Insight 3:
The Core Opportunity
Core Strength: The Rebound of Prime London Office Investment
London’s office investment market is entering a new phase. After experiencing the lowest transaction volumes in 15 years, a recovery is taking shape—one that will be led by the resurgence of core asset investment. While 2024 was defined by restrained activity due to rising interest rates, it did not follow the typical downturn pattern. Unlike previous cycles, there was no wave of distressed sales. Investors largely held their positions, anticipating improvement. With rental growth strengthening, demand for best-in-class space rising, and financing conditions set to ease, core assets are now primed for outperformance.
Core Strength: The Rebound of Prime London Office Investment
London’s office investment market is entering a new phase. After experiencing the lowest transaction volumes in 15 years, a recovery is taking shape—one that will be led by the resurgence of core asset investment. While 2024 was defined by restrained activity due to rising interest rates, it did not follow the typical downturn pattern. Unlike previous cycles, there was no wave of distressed sales. Investors largely held their positions, anticipating improvement. With rental growth strengthening, demand for best-in-class space rising, and financing conditions set to ease, core assets are now primed for outperformance.
A Cyclical Low Presents a Rare Core Opportunity
Core investment activity in London has reached a historic low. In 2024, core asset transactions totalled just £1bn—85% below the long-term average. Core assets accounted for only 17% of total market turnover, down from 55% a year earlier. However, this downturn is cyclical. Previous low points in core investment—such as during the GFC and the early 2000s—were followed by strong rebounds as capital re-entered the market.
The case for core investment is now building. London’s leasing market is tightening, with best-in-class office space in the City Core and West End Core at near-record lows. The availability of prime space in the City Core stands at just 1.1%, while the West End Core is even more constrained at 0.3%. Meanwhile, the development pipeline remains modest, with a projected shortfall of almost 8 million sq ft of prime space by 2028.
These conditions are already driving rental growth, with prime rents in core submarkets rising 7% year-on-year and expected to increase by 30% over the next five years. Investors who act now will benefit from long-term rental appreciation, compounding returns on well-positioned assets.
Investment Fundamentals Are Strengthening
London’s position as Europe’s most liquid real estate market remains intact, and capital is beginning to reposition toward core. Non-European investor interest in UK real estate has risen from 85% in 2024 to 93% in 2025, while core investment strategies have increased from 21% to 38% of total allocations. As inflation stabilises and interest rates ease, institutional capital will re-enter, targeting stable, income-producing assets.
Yield spreads, which tightened in 2024, are poised to improve. With rental growth accelerating and 10-year UK government bond yields expected to decline, large, well-let core assets are positioned to generate double-digit returns through a combination of income growth and yield compression.
The Next Phase: A Resurgence in Core Investment
The first stage of London’s recovery began in 2023 with private capital—investors less reliant on debt stepping in to acquire mispriced assets. Private equity followed in 2024, moving ahead of the institutional curve. The next phase will be led by institutions and sovereign wealth funds, now beginning to re-engage with larger lot sizes.
This shift will create opportunities for:
- Rental growth-driven returns. Prime rents are projected to grow 5.5% annually, reinforcing core assets as a long-term value play.
- Attractive entry and exit yields. Pricing dislocations are presenting rare opportunities to acquire core assets at a discount to historical benchmarks.
- A cyclical inflection point. Core investment has reached a historic low, but the conditions for recovery are now aligning.
Historically, core investment has rebounded sharply after periods of low activity. The recovery will be gradual, but institutions that wait too long risk missing the most attractive pricing. The spread between core asset yields and long-term borrowing costs is expected to narrow, making the current window particularly compelling for long-term capital.
A New Opportunity in Core Development
Alongside traditional core investment, core development strategies are set to play a growing role. Limited prime supply and rising occupier demand for best-in-class space will drive demand for new, high-quality buildings.
Key trends shaping this opportunity include:
- Evolving Lease Structures. More tenant-friendly lease terms, such as caps and collars on rent reviews, will help secure long-term commitments.
- Build-to-Core Strategies. Developing prime assets will allow investors to align with future demand and stabilise returns.
- Alignment with Rental Growth. Strong leasing fundamentals will support pricing for newly developed core assets.
London’s Core Market: A Window of Opportunity
The London office market is at a cyclical turning point. The core sector, having seen historically low investment, is now positioned for recovery as rental growth strengthens and financing conditions improve.
Mispricing in the sector presents a unique window for early movers. As institutional investors re-enter, competition for prime assets will intensify. Those who act now—aligning asset characteristics with tenant demands and capitalising on robust leasing fundamentals—will be best positioned to unlock value in the next cycle.
The next phase of recovery will be defined by core investment. London’s depth of capital, supply constraints, and strengthening fundamentals will ensure that prime assets remain at the centre of the market’s resurgence. Investors who recognise this shift and move early will be at a clear advantage.
Investment Fundamentals Are Strengthening
London’s position as Europe’s most liquid real estate market remains intact, and capital is beginning to reposition toward core. Non-European investor interest in UK real estate has risen from 85% in 2024 to 93% in 2025, while core investment strategies have increased from 21% to 38% of total allocations. As inflation stabilises and interest rates ease, institutional capital will re-enter, targeting stable, income-producing assets.
Yield spreads, which tightened in 2024, are poised to improve. With rental growth accelerating and 10-year UK government bond yields expected to decline, large, well-let core assets are positioned to generate double-digit returns through a combination of income growth and yield compression.
The Next Phase: A Resurgence in Core Investment
The first stage of London’s recovery began in 2023 with private capital—investors less reliant on debt stepping in to acquire mispriced assets. Private equity followed in 2024, moving ahead of the institutional curve. The next phase will be led by institutions and sovereign wealth funds, now beginning to re-engage with larger lot sizes.
This shift will create opportunities for:
- Rental growth-driven returns. Prime rents are projected to grow 5.5% annually, reinforcing core assets as a long-term value play.
- Attractive entry and exit yields. Pricing dislocations are presenting rare opportunities to acquire core assets at a discount to historical benchmarks.
- A cyclical inflection point. Core investment has reached a historic low, but the conditions for recovery are now aligning.
Historically, core investment has rebounded sharply after periods of low activity. The recovery will be gradual, but institutions that wait too long risk missing the most attractive pricing. The spread between core asset yields and long-term borrowing costs is expected to narrow, making the current window particularly compelling for long-term capital.
A New Opportunity in Core Development
Alongside traditional core investment, core development strategies are set to play a growing role. Limited prime supply and rising occupier demand for best-in-class space will drive demand for new, high-quality buildings.
Key trends shaping this opportunity include:
- Evolving Lease Structures. More tenant-friendly lease terms, such as caps and collars on rent reviews, will help secure long-term commitments.
- Build-to-Core Strategies. Developing prime assets will allow investors to align with future demand and stabilise returns.
- Alignment with Rental Growth. Strong leasing fundamentals will support pricing for newly developed core assets.
London’s Core Market: A Window of Opportunity
The London office market is at a cyclical turning point. The core sector, having seen historically low investment, is now positioned for recovery as rental growth strengthens and financing conditions improve.
Mispricing in the sector presents a unique window for early movers. As institutional investors re-enter, competition for prime assets will intensify. Those who act now—aligning asset characteristics with tenant demands and capitalising on robust leasing fundamentals—will be best positioned to unlock value in the next cycle.
The next phase of recovery will be defined by core investment. London’s depth of capital, supply constraints, and strengthening fundamentals will ensure that prime assets remain at the centre of the market’s resurgence. Investors who recognise this shift and move early will be at a clear advantage.
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