London Office Market: Rising Supply and Weakening Demand as Working from Home Accelerates

Carraighill tracks the key data that influences London office market rents and values in our monthly report ‘Office Insights: London’. This piece focuses on the evolution of the London ‘office’ jobs market and examines the impact of working from home on office occupancy.

London Office Employment by Sub-Region

The table below focuses on the evolution of the London ‘office’ jobs market and the demand for office space. It segments London into two major sub-regions: (1) Inner London (West End and City); and (2) Outer London . We have reviewed total employment in London and the associated number of office-based (or sitting) workers .

We estimate that close to 60% of employment in Inner London is based in ‘office’ roles. This grew significantly since 2010, as the service sector rebounded after The Great Financial Crisis (GFC). However, growth should now prove more challenging due to both Brexit and a greater preference for working from home (WFH). Office demand should therefore stagnate.

Indeed, recent UK survey data is suggesting an increased preference for accommodative work arrangements and working from home (see bar graph below). The professional and tech industries lead in this desire, with over 30% of firms in each sector willing to increase the time staff can spend away from the office (January 2021 survey data). Employees’ preferences to have the option to WFH have likely increased further since.

Unlike prior shocks (the dot com bubble and the GFC), our view is that employee preference and employers’ willingness to facilitate WFH is now embedded in corporate culture. The political will to facilitate this is also high, as it could reverse the decade long urbanisation trend which has seen population growth slow in rural areas. This has been a political hot potato for a long time.

So, what are the potential implications? If we weight this survey data to the mix of employment in London (West & East Inner), we estimate that each additional day of working from home (per week) could lower occupancy by c. 5.8% for Inner London offices.

This will also have implications for housing demand and house price growth by region.

Indeed, the London Office Market vacancy rate was already rising prior to COVID-19. It was 5.1% at the end of 2019. It is now 8% and should continue to move higher.

The London Office Market Overview: The supply side

The size of the London Office Market (West End and City) has risen by close to 10% since 2008 and is now just over 250 million square feet. The annual average take up prior to COVID-19 was 10 million square feet . This has matched the annual supply, the majority of which was grade A listed buildings. The rent achieved in grade A and prime offices rose significantly because of an improved product and strong employment growth in London. Grade B rental growth was more muted, as occupiers sought higher quality stock. The vacancy rate fell to the end of 2018 but was already rising prior to the onset of COVID-19. This may be due to weaker new office based job growth in London post Brexit.

Since July 2020, the gap between London office supply (20.1 million square feet) and the 12 month rolling average take up (4.2 million square feet) has increased dramatically. The total development pipeline is at its highest level since 2014. If fully completed it would add c. 10% to the available office stock by 2025. The share of this which is pre-let has fallen significantly.


There is no deterioration in reported front book rents yet, even though the supply-demand dynamic continues to weaken and rent free periods are also rising. It will be crucial to monitor these trends as the UK economy reopens. Carraighill offers extensive data driven investment recommendations into the sector which is exclusively available to our clients.

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