Quarterly Review: Q1, 2025
The latest data show that the world economy got off to a weak start in 2025 even before tariff developments. Trade uncertainty remains despite the US court ruling on the legality of the 10% universal tariff. But the eventual outcome is likely to have little impact on UK GDP, given the UK exports relatively few goods to the US. Given that, the Bank of England look set to continue to cut interest rates slowly.
After a strong end to 2024, Central London office take-up fell back in Q1 in line with the usual seasonal pattern. Availability across the West End, City and Docklands has seen little change over the past year at around 24m sq. ft., down from a peak of 25.8m sq. ft. in the middle of 2023. A large amount of space is due to complete this year but beyond that the pipeline is thinner, and of the total space currently under construction 46% was let or under offer.
Office occupier demand in regional cities held up in Q1, supported by strong take-up in Glasgow, Leeds and Newcastle. But that didn’t prevent a further rise in availability to a nine-year high. That looks to have increased developer caution and beyond 2025 the pipeline is very thin.
In other sectors, Central London retail vacancy tightened for the tenth consecutive quarter in Q4 2024 and Oxford Street vacancy is now just 1.4%. Logistics take-up recovered in Q1, although that failed to prevent a further rise in availability. Nevertheless, developers are becoming more confident about the demand outlook, with the pipeline expanding from 18.9m sq. ft. in Q2 2024 to 26.3m sq. ft. in Q1 2025.
Investment in Central London offices rose from just over £1bn in Q4 2024 to £1.8bn in Q1, a two-year high. Retail investment across the UK saw a large drop in Q1 to £1.8bn, but within that Central London shops did better. Office investment in the regions was steady at £600m in Q1, an historically low level. Uncertainty caused by the tariffs and still high interest rates suggests investment volumes will struggle to gain traction over the next months.