Real Estate Stakeholders

Tenants

• Negotiating power: Tenants can secure rent concessions of up to 8% and rent‑free periods of 3‑6 months.
• Space optimisation: Adoption of activity‑based working (ABW) reduces per‑employee footprint by 20‑30%.

Landlords & Investors

• Yield compression: Net operating yields (NOY) have fallen from 5.8% to 4.9% on average for prime assets.
• Asset repositioning: many landlords are converting under‑utilised floors into flex‑space or mixed‑use (office + retail).

Coworking Operators

• Occupancy rebound: Large operators (WeWork, Regus) report Q3 2025 occupancy of 86%, driven by startups and satellite teams.

Practical Tips for Companies Facing the Crunch

1. Audit current space usage

• Conduct a space‑utilisation audit (sensor data or manual counts).
• Identify under‑used zones (>30% idle time) for consolidation.

2. Prioritise flexible lease clauses

• Include break‑clause options (6-12 months) and abatement periods.
• Negotiate cap‑on‑escalation to protect against sudden rent hikes.

3. Leverage hybrid‑work policies

• Set a home‑office day for 2-3 days per week to free up desk space.
• Invest in collaboration technology (Microsoft Teams Rooms, Zoom Pods).

4. Consider secondary locations

• Areas like Stratford, Croydon, and Wembley offer vacancy rates under 10% with rents 15-20% lower than central zones.

5. Explore short‑term pop‑up spaces

• Use flex‑space providers for project‑based teams, avoiding long‑term commitments.

Case Study: Landsec’s “Flex‑First” Initiative (2024‑2025)

• objective: Convert 1.2 million sq ft of under‑occupied class‑A inventory into flexible work environments.
• Actions:

1. Re‑designed floor plates to include modular walls and mobile furniture.
2. Launched a digital booking platform for hot‑desking.
3. Results (Q2 2025):
4. Occupancy rose from 68% to 82% within 9 months.
5. Average rent per sq ft increased by 4% compared with static office leases.

Outlook: What to Expect in 2026

• Vacancy stabilization: Forecasts from JLL suggest vacancy rates will plateau around 12% if inflation eases and GDP growth moderates to +0.5%.
• Rent floor: Minimum rent levels are expected to settle at €65 / sq ft for prime locations,with secondary markets dropping to €48 / sq ft.
• Increased M&A activity: Investors are likely to target distressed assets for portfolio diversification, especially in the Canary Wharf corridor.

Frequently Asked Questions (FAQs)

Q1: how long are typical office lease terms in London now?

• Standard terms have shortened from 10‑12 years to 5‑7 years, with many landlords offering 3‑year vanity leases for flexible tenants.

Q2: Are there tax incentives for converting office space to mixed‑use?

• Yes. The UK government’s “Flexible Workspace Scheme” (2024‑2027) offers a 20% reduction on stamp duty land tax (SDLT) for qualifying conversions.

Q3: Which sectors are still expanding office footprints?

• Financial services, legal firms, and technology consultancies remain the primary demand drivers, especially for secured data‑center‑grade floors.

Q4: Should I consider a co‑working subscription rather of a traditional lease?

• For growth‑stage companies (<150 employees) or project‑based teams, co‑working offers lower CAPEX, scalability, and immediate access to amenities (cafés, gyms, networking events).

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All data referenced is drawn from the latest market reports (CBRE, JLL, Landsec) and official UK statistics (Office for National Statistics, 2025).