Yields edge out as caution increases
Market sentiment became more cautious in September, with UK government bond yields remaining at multi-decade highs and renewed inflation concerns reinforcing expectations that interest rates will remain higher for longer. With monetary policy expected to remain restrictive, uncertainty ahead of the Autumn Budget has tempered the optimism seen earlier in the year.
Against this backdrop, prime yields across four office sub-sectors and the industrial distribution sector (OMR) moved out by 25 basis points, while industrial multi-let yields remained unchanged. This took the average prime yield to 6.0%, the largest monthly outward movement since November 2023 and the highest level since October 2024. Retail yields, however, remained stable, with comparatively attractive entry yields and strong income returns supporting pricing, though with the divide between prime and secondary assets continuing to widen.
The shift in sentiment though has not been uniform, with occupational market demand remaining robust. At the end of Q3, UK logistics take-up was 1% above pre-pandemic levels, while Central London office take-up was 6% above the ten-year average for this period. This resilience is also reflected in continued prime rental growth being seen across the market.
As we enter the typically busy final quarter, there are some signs that investors remain engaged, supported by improved debt availability, although appetite remains highly selective. Central London office assets under offer totalled £3.8 billion at the end of Q3, 37% above the ten-year average for this period, with well-positioned opportunities continuing to attract capital.
Prime demand meets slowing new starts
The outlook for prime office supply remains increasingly constrained across both Central London and the Big Six regional markets, with limited development pipelines and a shrinking pool of high-quality options. Across the Big Six, deliveries scheduled for 2027 and 2028 currently total 1.05 million sq ft a year, approximately 32% below the five-year annual average, suggesting limited relief from new supply.
By contrast, Central London’s near-term development pipeline appears more substantial, with completions set to reach a record 7 million sq ft this year. Overall, 15.3 million sq ft is currently under construction, with 64% due to complete by the end of 2027 and 25% already let ahead of completion.
However, this headline volume masks the growing uncertainty over the next wave of delivery, as new starts have slowed significantly in 2026, with further cost pressures expected to place additional strain on scheme viability. At the end of Q3, Central London development starts totalled just 2.6 million sq ft, and we anticipate that full-year activity will fall to its lowest level in over a decade. This follows a subdued first half, when starts were 39% below the ten-year H1 average.
Most striking has been the scarcity of new developments, with no new ground-up office schemes starting in Central London during Q3 and less than 250,000 sq ft commencing so far this year. A similar trend is evident across the Big Six, where new development starts are also at record-low levels and extensive refurbishments have accounted for 91% of starts. The shift reflects higher delivery and financing costs alongside greater planning and embodied carbon considerations around demolition, raising the threshold for viable ground-up redevelopment.
Delivery risk is evident across the wider pipeline, with one in five Central London schemes delayed by more than six months against Q3 2025 expectations.
Despite this, developers continue to prepare sites, with 4.1 million sq ft currently undergoing demolition, providing a potential source of future starts. While this activity provides grounds for optimism, certainty around future delivery remains limited, with 43% of the 26.7 million sq ft scheduled for completion across Central London by 2030 yet to start.
With demand for prime offices remaining strong, the challenge is increasingly one of converting planned supply into deliverable space. For developers able to manage costs and secure funding, constrained competing delivery could create an opportunity, although rising rents alone will not resolve the underlying viability challenge.
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