The Core Opportunity
Historic low investment in 2024 signals a unique market reset
9 minutes to read
The London office market experienced a historically low level of investment transactions in 2024, marking the lowest for 15 years. This downturn, driven by increased interest rates and a delayed market recovery, is distinct from previous due to a lack of forced sales, as both investors and lenders anticipated improvement.
Download Insight
While some market segments, like the West End and value- add assets, showed resilience in pricing and activity levels respectively, the core asset market has remained significantly under-represented, presenting a unique opportunity given wider dynamics in the market.
London's competitive edge
London continues to reinforce its position as a global financial centre and a magnet for high-growth sectors. In recent years, the capital has shown resilience in navigating economic volatility with innovation-led growth across various industries, creating opportunities in real estate. The UK, with London at the forefront, is set to experience broad-based economic growth and remains the top destination for cross-border investments.
The UK is also poised to enter a period of reduced financial market volatility compared to its European counterparts, bolstered by diminishing uncertainties surrounding Brexit and a return to greater political stability. The resolution of key post-Brexit trade and regulatory frameworks has provided clarity for businesses and investors, easing concerns that have weighed on the market for years. Additionally, the UK’s stable political environment contrasts with ongoing challenges in some European economies, including fluctuating leadership and fiscal uncertainties. Against this backdrop, the newly elected Labour government is focusing on strengthening the UK’s economic growth prospects, with a particular emphasis on boosting investment in London. Plans are underway to accelerate the expansion of Heathrow Airport, with the goal of securing planning permission for a third runway by 2029 – an initiative expected to enhance connectivity and drive long-term economic growth.
At the same time, efforts to reduce regulatory burdens and foster a more business-friendly environment are being prioritised. A key policy shift includes ensuring that all cabinet decisions are assessed for their impact on economic growth, with a strong focus on cutting unnecessary regulations to enhance business confidence and improve living standards. These initiatives aim to attract investment, create jobs, and solidify London’s position as a leading global financial and commercial hub. Moreover, it positions the UK as a relatively secure and predictable market for financial activity in the near term.
Such a trend not only supports investment growth but also enhances the UK’s appeal as a destination for global capital, particularly in sectors like real estate and infrastructure. In fact, London retained its status as the leading city for cross-border real estate capital inflows in 2024, significantly ahead of global competitors like Singapore and Paris, whilst the UK received nearly three times the inbound private equity real estate investment of its closest competitor.
Robust economic fundamentals
Future growth in London will be driven by its thriving innovation-led industries, which are deeply rooted in the city’s unique economic structure and intellectual capital. London’s economy is heavily weighted toward innovation, supported by a high concentration of world-class universities, research institutions, and biotech funding bodies that function as powerful engines for growth. The city is a hotspot for high- growth companies, with over 4,000 professional services firms experiencing a 10% increase in activity over the past five years. Technology is a standout sector, hosting 6,960 active firms – up 23% over the same period – with AI and FinTech leading the charge. London’s universities, particularly UCL and Imperial College, play a pivotal role as catalysts for innovation, generating 217 spinouts since 2011 and creating over 3,500 jobs in just the last five years. This constructive collaboration between academia, technology, and professional services cements London’s position as a centre for high-growth industries and ensures its future economic resilience and expansion.
The appeal of London and the UK to investors is further emphasised by the results of INREV’s 2025 investor intentions survey. This provides insights into global real estate investment trends, with a particular focus on Europe. The latest iteration of the survey shows the UK remains one of the top destinations for European real estate investment, maintaining its strong position alongside Germany. In addition, London’s highly liquid and transparent office market continues to attract a broad pool of institutional investors, particularly from outside Europe. Reflecting this sustained confidence, non-European investor interest in the UK has increased from 85% in 2024 to 93% of investors in 2025.
At the same time, European investors are becoming more cautious, leading to a shift towards core investment strategies, with 38% of investors indicating this preference for their global real estate allocation compared to 21% in 2024. This change reflects broader concerns over economic uncertainty and geopolitical risks, prompting investors to prioritise lower-risk, stable assets. North American and European investors are driving this trend, signalling a move to more resilient investment opportunities in the UK and across Europe.
An increasingly supply constrained market
The fundamentals of the London office leasing market are strengthening, driven by an increasingly supply - constrained landscape for prime assets. Vacancy rates for high-quality office spaces in key submarkets are tight, with availability of new prime space in the City Core now at 1.1%, and 0.3% in the West End Core. Moreover, the development pipeline is modest in comparison to historic levels of take-up for new and refurbished space. By 2028, we expect there to be a potential undersupply of best-in-class space of almost 8m sq ft.
This scarcity, combined with robust demand from financial services, professional services, and technology sectors, is fuelling expectations of significant rental growth. Average prime rents have already risen in core submarkets by an average 7% year-on- year, with our projections indicating further growth of c.30% in core business districts over the next five years. These dynamics underscore the resilience of London’s prime office market, solidifying its position as a magnet for occupiers seeking best-in-class spaces.
A radically different market
The challenges experienced by the London office investment market over the last year derive principally from the substantial interest rate hikes and the associated uncertainty of where they will peak. However, the anticipated forced sales, which typically mark market troughs, have been absent. Instead, investors have shown resilience, buoyed by optimistic interest rate projections and recovery in prime office demand.
This market environment has created a rare, generational opportunity for private and institutional investors, particularly in super-prime areas such as Mayfair and St. James’s. Although overall volumes are lower, investment from this group of investors has resulted in the number of transactions in the West End exceeding the historical average.
Despite the low levels of market liquidity, investors have been prepared to underwrite risk with acquisitions of value-add assets. Investors have been enticed by ’brown-to-green’ transition opportunities, which following redevelopment attract strong occupier demand, together with higher rents and capital values in the future.
However, the asset risk profile which typically drives the bulk of market turnover is ‘core’. We define core as high-quality, income- producing properties located in prime, well-established markets and which typically feature long-term leases with stable, creditworthy tenants, providing consistent and predictable cash-flows with low risk. Core assets accounted for only 17% of market turnover in 2024, as gilt yields and borrowing costs jumped.
Mispriced core assets
Core assets are now positioned for potential outperformance, driven by:
Rising expectations of rental growth: Prime office rents have grown amidst constrained supply, with core submarkets projected to see annual average growth of almost 6% over the next five years.
Attractive entry and exit yields: Large, well-let core assets could achieve double-digit geared returns driven by rental growth and yield compression, especially as 10 year government bond yields fall over the next few years.
Core investment dynamics
Yield spreads, though tightened in 2024, are likely to improve. The combination of rising rental growth and dissipating concerns around the return to office signals the potential for a resurgence in core asset activity.
Core transactions in 2024 were £1bn, 85% below the long-term average, and the lowest total since the early 2000s. Since 2023, there has been a steady fall in the market share of core falling from over half (55%) of all transactions to less than 20%. The number of deals has also declined, from an annual average of 54 to only 33.
A downturn in core investment is not unique to the current cycle. Historically, most core deals are larger lots, often over £200m. Previous downturns have all incorporated much lower levels of investment in core, with the greatest retrenchment occurring during periods of tighter credit conditions such as during the GFC and the post dot-com slowdown of the early 2000s. Moreover, lower transaction activity heightens risk aversion as underwriting becomes more challenging.
The main buyers of core product are institutional who would typically acquire an average of £2.1bn each year. However, since 2023, institutional acquisitions of core assets have been negligible. Investment from private investors and private property companies has been more resilient in this current cycle. Encouraged by lower barriers to entry, less sensitivity to higher interest rates, and more active in smaller lots.
The resurgence of core
We are in the early stages of a cyclical upturn in the London investment market. The first stage was led by private capital investors and began in 2023, less reliant on debt, willing to underwrite risk and assured by improving leasing fundamentals.
The second stage, and evident in 2024, has been the return of private equity investors typically entering the market before the trough and attracted to mispriced assets.
The third stage of the recovery requires greater activity from institutional investors with the ability to access efficiently priced capital for investment in larger lots. We are already seeing institutional and sovereign wealth activity that has largely been absent for the last two years.
Current market dynamics suggest the climate for the next leg of the recovery is improving – lower 10-year government bond yields in the future imply downward pressure on yields, leasing fundamentals for prime are strengthening, and cap rates are significantly elevated in large parts of the market. Institutions from APAC and Europe, where interest rates are lower, are most likely to be the first movers, gaining most from the arbitrage opportunity.
The downturn’s unique dynamics highlight a delayed resurgence in core investment. As rental growth strengthens and financing conditions improve, institutional and private investors are expected to re-enter the market, particularly for larger lot sizes.
Opportunities in core development
The evolving market offers significant potential:
Tenant-friendly adjustments: Enhanced lease terms, such as caps, collars, and reduced rent-free periods, can boost long-term value.
Build-to-core strategy: Creating core assets through development can cater to rising demand while aligning with long-term performance goals.
Rental growth alignment: Strong rental growth dynamics enhance the attractiveness of core investments compared to more riskier segments.
Core assets, sidelined in this downturn, are positioned for significant recovery. Mispricing in the sector presents an opportunity for early movers to achieve returns comparable to riskier assets but with reduced exposure. By aligning asset characteristics with tenant demands and leveraging strong leasing fundamentals, investors and landlords can unlock substantial value in the evolving London office market.
View the London Series