Overseas investors return to London’s offices
Real estate investment in London has risen for the second year in a row as appetite for the capital’s assets returns, according to a new report.
Total investment is set to top £14bn in 2025, below the 10-year average of £18.1bn but significantly higher than in 2023 and 2024, according to a new report by CBRE.
“It does feel like London’s back,” Richard Smart, managing director of London markets at CBRE, said. “It feels like it has got its swagger back.”
Smart said that a combination of lower interest rates, new provisions to boost housebuilding, and the return-to-office mandate will help boost confidence.
There’s been a “perfect storm” of costs over the last few years, he added, with many housebuilding projects in London unviable prior to the recent cut in the number of affordable homes developers must produce from 35 per cent of all units to 20 per cent.
Office construction, too, has been hampered by high taxes, high labour costs and tight regulations, with investors also put off by economic uncertainty.
But as the Bank of England continues to steadily cut the UK’s interest rate and the Government focuses on cutting red tape, the viability of developments has improved.
“What we’ve seen this year is the return of a normalised market… we’re back to what we used to see pre-Covid” Smart said.
Office take-up drives growth
Investment in offices – particularly in the banking and finance sectors – accounts for around a third of all real estate investment in London.
Activity plummeted in 2020 and took a long time to recover momentum, with at-home or hybrid working becoming the norm.
Now, however, companies – particularly financial and professional services firms – are pushing staff back to the office for the majority of their working week, reversing a trend that some pundits considered permanent.
Savills and CBRE have both found renewed confidence in larger deals: The volume of transactions over 50,000 sq ft in the first half of 2025 was the highest since the first half of 2019, while the number of deals over 100,000 sq ft was at its highest level since 2017.
“Last year [there were] virtually no transactions over £100m… this year we’re well into double digits – we did about three last week,” Smart said.
Prime rents have risen by more than 10 per cent year on year as investors flocked to safe, high-quality assets in areas like the Square Mile, but this year has seen interest broaden to areas such as Thameside and South Bank.
UAE developer Arada secured a majority stake in mixed-use office and housing site Thameside West at the start of this week, paying £2.5bn for 80 per cent of the development.
Arada chair, Sultan bin Ahmed Al Qasimi said that the purchase was “grounded in our unwavering faith in London”.
Life Sciences investments such as One North Quay have also boosted volumes, with the Life Sciences ecosystem ranked third globally due to strong data centre and hotel demand.
“It feels very buoyant at the moment in the capital,” Smart said. “It’s nice to see.”