Decline in new work output in 2025
According to ONS data, office construction output experienced a significant decline of 20% in 2025, dropping to £10.2bn from a record high of £12.8bn in 2024 – the sector’s strongest performance in sixteen years.
This downturn is primarily attributed to increased caution among developers and investors due to economic uncertainty, weak business confidence, and high construction and borrowing costs, which have suppressed new starts. Additionally, ESG regulations and the transition to net zero are increasing specification requirements, meaning only the best-in-class projects are moving forward.
Encouraging trends in new orders
Despite weaker output, leading indicators paint a more positive picture. Office construction new orders increased by 19% in 2025, reaching their highest level since 2007. This suggests that investor confidence remains strong for prime office schemes, despite ongoing economic and market challenges.
However, Barbour ABI data shows that the number of contract awards fell by almost one-third between 2023 and 2025. This indicates a market increasingly concentrated around fewer, larger projects, with capital continuing to favour high-quality developments in the most attractive locations.
Historically, there is a 12-18 month lag between new orders and construction output, which would normally imply a recovery from 2027 onwards. However, ongoing economic uncertainty, geopolitical risks and continuing viability pressures are likely to delay project starts. As a result, Barbour ABI expects a more meaningful improvement in office construction output to emerge from 2028 rather than 2027.
Grade A supply crunch intensifies
The defining theme across the UK office market remains the growing shortage of Grade A space.
In London, Grade A vacancy rates in City tower stock have fallen to around 2%, while availability across the UK’s six major regional office markets stands at just 3.6%. Vacancy rates for new-build offices are also close to historic lows.
Market forecasts suggest the supply-demand imbalance will worsen before improving, with several major agents warning of severe shortages of Grade A office space by 2028.
The tightening supply picture reflects a sustained recovery in occupier demand since 2024, alongside the enduring “flight to quality” trend. Occupiers are prioritising well-located, high-specification offices that offer strong amenities, sustainability credentials and modern working environments. As a result, demand for ESG-compliant Grade A space remains robust, while older, lower-quality stock is experiencing rising vacancy levels and weaker rental performance.
Refurbishment takes centre stage
New build work accounts for the majority of the total office construction pipeline by value, at 74%; however, in project volume terms, the split is more equal, with 54% coming from new work. This reflects a structural shift in how the market is delivering space: with new-build activity limited and supply of sought-after prime spaces becoming increasingly scarce, landlords are now concentrating on high-quality refurbishments. Refurbishment projects are typically cheaper, faster to deliver and carry lower development risk, making them an attractive option in the current market environment.
The refurbishment market is also being driven by tightening sustainability regulations. Landlords are investing in upgrades to improve building performance, meet Minimum Energy Efficiency Standards (MEES) and prepare for future EPC requirements. As a result, high-quality refurbishment is becoming a key route to delivering the Grade A office space sought by occupiers.
Outlook
The current pattern of subdued new-build activity and rising refurbishment activity is expected to continue over the short term. A sustained recovery in office development will depend on improving economic conditions, stronger business confidence and greater certainty around financing and project viability.
However, the fundamental demand drivers for high-quality office space remain firmly in place. With Grade A vacancy rates at exceptionally low levels and supply shortages expected to intensify, the market is laying the foundations for the next development cycle. Barbour ABI expects a more visible recovery in new-build activity from 2028, when additional supply will be needed to address growing shortages that refurbishment activity alone is unlikely to resolve.
Commercial Office Construction Market Report by Barbour ABI
This report examines the size and performance of the Commercial Office Construction market, includes a detailed regional analysis, profiles key contractors, and highlights market trends and drivers. It also provides a market forecast extending to 2030.
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Contents
