- Vacancy rates in London’s office spaces have fallen to 7.4%, from a peak of 9.5% in 20233
- Schroders forecast an 8-10% total annual return for UK real estate over the next 4 years
- London’s tube usage is between 75% to 86% of the pre-COVID-19 baseline2
How we live, work and shop have implications for property demand, and since our habits are always evolving – so does the property sector. This week we will discuss the implications that a structural increase in remote and hybrid working has had with regard to office spaces and residential housing in the UK.
Office space
A key impact of the pandemic is a structural shift toward remote working, which has affected office space valuations and investment. According to the Office for National Statistics, before COVID just 12% of working adults reported working from home in the previous week to the survey. During COVID, this number increased to 49%, and in the latest survey, 40% said that they had worked from home in the week prior. These figures suggest that home working, or at least hybrid working is resilient to pressures such as the end of restrictions and increased cost of living. This data is supported by research from the Centre for Cities think tank, who have found that the average London full time worker now spends 2.7 days in the office, up from an average of 2.2 days in 2023.
This shift has had implications within the prime London office sector, with Savills reporting that vacancy rates in the City and West End have declined from their peak in late 2023, to 7.4% at present. They’ve also found that the demand for office space hasn’t been felt evenly, with a concentrated interest for offices nearby to transport hubs with more facilities, good energy efficiency and cafes achieving higher rental prices. Tenants are seemingly willing to pay a premium for this, with rents fetching £150 per square foot in the City and £250 in the West End. Given costs of construction have risen sharply, this has given landlords a unique opportunity to upscale their assets to meet tenant demand.
Housing
Though residential property isn’t an area of investment within Bowmore portfolios, we are mindful that many of our clients might have an interest in some commentary. As explored above, the increase in remote working vs pre-pandemic levels has changed the type and location of homes that households choose to live in. This is evident within the UK’s property market, with the value of houses continuing to cost a premium relevant to flats.
House price index by property type, January 2018 = 100
Source: Capital Economics, 2025
Leading indicators show that UK house prices have held up in recent months despite a softening economic outlook, and although demand has recently been subdued, we believe this is only a temporary effect from the increased stamp duty charge. Indeed, in Scotland where such changes didn’t take effect, RICS new buyer enquiries held stable4.
Moving forward, we expect demand to be supported by a lower interest rate and thus mortgage rate, as discussed in previous weeks, we believe that the trajectory of rates will be downwards in the UK given their current level (4.25%) is still in restriction territory vs inflation (3.5%) and economic growth forecasts remain subdued. Further support is given by the limited new supply of residential property as the share of new planning applications granted remains below the government’s target and persistent planning delays remain to housebuilders.
Bowmore portfolios
We regard UK commercial real estate as a resilient asset class, characterised by its consistent income streams that have historically accounted for more than 70% of total long-term returns1.
Within our core and ESG portfolios, we hold an allocation to the commercial property sector via the Picton Property Income real estate investment trust. The fund has diversified exposure across each of the UK commercial property types, owning and managing 47 industrial, office and retail spaces. Their office spaces have benefited from recent investment, and their occupancy rate has increased by 6% in the past year. The fund currently yields 5.7% and has returned 17.94% in share price appreciation over the past calendar year.
Source: LSEG DataStream, data as at 29/05/2025
The value of your investments can go down as well as up, so you could get back less than you invested. Past performance is not a guide to future performance.
Sources:
1 Picton Property, 2025
2 Transport for London, 2025
3 Savills, 2025
4 Capital Economics, 2025