Availability of "new and refurbished, best-in-class offices" has hit an all-time low across the South East of England as occupier demand focusses almost entirely on prime buildings.
Knight Frank data shows that 680,000 square feet of offices was transacted in the first quarter of 2026, an 1.2% increase on the final quarter of 2025, extending the region’s strongest run of leasing activity since 2019.
Knight Frank says the "defining shift" is in the composition of demand, with 580,000 square feet of first quarter take-up transacting within new or refurbished Grade A developments, accounting for 85% of all activity. It said this confirms that the “flight to quality” has fully evolved into a "structural concentration of demand in modern, ESG-compliant buildings".
The quarter’s largest deal saw Microsoft secure a new 80,000-square-foot headquarters at Thames Valley Park in Reading, as revealed by CoStar News. CBRE advised Microsoft while Hatch Real Estate and Knight Frank acted for the landlord Baumont Real Estate.
New supply is being absorbed at pace, Knight Frank says. Clarendon Works in Watford is now fully let following a 20,500-square-foot letting to Ralph Lauren, while Tempo in Maidenhead has also reached full occupancy, the latter securing a 30,000 square foot letting to American multinational technology company Zebra Technologies at what market sources suggest is a near record for the town of £60 per square feet. The rapid take-up of these schemes highlights the speed at which new prime developments are being let.
Knight Frank, Lambert Smith Hampton and Bray Fox Smith are letting agents for The Clarendon Works, while Knight Frank and Bray Fox Smith advised Legal & General at Tempo. JLL advised Zebra.
Knight Frank said demand patterns have resulted in a critical shortage of availability. Vacancy for new or comprehensively refurbished Grade A space sits at just 1.7%, compared with 10.6% across the wider market, leaving occupiers with very limited near-term options.
There is 3.8 million square feet of active occupier demand across the region, against only 1.8 million square feet under construction, with 634,311 square feet due to complete in the second half of 2026.
New supply is highly concentrated. Knight Frank says 500,000 square feet under construction is located outside West London and Cambridge, leaving many established office markets facing little or no new delivery.
In total, 2.7 million square feet of new or prime refurbished Grade A space is available to meet current demand, "intensifying competition for the best buildings and forcing occupiers to commit earlier in the cycle".
Roddy Abram, head of South East and Greater London offices at Knight Frank, said in a statement: “We have moved beyond a flight to quality into a market where demand is almost solely in Grade A space. When 85% of all take-up is focused on new or refurbished buildings, it is clear that modern businesses view best in class workspace as essential. A vacancy rate of 1.7% for this type of space is effectively frictional. In many core markets, there is now very little meaningful availability for occupiers seeking to upgrade their headquarters.
"Development activity has not picked up since the slowdown began in 2020 and what is coming forward is limited to a small number of locations. Without new supply, this imbalance will continue placing upward pressure on prime rents and widening the performance gap between prime and secondary stock. Buildings without a viable pathway to meeting modern occupier requirements will need to consider alternative use options.”
Investment volumes across the region totalled £237 million during the first quarter, 14% less than Q1 2025 and 44% below the previous quarter. The average lot size remains small, at £9.5 million, with the largest transaction being a private investor’s acquisition of Skandia House in Southampton for £27 million.
Private property companies and private investors continue to dominate the market, accounting for 80% of volumes between them, as they sense an opportunity to invest at historically discounted levels.
There is £961 million of stock listed for sale, of which approximately one-third is under offer. This suggests healthier investment volumes going forward, with a number of larger sales under offer.
Simon Rickards, head of national offices capital markets at Knight Frank, said in a statement: “Investor sentiment continues to strengthen, with yields having stabilised over the last 12 months, buoyed by a chronic lack of supply and significant rental growth in most centres. That said, volumes remain stubbornly low by historic standards, increasingly held back by investors not needing to sell, as well as current macro uncertainties.”