A Tale of Two Offices, in the Same City

By Lucy Waters - Managing Director for Aria Finance

Mortgage Strategy

Two things are happening in the London office market right now that seem contradictory. Record rents and record vacancies are being reported at the same time. This paradox, however, is reflective of one office market split in two, creating two streams of opportunity for landlords willing to invest.

Picture two office buildings within a mile of each other in the centre of London. One is fully let, its landlord fielding competing bids on every available floor. The other is losing tenants, with incentives and rent-free periods abounding.

To understand this phenomenon, you have to start by examining rents. According to data from SHB Real Estate, the market-average Grade A City rent hit £80.43 psf in Q1 2026, up 15% year-on-year while Grade A space in the City Core start from around £70 psf and the wider West End from £45 psf. For landlords and investors operating below those price points, fringe markets like Canary Wharf offer Grade A unfitted space from £40 to £65 psf, while Stratford sits at £35 to £45 psf.

As you move further away from the London city centre, vacancy rates quickly start increasing – and you don’t even have to go far. Hammersmith (within two miles of the West End) has a 22% vacancy rate, and Vauxhall (just over the Thames from Westminster) experiences an 18% vacancy rate. A lot of this comprises aging stock.

Well-connected locations where stock can still command meaningful rents (without competing at City Core pricing) are coming into greater focus. This is where the more accessible end of the opportunity lies, and where occupier demand is growing. Much more than just being another overhead where cost-savings are prioritised, leading businesses need to attract top talent and are therefore demanding better floorspace (despite the price tag) to create an environment people want to come into.

With rental growth climbing (6.3% YoY and trending upwards) on Central London Offices, a strong opportunity exists for landlords looking to capitalise on the high demand for Grade A office space. Potential owner-occupiers with significant resources are also fiercely competing for Grade A prime stock.

For older stock, the proposed EPC B deadline of 2031 for privately rented commercial buildings over 1,000 sq metres is edging closer, and landlords of secondary office stock are facing a tough decision. Do they invest heavily to bring stock up to standard or do they start thinking about an exit (absorbing the losses in value they have recently experienced)? The secondary market is not an easy one to be in.

As competition strengthens for quality office stock, this also means that more lenders are competing for loans on these assets. This is good news for those looking to purchase as many lenders have had to become a bit more generous with their criteria to get the deal on their books. Some lenders are even ‘niching’ into pockets of the market with a clear edge on competitors in at least one important criteria point.

As demand for modernised offices with greater sustainability credentials grow, many investors are turning to specialist finance for large loan sizes and commercial mortgages that align with their commercial strategies in acquiring best-in-class assets. The same goes for owner-occupiers. Specialist finance brokers also have the added benefit of access to a range of lenders, each of which may have a product suited to different buyer profiles. They also provide advice around getting a financing package that suits the investor client’s needs in a way that a commercial mortgage with a high street lender cannot.

With yields stabilising, lower mortgage rates available than in recent years, and with confidence returning, it is encouraging for those with the means to compete for and purchase top quality assets (which likely already have strong tenants). For these investors, there is an abundance of specialist commercial mortgages available, while those who need to complete quickly often turn to short-term finance with a commercial exit planned.

For those willing to take a risk and uplift secondary office stock, there is an opportunity waiting. Secondary stock is in high supply, relatively cheap, and with enough modernisation, these transformed assets have strong would-be tenants waiting in the wings. These heavy refurbishment projects may require significant input, but equally, these completed properties also stand to gain significant value.

Whichever way investors are looking to swing it, having a specialist lending partner with expertise in the full suite of specialist finance products is vital in today’s commercial property market.