51乱伦

J.P Morgan Asset Management's redevelopment of 65 Gresham Street, EC2, will add a whopping five storeys to the existing building, making it "one of the largest building reuse projects in the City of London," according to the architects .

It's just as well, because Squarepoint Capital, which will occupy the entire 400,000 square foot building when it completes in 2028, wouldn't have fitted otherwise. The deal was the largest office occupier transaction signed in the capital during Q2, and was one of six that exceeded 100,000 square feet, Shabab Qadar writes in 51乱伦's latest London Office Market Report. 

The return of larger transactions was a key factor in driving take-up to 3.5 million sq ft, up 38.5% from the previous quarter and 26% above the long-term average. That brings take up during the first half of the year to 6m sq ft, which is 7% above the long-run trend. Occupiers once again competed for best-in-class space; almost three-quarters of take-up was for new and refurbished space 鈥� a new high. This equates to 2.6m sq ft 鈥� some 77.6% ahead of the long-term average.

We may see a quieter Q3. Recent deals take a chunk of the active requirements off the table, though 'active demand' remains 7% ahead of long-run averages at 10m sq ft. Plus, there were just two spaces in excess of 100,000 sq ft in solicitors' hands at the end of June, though Shabab notes that "several active requirements in the market could go under offer heading into the second half of 2025." 

An acute shortage

Availability fell by 2.1% over the quarter to stand at 23.3m sq ft, but this remains 27.4% above the long-term trend. That brings the vacancy rate at the end of Q2 to 8.8%, down from 9.0% at the end of Q1. The combined vacancy rate for new/refurbished space remained stable at 5.4% over the quarter, and is down from 5.8% 12 months ago.

The construction pipeline suggests that the acute shortage of quality space in core locations is destined to persist. The volume of space under construction across London fell by 4.4% during Q2 to 15.6m sq ft. Of this, 10.8m sq ft is currently being delivered speculatively, meaning that 4.8m sq ft (30.4%) of the under-construction pipeline is pre-let. 

This is a pretty restricted pipeline when compared to historic average levels of new and refurbished take-up, and we anticipate an undersupply across London of 7.5m sq ft by the end of 2028. There's plenty more, including an overview of investment activity and breakdowns by submarket, in the report.

Risk aversion

Many economists expect on interest rates from the Bank of England tomorrow. Some members of the Monetary Policy Committee (MPC) may vote for a hold while inflation is running well above target, while the majority will probably opt for a 25bps cut. There's also a distinct possibility that  one or more may back a larger, 50bps reduction, in the face of slowing growth and mounting job losses.

The latter two groups got a little more reinforcement yesterday via S&P Global's July . Companies reported the biggest drop in new orders since November 2022 and cut staffing by the most in six months. That said, input price inflation, which covers wages and other supplier costs, remained well above long run-averages, though moderated to its lowest so far in 2025. Strong cost pressures were widely linked to efforts by suppliers to pass on higher National Insurance contributions and National Minimum Wage rates.

"Risk aversion and low confidence among clients were the main reasons provided for sluggish sales pipelines, alongside an unfavourable global economic backdrop," said Tim Moore, Economics Director at S&P Global Market Intelligence. "Hiring trends were especially subdued, with total workforce numbers decreasing to the greatest extent since February."

A 25bps cut from BoE tomorrow is a near-certainty, according to pricing in financial markets. The move is already priced into mortgage rates, so we expect little movement on that front in the near term 鈥� the best fixed rates sit just below 4%. Markets expect an additional two 25bps cuts by next summer. 

The impossible trilemma

Just how large is the fiscal shortfall Chancellor Rachel Reeves will need to address in the Autumn Statement?

Conventional wisdom has coalesced around a figure of about £20 billion in either spending cuts or tax rises if she is to stay on track to meet her key fiscal target of balancing day-to-day spending with revenues by 2029-2030. However, from the National Institute of Economic and Social Research (NIESR) suggests it may be as large as £41bn (or £50bn if she intends to keep the £9 billion or so of headroom).

That puts the situation well beyond tinkering. Indeed, David Aikman, director of the NIESR says the chancellor now faces an 鈥渋mpossible trilemma鈥� of choosing whether to break pledges on sticking to her fiscal rules, meeting spending pledges or avoiding tax rises on 鈥渨orking people鈥�. Raising income tax rates would be the best way to rebuild a fiscal buffer, the think-tank argues.

That will be very unpopular. However, "the most politically acceptable choices鈥�.鈥�.鈥�.鈥墂ould either raise very little revenue or would have large distortionary effects," the group said, in a potential hint at the unsuccessful attempt to raise taxes in a sustainable way so far.

Separate analysis of Companies House documents this morning showed that 3,790 company directors reported leaving the UK between last October's budget 鈥� when the latest round of non-dom reforms were confirmed 鈥� and last month, compared with 2,712 in the same period a year earlier. The departures rose to a monthly peak of 691 in April 2025, just as the non-doms changes took effect.

In other news...

Almost half of UK companies want staff 鈥榦n site鈥� all the time, survey finds ().