UK office sector 2025: Investment opportunities

The UK office sector is navigating a period of transformation, shaped by a combination of post-pandemic recovery, changing work habits and evolving tenant demands.

There are signs of renewed optimism in both the regional and London office investment markets, with reported upticks in investment activity and occupier take-up since the start of the year.

The race for space is increasingly defined by quality rather than quantity, where new or refurbished offices stand out as the preferred choice for many businesses. However, the supply of premium office stock remains limited, and in the City of London is expected to be below market requirements in the coming years. The resulting imbalance continues to drive rental growth and presents opportunities for investors to act now.

The predicted “death of the office” following the global lockdowns of 2020 did not materialise but the world of work has changed.

The office market has become increasingly polarised and there is a marked divergence in occupier demand between new (or fully refurbished) offices and secondary stock.

As companies focus on attracting and retaining top talent, tenants are now seeking office spaces in the right location with modern amenities, employee wellness facilities, smart tech and flexible layouts.

From a legal perspective, occupiers are increasingly requesting flexibility in terms of alterations, permitted use and the ability to sublet and share the premises.

Many tenants are interested in ESG factors and the sustainability features of their building. Green offices enable businesses to meet their own ESG targets, and we are seeing increasing use of green lease clauses in lettings of premium buildings. ESG and sustainability are also now core value drivers in today’s office investment market.

Grade-A office buildings, known for their superior location, design and amenities have proven to be resilient investments to date. The issue is there are simply not enough of them.

Planning constraints, increased construction costs, evolving legal regulations, economic headwinds and geopolitical uncertainty have all contributed to the downturn in construction of new buildings. Therefore, landlords and investors are increasingly turning to refurbishment to meet occupier expectations.

Much has been written about the “retrofit revolution” and this is certainly gaining momentum. Investing in grade-B office properties can provide significant benefits through strategic improvements and repositioning. By enhancing the physical environment of these spaces – whether through refurbishment, improving energy efficiency and/or adopting modern workplace technologies – investors can unlock latent value and appeal to a broader range of potential tenants.

From a sustainability perspective, refurbishment is the best way to create higher-quality offices. Anticipated legal changes mean this may soon become a necessity for some buildings. We expect minimum energy performance standards to increase at some point – the government indicated it would publish a response to the 2021 consultation on MEES for commercial property early in 2025. Nothing has been published to date but the response may be published together with the government’s response to the EPC consultation, which closed earlier this year.

Any increase in MEES for the commercial property sector could hit the office sector particularly hard. According to research from property data and tech firm Search Acumen, just 15% of offices have a B rating or above, which is the expected future minimum standard for lettings.

This all combines to present both opportunities and challenges for the UK office sector in 2025. As ever, staying attuned to tenant requirements and regulatory changes will be fundamental to making informed investment decisions.