Derwent London has reported that the fundamentals of the London office market are continuing to strengthen, despite a "volatile" economic backdrop.
The recovery of London's office market has been ongoing since the end of last year, with falling interest rates and a return to office work bolstering occupancy levels, as reported by .
"Demand [is] well above the long-term average and [there's] a significant supply shortage at the top end... Central London office rents are growing and values continue to recover," stated Derwent.
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Prime rents have seen a 10 per cent increase over the past year as leading firms vie for best-in-class space amid a flight to quality in the market.
Supply of the "right space" is limited, added Derwent, with businesses prioritising "high quality, well-designed buildings with best-in-class amenity and sustainability credentials."
This trend has been partly driven by evolving energy requirements; stricter rules on energy efficiency have compelled firms to upgrade their spaces to meet green regulations.
While the overall vacancy rate in Derwent's buildings stands at 7.8 per cent, the vacancy rates for top-tier Grade A spaces remain low in both the West End – at 1.4 per cent – and the City – at two per cent.
Rental income at Derwent ticks up
So far this year, Derwent has completed £13.8m worth of leasing, renewals and regears (lease agreement renegotiations).
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The company reported an underlying capital growth rate of 1.2 per cent.
In the first half of the year, its total property return was 3.1 per cent, surpassing the MSCI Central London Office Index rate of 1.9 per cent.
Derwent has projected a rental yield growth between three per cent and six per cent for the entire year.
Paul Williams, Chief Executive of Derwent London, stated: "Looking forward, our total accounting return outlook is the strongest it has been for several years.
"Through ongoing strategic asset recycling, we are optimising our portfolio to deliver sustained long-term value. Our balance sheet is well-positioned... Proceeds will be reinvested into developments where we expect attractive returns on investment."
"We recently started on site at our next West End project, Holden House, and plan to commence 50 Baker Street, where we have agreement for a new headlease, and Greencoat & Gordon House in early 2026."