London’s office market has split in two, with record rents and record vacancies at the same time. The office commercial mortgage – David Farmer explains what it means for anyone buying an office and how to fund it.
Two things are happening in the London office market right now that, on paper, should not happen together: record rents and record vacancies. You would think one would cancel the other out. It hasn’t. Both are true at the same time, and once you understand why, the whole market starts to make a lot more sense.
If you are looking at an office commercial mortgage or investing then this is worth knowing.
Picture two office buildings within a mile of each other in central London. One is fully let, and the landlord is fielding competing bids on every floor that comes free. The other is quietly losing tenants, offering rent-free periods and incentives just to keep the lights on. Same city, same postcode, completely different fortunes.
That is the market in one image: it hasn’t collapsed, it has split in two. And where there’s a split, there’s opportunity, for buyers who know which side of the line they want to be on.
Start with rents, because that’s where the story shows itself. According to SHB Real Estate, the market-average Grade A rent in the City hit £80.43 per square foot in the first quarter of 2026, up 15% year on year. Grade A space in the City Core starts around £70, the wider West End from £45, and fringe markets like Canary Wharf offer unfitted Grade A space from £40 to £65. In other words, the best buildings are commanding the best money, and demand for them is rising, not falling.
Now move away from the centre and watch what happens to the empty space. You don’t have to go far. Hammersmith is carrying a vacancy rate of around 22%, Vauxhall roughly 18%. A lot of that is ageing stock, the kind of building that did a perfectly good job fifteen years ago and now struggles to find a taker.
The reason is simpler than it sounds. Businesses have stopped treating the office purely as an overhead to be trimmed. The good ones now see it as a tool for attracting talent. If you want people to travel in, you have to give them somewhere worth travelling to.
So demand is concentrating on quality, on well-connected locations, on buildings that feel modern. Everything else is being left behind. Overall central London office rental growth is running at about 6.3% a year and trending upward, which tells you exactly where the pull is.
Here’s the part that matters if you’re thinking about acquiring an office, whether to occupy it yourself or to hold as an investment. The split creates two quite separate opportunities, and they need to be funded in completely different ways.
The first is the prime play. If you have the means, buying a best-in-class, well-let building with strong tenants already in place is about as solid as commercial property gets right now. For an office commercial mortgage lenders will be attracted. Yields are stabilising, confidence is returning, and mortgage rates are lower than they’ve been in recent years.
The catch is competition. Owner-occupiers with deep pockets are fighting for the same prime stock as seasoned investors, so when the right building appears you often need to move quickly and with certainty.
The second is the value play, and it’s the more interesting one for anyone with a bit of appetite for risk. Secondary office stock is in high supply and, relatively speaking, cheap. Modernise one of these tired buildings properly and you can transform both its rent roll and its capital value, because the tenants who want good space are out there waiting. It takes real work and real money, but the gap between what you pay and what the finished building is worth can be substantial.
“The mistake I see people make is treating an office purchase like a single type of deal. It isn’t. Buying a fully-let prime building and buying a tired one to refurbish are two different animals, and they need two different funding structures. Get that right at the start and everything downstream gets easier.
Get it wrong and you can spend months trying to force the wrong loan onto the wrong building.” – David Farmer, Lime Finance Solutions
There’s a deadline you can’t ignore in any of this, and it’s changing how lenders think. From 2031, privately rented commercial buildings over 1,000 square metres will need an Energy Performance Certificate (EPC) rating of B to be legally let, where it’s cost-effective to get there. An EPC is simply the rating that tells you how energy-efficient a building is, from A at the top to G at the bottom, and B is a demanding standard for older stock.
For landlords sitting on secondary offices, that’s a genuine fork in the road. Do you invest heavily to bring the building up to standard, or do you plan an exit and accept the loss in value while you still can?
The government reckons tenants in these larger buildings could save up to £360 million a year once the standard bites, which gives you a sense of how much energy, and cost, is currently leaking out of Britain’s older offices.
For a buyer, though, that fork is where the bargains live. A building that’s below standard today is a problem for its current owner and a project for you, provided you go in with your eyes open and your finance structured around the refurbishment, not just the purchase. This is the same logic I wrote about in the rising cost of commercial borrowing: waiting rarely makes the sums better.
Here’s where a good funding structure earns its keep. As competition for quality office stock has strengthened, more lenders are competing to lend against these assets, more lenders wanting to lend on office commercial mortgage loans. That’s genuinely good news for buyers. To win the business, many lenders have loosened their criteria, and some are now “niching” into specific corners of the market where they’ll happily out-price everyone else, on the right deal.
The trouble is you can’t see that from the outside. To a buyer walking into their own bank, there’s one product and one answer. Going direct to a single lender is a bit like representing yourself in court: you might win, but a good advocate knows how to present the case, and knows which court to bring it to in the first place.
The whole point of using a broker with whole-of-market access is that we can see which lender is currently hungry for exactly the kind of building you’re buying. Some lenders love an office commercial mortgage, others are more hesitant.
The two buying opportunities map onto two different funding approaches. For a prime, well-let purchase, you’re typically looking at a specialist office commercial mortgage structured around the strength of the tenants and the income. Where you need to complete fast to beat the competition, short-term finance with a commercial mortgage planned as the exit can get you over the line and then refinanced onto sensible long-term terms once the dust settles.
For a secondary building you intend to refurbish, the structure has to account for the works and the uplift, not just the day-one value, which is a different conversation entirely. Fund now, move to an office commercial mortgage later.
Rates matter here too, and they don’t move the way residential rates do. The Bank of England base rate has been held at 3.75% through the summer of 2026, but office commercial mortgage pricing is driven as much by swap rates and lender appetite as by base rate, which is why the same building can attract very different offers. I’ve explained the mechanics of that in more detail in our piece on UK swap rates in 2026.
One more thing worth knowing if you’re buying with tenants in place: the Landlord and Tenant Act 1954 shapes how lenders view the security of that income, and it can quietly affect what you’re offered. It’s exactly the sort of detail that doesn’t surface until late in a deal, unless someone’s looking for it early.
If you’re eyeing an office purchase in London or anywhere else right now, the single most useful thing you can do is be honest about which building you’re buying. A prime asset and a tired one aren’t just different prices, they’re different projects with different risks and different lenders behind them. The market has done you a favour by splitting so clearly. Your job is to pick your side and fund it properly.
In 30 years of arranging finance, I’ve learned that the deals that go wrong are rarely the ones that were too ambitious. They’re the ones where the funding never quite fitted the building. For an office commercial mortgage – Get the structure right at the outset, with a lender that actually wants your type of deal, and the complicated ones complete far more smoothly than people expect.
If any of this is relevant to where you are right now, whether it’s a prime building you need to move quickly on or a secondary one you fancy transforming, it’s worth having a conversation before you’re too far down the road. I’m always happy to have that conversation.
David Farmer Lime Finance Solutions
Yes. That’s an owner-occupier office commercial mortgage, and lenders assess it partly on the strength of your trading business as well as the property. It’s a different calculation from an investment purchase, and often opens up different lenders, so it’s worth knowing which route you’re on before you apply. The good news? There are some Government backed schemes specifically for this purpose.
Usually not as a straight office commercial mortgage. A refurbishment purchase is normally funded with short-term or development-style finance that accounts for the works, with a commercial mortgage arranged as the exit once the building is improved and let. Structuring it as a single joined-up plan from day one is what keeps the costs down.
From 2031, privately rented commercial buildings over 1,000 square metres will generally need an EPC rating of B to be let, where it’s cost-effective to reach it. For a buyer it’s less a worry and more a factor to price in: a below-standard building may be cheaper to buy precisely because the current owner faces that cost. Just make sure your numbers include getting it up to standard.
Your bank can only offer you its own products. Right now, lenders are competing hard for good office commercial mortgage deals, and some specialise in specific building types or buyer profiles where they’ll price far more keenly. A whole-of-market broker can see who’s currently hungry for your kind of deal, which you simply can’t tell from the outside.
Faster than most people think, if it’s set up correctly. Where speed matters, short-term finance can complete in a matter of weeks and then be refinanced onto a longer-term office commercial mortgage. The key is planning the exit at the same time as the entry, not afterwards.
Sources and further reading: original market analysis by Lucy Waters, Aria Finance, published in Mortgage Strategy, July/August 2026; office rent and vacancy data from SHB Real Estate; Bank of England base rate; government guidance on commercial minimum energy efficiency standards (MEES) and the EPC B implementation consultation.
Over 30 years finance experience. Former credit underwriter, founder of Lime Finance Solutions in 2012. Multi Award winning business, featured in Sunday Telegraph, Parliamentary Review, Sky TV and others. Regular contributor to press and business associations. FCA Authorised, ALIBF Qualified. Specialist in Commercial Mortgages, Business Lending, Property and Development Finance.
Tel: 01293 541333
Email: hello@lime-fs.com
Tel: 0207 866 2102
Email: hello@lime-fs.com
Tel: 01293 541333
Email: hello@lime-fs.com
Tel: 0207 866 2102
Email: hello@lime-fs.com
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