City of London core office vacancy falls to 9.6%, lowest since mid-2020

CoStar data reported by IREI put core City of London office vacancy at 9.6 percent in the first quarter of 2026, the lowest since mid-2020. The Square Mile has been tightening since the second half of 2023, with tenants chasing the best buildings in the best locations absorbing most of the new space arriving in that stretch.

Their appetite is narrow and narrowing. Wider London averaged 11.4 percent vacancy over the same period and plateaued, leaving the core a little under two points tighter than the city around it. Inside the core the split runs deeper: four- and five-star stock absorbed 2 million square feet on an annual net basis while three-star stock gave back 150,000 square feet. For anyone underwriting City office debt, both spreads matter — quality within the core, and the core against the wider market.

That absorption drew support from new delivery: British Land and GIC pre-let the entire 546,000 square feet at 1 Broadgate to tenants including global law firm A&O Shearman, relocating from nearby Bishops Square, and real estate consultant JLL, which has recently completed its move from Soho.

Leasing, however, contracted sharply in the second quarter of 2026, to around 900,000 square feet, with IREI pointing to recent economic and geopolitical uncertainty and a growing shortage of high-quality availability as the brakes. A market where the best space is scarce enough to slow its own absorption is tightening on supply as much as on demand, which makes the falling vacancy a statement about construction at least as much as about tenants.

The Düsseldorf club deal this publication covered in September made the same point from the seller's side: the benchmark for German CBD office was still being set by whoever controlled the asset, with the price withheld and a retained interest kept in the trade. In the City the benchmark is being written from the other end of the table, by tenants who are voting for four- and five-star space and leaving three-star stock behind.

New high-quality buildings are the variable: if they keep landing, the core absorbs them and the vacancy number stays a fair reading of demand; if the pipeline thins, the rate keeps falling for reasons that have little to do with tenants. The vacancy reading covers the first quarter; the leasing contraction covers the second. Second-half delivery will show whether the falling rate reflects tenant demand or a shortage of the best space.