Why is London’s office market doubling down on the Central Activities Zone?
London has long been described as a city of villages – neighbourhoods with distinct identities and economies. However, its commercial heart has traditionally been more monocentric, with the City and West End as the dominant powerhouses of economic activity. From the arrival of Canary Wharf in the late 1980s, to the more recent transformation of Kings Cross and Stratford, hubs have challenged the notion that London’s business centre must be confined to these areas, presenting a polycentric vision for the capital.
Many predicted that Covid-19 would accelerate London’s trajectory towards polycentricity. Deprived of commuters, tourists, and student populations, the City and West End were hit hard by the pandemic. Confined to our local neighbourhoods, we imagined that areas like Hackney and Hammersmith could become centres of economic activity that, while not rivalling the Central Activities Zone (CAZ), offered a viable alternative to city centre commuting and commercial clusters. I argued that innovation districts and investments in placemaking could see emerging hubs outside the city centre flourish.
But old habits die hard. As return-to-office rates stabilise, and the Covid years continue to fade into memories, employees, businesses, developers, and investors are doubling down on London’s commercial core of the City and West End. Average prime rents in 2024 saw growth of 10% and 9% respectively, outperforming growth outside the core.
While we shouldn’t really be surprised by this – it’s the urban economy, stupid – it’s worth considering why the capital’s polycentric dream is fading.
The first factor is path dependency. London is a city where commuting into central locations is easier than getting across it. The city’s transport and housing infrastructure are defined by the city’s monocentricity. Crossrail has made central London even more accessible from outer areas, without yet making non-core locations more attractive for commercial development.
The second reason is caution. Challenging economic trends, including the persistently high cost of finance, labour, and materials means that developers are sticking to familiar territory in locations where occupier demand is well established.
Occupiers are cautious too. Many businesses are facing growth challenges, such as increased employment costs and global uncertainties. The ongoing ‘back-to-office’ debate further complicates decisions to move to non-core or emerging districts. While some exceptional occupiers are looking for unique buildings outside the City and West End, they are still in the minority.
Our re-commitment to the City and West End is not just about where people prefer to work, it’s also about how and where we socialise and spend our leisure time. Again, transport connectivity plays a role here. It’s not that there aren’t other parts of London that serve as cultural and retail destinations (e.g. the Westfields at each end of the Central line), but these locations do not yet have the critical mass and mix of uses to compete with established mixed-use neighbourhoods like the West End, with the notable exception of Kings Cross.
So, does it matter if London’s monocentricity is strengthening? The answer depends on where you’ve invested. Emerging hubs outside the City and West End may struggle to attract anchor tenants and institutions to fill commercial spaces. Almost 38% of space built between 2020 and 2024 in the fringe (defined as areas surrounding City, West End, Midtown, Docklands and Southbank) remains vacant, with vacancy rates for new buildings in markets such as Stratford even higher (CoStar). Long-term vacancy of workspace can challenge the vibrancy of newer locations. It’s hard to be a ‘dynamic mixed-use neighbourhood’ if one of those key uses does not materialise as expected.
Some developers, such as British Land and Lendlease, have swung some yet-to-be-built-out plots from commercial to residential with little drama. However, residential development has its own challenges – limited viability, regulatory hurdles, and an inactive affordable housing market hinder delivery.
A more monocentric London brings challenges, such as pressure on transport and the public realm. With a significant time lag in delivering office space, today’s “can’t build it quick enough” could soon turn into “did we build too much?” – especially as AI, new technologies, and shifting work patterns make it harder to predict job growth and office space needs. This makes sub-market expertise, and policies and practices that support flexibility and adaptability of use particularly important.
And is there anything we can, or should do about the shape of London’s future Growth? The London Growth Plan is expected to seek to drive investment in areas outside London core, supporting growth across the capital. I’d argue that breaking free of the gravitational pull of London’s central core will more likely be driven by less predictable economic, social and technological change than it will policy and local growth strategies. In the meantime, the City and West End will likely continue to dominate the future of London’s office market.
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