Offices
Office rental levels across England and Wales have remained robust despite some significant changes in the market as occupiers adjust their requirements for office space following a return to the office post-Covid.
Over the last three years office rents in England have grown on average by 6%, while in Wales growth has been more limited at 1%. Some of the strongest growth has been seen in Central London, which was the most affected region in the lead up to the 2023 revaluation. Across England and Wales rental growth has been strongest in prime markets. This corresponds with occupiers reducing overall space demands and focusing on taking quality space in a bid to attract their workforce back into the office and align with their corporate ESG strategies.
Since 2021, take up in Central London offices has also been steadily increasing and has now returned to pre-pandemic levels. The West End market leads the way in terms of rental growth between 2021 and 2024, experiencing average growth of 10.5%, compared to close to 4% in the City of London. This discrepancy has been driven by the limited supply of office stock within the West End. At the end of Q1 2024, vacancy rates in the West End stood at 3.4%, reduced from 5.4% in Q1 2021. Comparatively, vacancy in the City of London stood at 8.5% by Q1 2024, only marginally down from 8.7% in 2021.
% PRIME OFFICE LIABILITY CHANGE FROM 2023 TO 2026 REVALUATIONS
Regional office trends
Outside of London, we are seeing an increasing divergence between prime and secondary stock. With the large increases in build costs experienced over recent years, rents on new build or redeveloped space are largely being driven by these costs. In regional centres, where rental levels are higher, it is still financially viable to carry out redevelopments, and with occupiers willing to pay increasing rents to secure best in class space, we have witnessed rental growth.
In more peripheral markets, where demand is more limited, the construction costs associated with redevelopment have prohibited the improvement and refurbishment of office space, leaving rental growth relatively stagnant.
Prime office rents
Across England and Wales, we have seen prime rental growth outstripping secondary growth in all major markets. As a result, rateable values of prime offices in England are expected to increase by up to 30% in the London West End going into the 2026 revaluation. Prime growth in markets such as Cardiff is more limited due to a lack of new developments coming to market. However, due to the forecasted rebasing of the UBR, Avison Young predicts that the impact on rates liabilities will be more muted, even experiencing reductions in some areas despite positive rental growth between 2021 and 2024.