UK Office Construction Hits Decade Low Amid Economic Uncertainty

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Office construction across the UK has dropped to its lowest level since 2015, with total space under development falling to roughly 23 million square feet in the first quarter of 2025. This marks a decline of more than 3 million square feet year on year, according to analysis by CoStar, a provider of commercial property data.

The downturn is driven by economic headwinds and elevated construction costs. High interest rates, inflation, and geopolitical uncertainty have shaken developer confidence. The commercial property sector, already under pressure from shifts in workplace behaviour and a growing preference for hybrid models, is now facing compounding challenges in cost and labour availability.

Developers are increasingly cautious, delaying or downscaling planned projects. CoStar described the sector as “pausing for breath,” reflecting a reluctance to commit to large-scale developments amid volatile economic indicators. This trend poses a setback to the government’s ambition to stimulate growth through office construction.

This broader slump has added to pressure on policymakers, especially as S&P Global recently reported that UK construction is contracting at the fastest pace since the early months of the pandemic. While housebuilding has been hit hardest, the office sector is following a similar trajectory.

London and the Oxford-Cambridge corridor defy the trend

Despite the national downturn, several areas stand out, most notably London and the Oxford-Cambridge arc. These regions account for a large share of the UK’s office construction pipeline in early 2025.

In London, around 12 million square feet of office space is under development. Notable projects include One North Quay, a life sciences facility in Canary Wharf, and 50 Fenchurch Street, a 650,000 square foot office build. Demand is concentrated on Grade A buildings, with amenities such as fitness suites and wellness rooms helping to attract staff back to physical workplaces.

Oxford and Cambridge, supported by strong university links and active tech sectors, are also performing well. With 1.8 million square feet under construction, developers are targeting growing demand from spin-offs, research institutions, and tech firms. These cities are positioning themselves as credible alternatives to the capital for science and innovation tenants.

Regional disparities highlight uneven development

While London and the Oxford-Cambridge corridor push ahead, other parts of the UK are stalling. Cities such as Liverpool, Bristol, and Glasgow are seeing minimal activity, held back by high vacancy rates and weak demand for new builds.

With existing stock underused, there is little commercial appetite to introduce more office space. This creates a loop: without modern developments, cities struggle to attract investment or retain key tenants, limiting their competitiveness in the business property market.

In many regional centres, ageing office infrastructure remains unaddressed, largely due to an absence of economic justification for replacement or refurbishment. Local authorities often lack the tools or funding to influence development trends, deepening the divide between urban hubs and regional markets.

Challenges: workforce shortages and environmental regulations

Labour shortages are a persistent drag on the industry. Post-Brexit, a significant portion of the construction workforce exited the UK, leaving gaps in skilled and semi-skilled roles.

“Manpower is an issue,” said Leona Ahmed, a partner at Taylor Wessing, noting that the sector is finding it hard to replace lost expertise. As a result, developers are seeing project delays and rising costs, further undermining confidence.

At the same time, evolving environmental regulations are shaping development priorities. Rules around energy efficiency and emissions compliance are raising upfront costs and complicating planning. While these changes align with long-term sustainability goals, they are a hurdle for developers already operating in a tight financial climate.

The Royal Institution of Chartered Surveyors (RICS) identified these regulatory demands as one of the barriers to growth, suggesting that policy support may be needed to help the industry adapt.

There are signals that the market could stabilise, though recovery will likely be gradual. Construction orders rose to a three-year high in early 2025, suggesting some developers are positioning for future demand once conditions improve.

The government is also promoting reforms through its planning and infrastructure bill, along with updates to the National Planning Policy Framework. These initiatives aim to streamline approvals and encourage building activity, although their impact remains uncertain.

If combined with targeted incentives for regional development, these efforts could help narrow disparities between high-performing areas and those lagging behind. Encouraging refurbishment of outdated buildings and supporting green infrastructure may also play a role.

Sources:

• Financial Times