London's FDI leadership status threatened by office space shortage

London remains the world's top destination for foreign direct investment, according to a new report from the London Property Alliance (LPA), which represents major property developers and investors.

London - LPA

However, this primacy is at risk due to a severe shortage of modern office space, particularly in the Prime West End, where vacancy rates have hit a historic low of 0.8%.

The LPA's "Global Cities Barometer" analysed 19 economic and societal indicators across London, New York, Paris, Berlin, and Hong Kong. The findings reveal that while London attracts significantly more investment projects than its competitors—more than double Hong Kong and almost seven times Berlin—it struggles to provide the necessary commercial space to convert this capital into jobs and economic growth.

Since 2018, Central London has lost 1.3 million m2 of office space, with a projected shortfall of nearly 1.02 million m2 over the next five years. This structural issue is starkly evident in the West End, where prime office rents surged by 15.8% in 2025, the highest among the analysed global cities, reflecting the severe supply-demand imbalance. In contrast, Manhattan's office vacancy rates are above 20%.

The LPA warns that London risks failing to capitalise on its investment leadership without a robust pipeline of new, modern workspaces. Upgrading the vast amount of ageing, "secondary" office stock (over half of Central London's office space) could generate an additional £84 bn (€98.8 bn) in economic output and £262 bn (€308 bn) in investment value. To address this, the LPA advocates for designating offices as critical economic infrastructure within the National Planning Policy Framework.

While London's information and communications sector showed strong growth, its projected slowdown in 2026, coupled with a contraction in finance and insurance, highlights a growing concern. The report underscores that without sufficient high-quality workspace, London's ability to create jobs and generate tax revenues from its significant foreign direct investment will be severely hampered.

Charles Begley, chief executive of London Property Alliance, said: “We have lost 14 million square feet of office floorspace in the CAZ since 2018, half of which is in Westminster, and occupiers are renewing leases not by choice, but because there is nowhere else to go. Offices are critical economic infrastructure. Designating them as such in the National Planning Policy Framework, giving schemes the same planning weight as data centres and gigafactories, would be a decisive and low-cost intervention that unlocks growth, creates jobs and keeps London globally competitive.”

The LPA’s "Global Cities Barometer" was co-produced with the Centre for London and utilises data from Oxford Economics. It offers an analysis of 19 economic and societal indicators—such as employment, public transport ridership, office availability and costs, air travel demand, and new housing developments—for major global cities including London, New York, Paris, Berlin, and Hong Kong.