For an asset class written off as a pandemic casualty, offices are staging a surprisingly strong comeback. Investors and occupiers are once again piling into prime buildings, driving rents and values higher—even as artificial intelligence threatens to hollow out white-collar employment.
The reason is strikingly analogue: there simply aren’t enough of the right offices in the right places. That supply constraint is proving powerful enough to offset AI’s long-term digital risks, at least for now.
Investors Are Back — Selectively
After years in the wilderness, offices are once again top of the shopping list for global real estate buyers. A Knight Frank survey of 119 investors managing $1.4 trillion of assets shows that 69% are now targeting offices, making them the most sought-after commercial property sector.
Pricing confirms the shift. Prime office yields have compressed sharply: around 3.25% in London’s West End, roughly 5.25% in the City, about 3.25% in Singapore, and near 4.15% in Paris. That puts the best offices much closer to favoured sectors such as industrial, residential, and retail warehouses than at any point in recent years.
In other words, top-tier offices are no longer being priced as distressed assets.
Occupiers Are Moving Early
Tenant behaviour mirrors investor sentiment. Rather than waiting until lease expiries loom, large corporates are locking in future space well in advance.
BlackRock’s London leases run until 2035, yet brokers say the firm is already quietly lining up options for its next generation of offices. Similar patterns are emerging globally, as deep-pocketed tenants compete for the best floors long before they are needed.
In Hong Kong’s Central district, Jane Street has taken more than 220,000 square feet at Central Yards, while asset manager Qube has agreed to roughly 146,000 square feet at Two IFC—nearly doubling its footprint. From London to New York to Asia, prime space is being absorbed early and aggressively.
The AI Anxiety — and Why It Hasn’t Bitten (Yet)
All of this seems counterintuitive given mounting concerns about AI-driven job losses. Banks, insurers, and law firms—traditional office heavyweights—are prime candidates for automation. Bank of America recently said AI tools reduced its coding needs by 30% last year, equivalent to roughly 2,000 roles.
History offers a cautionary tale. After the dotcom bubble burst, US unemployment rose to 6% by 2003, and Manhattan office vacancies jumped from 3% in 2000 to 12% just two years later.
But for now, those risks are being overshadowed by a much simpler force: supply.
A Skipped Development Cycle
Covid lockdowns, construction cost inflation, higher interest rates, and planning delays effectively wiped out a generation of office development in many major cities. The result is a historically thin pipeline of new space coming to market.
Return-to-office dynamics have added another wrinkle. While many firms now mandate three to four days a week in the office, employees tend to come in on the same days. That limits how much space companies can realistically cut without overcrowding.
HSBC’s experience is telling. Its move from Canary Wharf to a smaller City headquarters was meant to be a textbook downsizing. Instead, the bank later realised it was around 8,000 seats short and pivoted back to Wharf space.
Rents Rising, Vacancies Vanishing
The supply squeeze is most visible in leasing markets. Since 2019, prime rents in London’s City and West End have risen roughly 30% to 50%. Vacancy rates for new, top-spec offices in the capital’s best buildings are now below 1%, and some forecasts suggest prime vacancies could hit zero by 2028.
Normally, rising rents would trigger a wave of new construction. This time, developers are holding back. Large office projects can take eight years or more to deliver meaningful rental income, and with current yields still relatively low, many investors prefer buying existing assets that generate immediate returns.
Even new London offices are expected to yield only around 6.5% on development cost—hardly compelling compared with alternatives such as retail parks or secondary offices.
A Market of Haves and Have-Nots
The recovery is highly selective. Older, inefficient buildings in weaker locations remain under pressure, while the best properties are thriving.
In Midtown Manhattan, vacancy rates for top-tier buildings have fallen sharply, while less prime stock continues to languish with double-digit vacancies. That divergence only reinforces demand for the highest-quality space, as tenants crowd into modern, energy-efficient buildings that meet ESG and talent-attraction requirements.
Scarce, Not Stranded — For Now
If AI ultimately leads to a meaningful and sustained shrinkage in white-collar employment, demand for city offices will suffer. But property cycles move slowly, and today’s market is being shaped far more by physical scarcity than by digital disruption.
For the next few years at least, prime offices look less like stranded assets—and more like scarce ones.