Inflation fears push slump in demand for City offices
Demand for office space in the Square Mile slid in the first quarter of the year as investors stalled decision making following the outbreak of war in Iran.
Office property demand fell by 23 per cent year on year in Canada and 14 per cent in the capital as a whole in the first three months of the year, Rightmove research shows.
This data bucks the consensus of soaring demand for central London office space, but property experts say the Iran war has caused a “pause for thought” in the rush for commercial space.
Some areas of London have seen an even bigger fall in office leasing demand, with Tower Hamlets and Wandsworth seeing 35 and 51 per cent drop-offs.
Demand slump worse in London
Camden and Lambeth are the only areas where demand for office space has improved at the start of this year, jumping a measly one per cent in both areas.
The drop in demand for London office space was far steeper than the national trend, with a three per cent fall recorded across the UK.
Demand to lease retail and leisure space also fell – by nine and 11 per cent – while only industrial property saw growing demand, up six per cent.
The start of this year has also seen a drop off in desire to invest in commercial property, with investment demand for office space falling by nine per cent in the UK and 18 per cent in the capital.
Iran war gives investors ‘pause for thought’
Investment in leisure property also proved unpopular – down 14 per cent – while demand for retail investment fell by just two per cent, and demand for industrial investment soared by 13 per cent.
Rightmove said the outbreak of the Iran war in February is a key driver in the sudden shift in demand for office space.
Andy Miles, commercial managing director at the property listing firm, said: “The uncertainty from the fallout of the war with Iran may have given both businesses and investors a reason to pause for thought.
“At a time when many analysts are predicting two or even three increases to the Bank of England’s base rate this year, decision making becomes difficult.”
At the start of the year, the market had been expecting multiple cuts to interest rates but the Iran war has left businesses bracing for potentially several hikes to rates.
Drop-off compares to record demand last year
Michael Sears, a member of the advisory panel for Rightmove’s report, said: “The data clearly points to a market that is becoming more cautious, with both occupiers and investors reassessing commitments in the face of ongoing uncertainty.”
But both experts said this year’s numbers seem especially poor because of the exceptionally high demand for office space – both in London and the UK as a whole – seen last year.
“Much of the slowdown is coming off a particularly strong 2025, and activity levels remain above those seen two years ago,” Sears said.
Demand to invest in office space remains 53 per cent higher than the same time in 2024, Rightmove said.