UK Real Estate: City Leads the Way in 2Q

Research evidence excerpt

UK Real Estate: City Leads the Way in 2Q

. Construction starts totalled

1.2m sq ft during the quarter, concentrated largely in South Bank and the West End

(c.500k sq ft each). On current forecasts, 2026 remains on track to deliver a record level

of completions. The 2027 pipeline has stabilised and stands c.32% below the 2026

peak, while 2028 forecasts were reduced by 9%, with some completions pushed into

2029. Roughly half of the projected 2028 completions are already under construction,

although achieving CBRE's estimate will require another strong period of starts in 2H26,

particularly among refurbishment projects that can be delivered within two years.

Improving rental-growth expectations are encouraging developers to advance more

speculative schemes. As a result, the pre-let share of space under construction has fallen

from 46% in 1Q25 to 33%. While this is not yet a full development cycle, it is clear that

the development market is responding to tightening supply conditions and improved

viability assumptions.

South Bank records first Central London outward yield movement since 2023

Prime rents increased in the City (+2.7%) and Midtown (+5.0%), while remaining

unchanged in the West End and South Bank. Although it is too early to draw firm

conclusions, this aligns with MSCI data showing a moderation in West End rental

growth and a reacceleration in the City through 2Q. Combined with tighter new-supply

conditions, this suggests scope for the divergence to continue through 2H26. Prime

yields were unchanged across all submarkets except South Bank, where yields moved

out by 15bps. This marks the first outward yield movement in a Central London office

submarket since 2023. Valuation guidance for City and West End yields remains stable.