OCCUPIER CAUTION PERSISTS, BUT STRUCTURAL TAILWINDS AND LIMITED SUPPLY CONTINUE TO SUPPORT PRIME RENTAL GROWTH
Occupier demand softened in Q1 2025 amid rising operational costs and heightened macroeconomic uncertainty. Take-up totalled 11.4 million sq ft, which was down 20% from Q4, but still 7% above the same period a year ago. Leasing strategies remain shaped by cost control, risk mitigation and the need for operational efficiency, with demand concentrated on well-located, energy-efficient space.
Longstanding structural drivers, including e-commerce, nearshoring, digital infrastructure and renewable energy, continue to underpin demand fundamentals. The data centre, defence and sustainability-linked sectors are expected to remain particularly active over 2025. However, occupier margins remain under pressure, and recent US trade policy developments present potential downside risks to export-linked sectors.
Tenants continue to upgrade the quality of their accommodation and release secondary space back to the market. This pushed the availability rate to 7.4% in Q1, which was the highest rate for a decade. However, new-build availability continues to fall, reflecting subdued speculative development. This narrowing of prime supply, combined with generous incentives, is sustaining annual headline rental growth. At 4.5% in Q1 it was the lowest rate since 2020 but remains firmly positive.
