The UK commercial office market remained resilient during Q2 2026, despite ongoing economic uncertainty and constrained development activity. Demand continues to be concentrated within prime, ESG-compliant Grade A office space, creating a clear bifurcation between best-in-class assets and older secondary stock. Occupational demand remains robust across London and key regional cities, supported by growth in professional services, technology and AI-related sectors, while a shortage of high-quality supply continues to drive rental growth.
The market is increasingly shaped by the challenge of delivering sustainable, future-ready workplaces against a backdrop of elevated construction costs, financing constraints and evolving regulatory requirements. Retrofit and repositioning strategies are becoming more prevalent as developers seek to enhance asset performance while managing risk and capital expenditure.
Leasing and demand
Occupier activity remained healthy throughout the first half of 2026. Central London leasing volumes exceeded both 2025 levels and long-term averages, reflecting continued confidence among larger corporate occupiers. The market remains heavily driven by the “flight to quality”, with Grade A offices accounting for over 90% of leasing activity. Buildings offering strong sustainability credentials, quality amenities and flexible workspace arrangements continue to outperform.
Prime rents continue to strengthen, particularly within the City and West End markets where supply constraints remain acute. Regional centres including Birmingham, Bristol and Edinburgh are experiencing similar rental growth, while secondary assets continue to face increasing incentives, weaker demand and growing obsolescence pressures.
Construction market and cost pressure
Although headline construction inflation has eased from the peaks experienced between 2021 and 2024, development viability remains challenging. Labour shortages continue to impact specialist trades, particularly building services, façade and fire safety packages. Contractors remain selective and are increasingly seeking greater risk allocation certainty before committing to projects.
Speculative development activity remains subdued due to elevated borrowing costs, planning delays and contractor pricing pressures. Consequently, the office development pipeline remains constrained, supporting ongoing rental growth within prime markets. Current supply levels indicate a shortage of new Grade A stock relative to anticipated demand over the next several years.
For developers and investors, refurbishment continues to offer an increasingly attractive alternative to new-build development. Deep retrofit schemes can provide ESG improvements, reduced embodied carbon and shorter delivery programmes, often at a lower cost than demolition and redevelopment. From a QS perspective, robust cost planning, procurement management and whole-life cost analysis remain essential to maintaining project viability.
Sustainability and regulatory landscape
Sustainability has become a core investment and occupier requirement rather than a competitive advantage. The majority of leasing activity is now focused on buildings with strong EPC performance, recognised sustainability certifications and lower operational carbon footprints. The Government continues to advance reforms to the Energy Performance Certificate framework, while also confirming its intention to strengthen Minimum Energy Efficiency Standards for larger non-domestic buildings. Although the previously proposed EPC C milestone for 2027 has been withdrawn, the direction of travel towards higher energy performance requirements remains clear.
For many landlords, the challenge is no longer compliance alone but protecting long-term asset value. Older office stock will increasingly require investment in building fabric, MEP systems and operational efficiency improvements to remain competitive and financeable.
Key takeaways from the BCO Annual Conference 2026 – Edinburgh
The British Council for Offices Annual Conference 2026, held in Edinburgh and Glasgow under the theme Festival of Enlightenment, reinforced several themes highly relevant to our business. The conference showcased leading examples of new-build, retrofit and repurposed office developments, highlighting the industry's growing focus on adaptability, ESG performance and long-term asset resilience.
Four key messages emerged:
Retrofit-first strategies are becoming mainstream, with refurbishment increasingly viewed as the preferred route to balancing cost, carbon and programme objectives.
Social Value as a Core Value: Social impact is transitioning from a "bolt-on" requirement to a core metric in value creation. Developments are increasingly tasked with balancing between community-focused design, social value output, and core construction costs.
Artificial Intelligence is expected to influence real estate demand and workplace design, but its wider impact on energy consumption, infrastructure requirements and asset operational performance was identified as equally significant.
Cities remain the focus of future investment and growth, with strong demand for well-connected innovation hubs, high-quality and sustainable office accommodation expected to continue despite wider market uncertainty.
The conference also highlighted the importance of collaboration between investors, developers, consultants and occupiers in delivering commercially viable, sustainable workplaces that remain relevant throughout their lifecycle.
Market outlook
The outlook for the remainder of 2026 remains cautiously positive. Demand for premium office accommodation is expected to remain robust, while constrained supply and limited speculative development continue to support rental growth. However, rising sustainability expectations, regulatory change and cost pressures will accelerate the divergence between prime and secondary assets.
