Why investing in the UK office market is a must

As we celebrate Financial Awareness Day today, August 14th, it’s an opportune time to highlight the importance of informed investment decisions. With the London office investment market experiencing a positive shift—marked by a1.5% risein gross rental income and increasing rental values—this is an ideal moment to explore new investment opportunities.1

With this in mind, property expertsSavoy Stewartprovide their insights on why this is the ideal time for investors to explore opportunities in the UK office market.

Why now is the right time to invest in the UK office market

1. UK economic growth boosts London’s position among global cities

The UK is on the brink of significant economic growth, with the government predicted to achieve the fastest sustained expansion among G7 nations by the next election.2 This ambition, coupled with a projected 1.9% rise in Gross Value Added (GVA) between 2024 and 2027, sets the stage for robust job creation and increased investment across the UK office market.3 The recent interest rate cut to 5% further enhances the investment landscape by reducing borrowing costs and boosting returns.4

London’s economy is poised to outpace key global peers, with Central London’s economic output expected to surpass cities like New York, Paris, Berlin, and Hong Kong by 2030.5 Despite challenges such as Brexit, COVID-19, and the cost of living crisis, London has demonstrated exceptional resilience, solidifying its status as a premier global hub and an increasingly attractive destination for office market investment.

2. Rising rental yields due to supply and demand imbalance

Office occupancy levels in London have seen a remarkable 21% increase in leasing activity, driven by a surge in demand for high-quality and sustainable office spaces.6 With a supply squeeze from a depleted development pipeline, competition for best-in-class buildings is intensifying. Currently, 37% of the office space under construction, due for completion in 2024 across UK office markets, has already been secured by occupiers.7

This scarcity and increased demand for sustainable office buildings are expected to drive rents upwards, presenting investors with lucrative opportunities. The UK office market is becoming increasingly profitable, with prime office assets projected to achieve annual total returns of up to 11% by 2028. Key regional markets such as Bristol, Cambridge, Edinburgh, Oxford, and Manchester are also anticipated to see annual gains of around 7%.8

3. Falling interest rates in the second half of 2024

The Bank of England is expected to reduce interest rates later in 2024 as inflation continues to trend downward. This anticipated rate cut, following the current 5.25% level held since August 2023, means lower borrowing costs for investors.9,10 Lower interest rates will allow investors to finance properties more affordably, making it easier to leverage capital and maximise returns on investment (ROI).

The UK office market’s recent correction and adjustment to new economic conditions and working realities create a favourable environment for investment, particularly in prime and Grade A spaces.10 Investors who act now can take advantage of the current conditions to acquire properties at attractive prices and benefit from rental growth as the market recovers and fully rebounds.

4. Surge in tech and innovation investments

Seeing over £7.4 billion raised by UK start-ups and scale-ups in the first half of the year, London has solidified its status as a top destination for tech sector venture capital investment, capturing nearly one-third of all European funding.11 The city’s appeal is further highlighted by major AI firms like CoreWeave and Scale AI choosing London for their European headquarters.

Over the past decade, London has led global cities in attracting international tech companies, with over 1,700 tech foreign direct investment projects recorded since 2014.12,13 As the tech and AI industries grow, demand for office space in key areas close to talent and collaboration hubs is expected to rise, driving up rents and occupancy rates, presenting attractive investment opportunities.

5. Surge in demand for coworking spaces

The coworking space market is set to experience explosive growth, with the number of users worldwide expected to reach 5 million by 2024, doubling from 2021. The global count of coworking spaces is projected to surge by 125% in the next year, highlighting the sector’s rapid expansion.14,15

In response, UK landlords are planning a 54% increase in office space dedicated to flexible and coworking environments by 2030. This shift reflects a growing recognition of the need for adaptable workspaces, making the UK office market particularly appealing for investors looking to capitalise on this evolving demand.