The easy narrative about hybrid work and London office space is that emptier desks mean emptier buildings, and that the commercial property market has been shrinking to match. The actual data tells a more specific — and more interesting — story: vacancy has been falling, not rising, but the recovery is deeply uneven, and hybrid work has changed the kind of space occupiers want more than it’s reduced how much space the market as a whole needs.
Vacancy is down, not up
Central London office vacancy peaked at around 10.6% in early 2025 and had fallen to roughly 7.4% by February 2026, according to data from Savills, Cushman & Wakefield, and CoStar — still about 110 basis points above the long-term average, but moving firmly in the opposite direction from the “permanent office decline” story that circulated widely a few years ago. Leasing activity across Central London was up 6% on the first quarter of 2025 and running roughly 1% above the ten-year average, which is a description of a market with genuine demand in it, not one in structural retreat.
The recovery isn’t evenly spread
Here’s where hybrid work’s actual effect shows up: that vacancy figure hides a sharp split between building quality. Grade A vacancy in London’s core postcodes sits below 1%, while older stock in areas like Docklands or outer West London runs vacancy rates as high as 12.6%. That’s not a small gap — it’s the difference between a market with almost no available prime space and a market with a genuine oversupply problem, sitting inside the same headline vacancy number.
That split is a fairly direct result of how companies have actually adapted to hybrid work. Fewer businesses need as much square footage as before, but the ones renewing or relocating are increasingly unwilling to compromise on quality for the space they do keep — the trade-off has shifted from “how much space” to “how good is it,” which rewards well-located, well-specified buildings and leaves older, harder-to-reach stock struggling regardless of price.
Size matters as much as quality
The other clear divide is between occupier size. Larger companies have largely kept their nerve, continuing to sign substantial leases on prime space. Smaller occupiers have been more cautious: transactions under 10,000 square feet ran about 25% below their recent average in early 2026, even as overall leasing volumes held up. That’s consistent with what’s showing up in cost data elsewhere — smaller businesses working through a genuinely higher-cost environment have less appetite for committing to a multi-year lease when they’re not confident how much space, or how many staff, they’ll need in two or three years.
Savills’ own research into occupier strategy this year backs that up directly: hybrid working policy remains on the agenda for most companies, but it isn’t treated as a decisive strategic priority on its own — it’s one input among several into a broader rightsizing decision, alongside cost, location, and how the company expects headcount to change. The practical output of that thinking tends to be smaller but noticeably better space, rather than simply less space.
What “smaller but smarter” actually costs
None of this is free for the companies making the trade. Prime, well-located space in the postcodes where vacancy is tightest doesn’t come at a discount just because a company needs less of it — if anything, competing for a shrinking pool of genuinely desirable buildings has kept per-square-foot costs firm in exactly the locations where demand is concentrated. A company downsizing its footprint by a third isn’t necessarily saving a third on its property costs, because the space it’s keeping now needs to justify the commute in a way that wasn’t really a design requirement before hybrid work existed — better natural light, better transport links, amenities that give people a reason to come in beyond “my desk is here.” That’s a more expensive brief per square foot, even when the total footprint shrinks.
What this actually means going forward
The property market’s honest read on hybrid work, three-plus years in, is narrower than either “the office is dead” or “the office is back to normal.” Companies still want offices. They want fewer square feet per employee than they did before, concentrated in buildings that are genuinely worth the commute, and they’re less willing than they used to be to pay a premium for square footage they won’t use. For landlords, that’s a demanding standard to meet, and it’s exactly why the vacancy gap between the best buildings and everything else keeps widening rather than closing — a fairly ordinary market response to occupiers who’ve simply gotten more specific about what they’re willing to pay for.
