While many regional office markets struggle for viability, prime headline rents are forecast to increase at a record-breaking pace in the core markets in 2026, according to LSH’s inaugural Regional Office Market report.

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Despite the challenging economic backdrop, and including growth already secured in Q1 2026, the Big Six city centres (Birmingham, Bristol, Edinburgh, Glasgow, Leeds and Manchester) are forecast to record exceptional growth in 2026, averaging 13% or the year, and led by Manchester and Leeds, with annual growth forecast at 22% and 20% respectively (both moving to £55.00 per sq ft).

Projected growth across the South East markets is a more sedate 4.0% on average in 2026, albeit this is driven by a small number of markets where prime space exists or is being delivered. South East markets with strongest growth forecasts in 2026 include Milton Keynes (up 17%), Oxford (up 8%), South Coast (up 8%) and Brighton (up 8%).

Strong rental growth reflects a continued occupier focus on best-in-class city centre buildings with high quality amenities and strong ESG credentials. However, LSH’s report – entitled ‘Mind the Gap’, highlights the growing polarisation in growth trajectories between the ‘haves’ and the ‘have nots’ across the regional markets. With viability typically requiring headline rents of at least c. £40 per sq ft, the majority of locations are struggling to see development interest.

Flight to quality endures

Regional office demand is resilient but recalibrated, with occupier movements generally fuelled by structural forces and flight to quality. Set against an economically challenging and politically volatile backdrop, take-up has been solid over the first half of 2026. Across the 50 regional markets tracked by LSH, Q1 take-up of 2.6m sq ft was 14% below the five-year quarterly average, while provisional estimates point to take-up improving to 2.9m sq ft in Q2, driven by the re-emergence of large-scale deals.

Flight to quality remains a key theme of demand. Across all markets tracked by LSH, grade A space accounted for a record annual 54% share of take-up in 2025 (and rising to a 58% share in Q1 2026) and comparing with a pre-pandemic annual average of 46%. Aggressive take-up of best-in-class schemes continues to stand out, with prime quality space making up a notable 25% of total take-up in Q1 2026, despite making up only 7% of total current supply.

Prime space has been key to driving demand where it has been delivered. This partly explains stronger rates of take-up in the Big Six city centres compared with the UK’s other regional markets, and the huge variation in performance seen across the many locations that make up the South East. This is reflected in the figures - while Big Six city centre take-up over the past five years stands 7% below the 10-year trend, for all other regional markets (and including out of town), the differential is 17%.

Supply begins to ebb

While overall supply remains elevated, it has been on a gradually downward trajectory since 2024, falling 5% year-on-year. Grade A supply is down by 8%, reflecting flight to quality and limited speculative development. Grade B/C space also fell, albeit by only 3%, marking the first year-on-year contraction since 2019 and driven by the removal of space for redevelopment to alternative uses.

Relative to trend take-up, the tightest-supplied markets in the South East include Cambridge (2.0 years of supply) and Milton Keynes (2.4), while larger examples elsewhere include Newcastle city centre (2.0 years of supply) and Edinburgh city centre (2.4 years). Some markets have significant supply (i.e. above 4 years) but limited prime/grade A choice, notable examples including Sheffield (20% share), Brighton (18%) and Leicester (5%). Very few markets are challenged by both high supply and a high share of grade A space, most notably Heathrow (75% prime/grade A), Uxbridge (58%) and Belfast (82%).

Uneven development

While speculative development ticked up in Q1, appetite remains constrained by a cocktail of high build costs, finance costs and continuing investor uncertainty over exit yields. Total development under construction (net of pre-lets) across all 50 markets stands at 4.9m sq ft, up 16% from the near-12-year low seen at the start of 2025.

For the first time on record, refurbishments account for more than half (54%) of total spec space currently under construction. This shift results from typically lower build costs compared with building anew and the greater number of buildings whose original configuration can be adapted to meet latest occupier needs and achieve ESG compliance

Speculative development is expected to remain muted over the remainder of 2026, with levels of activity forecast remain at close to current levels by year end. However, the underlying spread of activity will concentrate more heavily into the Big Six city centres, most notably Manchester, where c.850,000 sq ft of spec starts are anticipated, comprising a mix of refurbishments and new build.

While there is strong evidence that occupiers are willing to pay up for the best quality space, viability is a major constraint to progress in many markets. Over half of the UK’s regional tracked by LSH show best rents below the minimum £40 per sq f threshold currently required. The market is increasingly seeing occupiers take the initiative and procure the space themselves, via freehold acquisitions and subsequent refurbishment. This was true of Q2’s largest deal. In Plymouth, Babcock acquired the former House of Fraser store where it plans to develop a 195,000 sq ft hub to accommodate c.2,000 staff.

Investment recovery delayed

The outbreak of conflict in the Middle East in March marked a fresh setback for investor sentiment, and came just as hopes for a recovery were starting to build. While June brought positive new of a negotiated resolution, its lingering impact on inflation and interest rate movements has delayed expectations of recovery..

While Q1 volume of £856m across the combined regions showed limited signs of being heavily impacted by events in the Middle East. March was the quietest month in Q1 for transactions, making up only 22% of the quarter’s total and indicative of nervousness around further escalation.

Q2 volume is set to hit circa £500m marking the weakest quarter since the pandemic-afflicted period of Q2 2020. The most impacted part of the market surrounds value-add and change of use angles, given renewed increases to finance costs and build cost inflation. The market for core and core plus product has proven more resilient at 65% of transactions by volume, with notable Q2 deals including Tailors Corner, Leeds (£11.5m, 7.10% NIY) and the Lincoln, Manchester (£55.0m, 6.80% NIY).

Despite Q2’s weak-looking outturn, a relatively healthy c. £1.3bn of stock remains under offer. The strength or otherwise of activity in the second half of 2026 depends on confidence being restored and/or the level to which vendors are prepared to discount on void costs.

In similar fashion to the leasing market, occupiers are willing to fill the gap – Owner occupier led acquisitions accounted for £261m or 27% of total year to date volumes as they continue to exploit discounted pricing from a long term perspective and willingness to invest in their own assets.

Peter Musgrove, Executive Director and Head of Regional Offices, said:

“Despite fragile business confidence, the UK’s regional office markets continue to show resilience. With staff occupancy improving and healthy demand being seen for high quality workspace, limited supply of quality product is the biggest issue facing the market at the moment.”

“Strong rental growth has been crucial in supporting viability and tempting other investors in the development space. However, for many regional markets, new-build development is firmly off the agenda. As a result, the market is having to get creative to allow occupiers to move into better space”

“The provision of more flexible solutions and fitted options will play an increasingly important role in tempting occupiers to pay higher rents than previously, especially as many occupiers are wary of capex burden for fit outs. Where developers struggle for viability, we also foresee an increasing number of occupiers effectively procuring the space for themselves”.

Charlie Lake, Executive Director, Offices Capital Markets at LSH, said:

“Early-year hopes of a marked improvement towards regional offices have admittedly been dashed by geo-political events, with additional factors to contend with including the likely banning of upwards only rent reviews and confirmation of MEES standards & timelines. But, notwithstanding current financial conditions, the raw case to invest in regional offices is extremely compelling – structural impacts have largely run their course now while many markets show a significant imbalance of high quality supply vs live demand.

“The market for core and core plus income remains very resilient in the circumstances, as investors recognise the opportunity to acquire well-let assets with strong income returns. With pricing discovery now having matured, the case for value add strategies is strong, albeit short term economic volatility is a major constraint to activity.

“After years of uncertainty, clarification over the timings of MEES legislation is helpful overall. Given only around one quarter of the UK’s office stock is A or B EPC-rated, there is a huge opportunity to deliver the required improvements against a backdrop of rising rents and low capital values.”

Download the 2026 UK Regions Office Market report in full here →