BREAKINGVIEWS-AI job angst is everywhere but the corner office

By Yawen Chen

LONDON, Feb 10 (Reuters Breakingviews) - Office property is staging an unfashionable comeback. Investors and occupiers are piling back into prime buildings, pushing rents and values higher, even with the threat of artificial intelligence and its impact on white-collar jobs hanging over the sector. A very analogue constraint – a shortage of the right offices in the right places – means the sector can keep shrugging off AI’s digital risks.

After being shunned in the wake of the pandemic, offices are back in vogue among big real estate buyers. Knight Frank’s survey of 119 global investors overseeing $1.4 trillion of assets shows offices are now the most targeted commercial real estate asset class, with 69% of money managers looking to buy. Pricing tells the same story: prime office yields are as low as 3.25% in London’s West End and about 5.25% in the City, Knight Frank and MSCI data show. That puts the best offices much closer to other favoured sectors than was the case a few years ago – London industrial yields sit around 5%, residential roughly 5.5%, and retail warehouses near 5.7%. Similar patterns show up in other markets, with office yields near 3.25% in Singapore and around 4.15% in Paris.

Tenant behaviour tells the same story. Take BlackRock BLK.N. Its London leases in the City run until 2035; in a normal cycle that would buy it years to decide whether to renew, shrink or sit tight. Instead, Larry Fink’s firm is already quietly approaching agents and developers to line up future space, according to brokers. From London to New York to Hong Kong, deep-pocketed firms are moving early to secure the best floors. In Hong Kong’s Central district trading firm Jane Street has taken more than 220,000 square feet at Central Yards, while asset manager Qube agreed roughly 146,000 square feet at Two IFC, roughly doubling its footprint.

That strength looks odd against the backdrop of AI anxiety. Banks, insurers and law firms – traditional office heavyweights – are obvious candidates to automate junior roles. Bank of America’s BAC.N Brian Moynihan said last month AI tools cut the firm’s coding needs by 30% last year, implying around 2,000 fewer coding roles. When the dotcom bubble burst, U.S. unemployment climbed to 6% by 2003 and took another three years to recover, while vacancy rates in Manhattan jumped from 3% in 2000 to 12% in 2002.

For now, a more prosaic force dominates: the lack of supply. Covid lockdowns, construction cost inflation and planning delays stalled new projects in recent years, causing many cities to effectively skip a development cycle. That has been compounded by return-to-office patterns: while most firms now require employees to only come to work three to four days a week, workers tend to show up on the same days, limiting how much space companies can shed without overcrowding. Take HSBC HSBA.L: its move from its sprawling Canary Wharf headquarters to a smaller new City office looked like classic downsizing, but the bank has since realised it is now 8,000 seats short and pivoted back to the Wharf.

The supply squeeze shows up most clearly in leasing markets. In London, prime rents in the City and West End are up roughly 30% to 50% since 2019, according to Cushman & Wakefield, while vacancy for new, top-spec space in the capital’s best buildings is below 1%, Knight Frank says. The agency forecasts that vacancies in London prime offices could hit zero by 2028.

Ordinarily, developers would respond to surging demand by building new offices, offsetting the supply squeeze. That isn’t happening, however, with the pipeline for new office properties at or near record lows across major markets. Listed developers are wary of tying up capital for the eight years or so it takes to build a large property before meaningful rent can be charged, especially with current low yields and the threat of AI job losses in the distant future. After that long wait, the expected annual rental yield on a new London office is still only around 6.5% on the development cost, according to a senior property executive, meaning an investor could make a higher return straight away by buying an existing property, such as a retail park or provincial office.

The recovery is highly selective: older, less energy-efficient buildings in non-prime locations do not attract the same interest from tenants. The vacancy rate for the best buildings in midtown New York has dropped from 11.4% at the end of 2024 to 3.4% in 2025, while the rate for less prime properties is still at 13.3%, Savills reckons. This however only reinforces the demand for higher-quality space, as tenants crowd into the most plush spaces.

If automation does meaningfully shrink white-collar workforces, demand for city real estate, and its value, will suffer. But property cycles move slowly. For the next few years at least, prime offices look less like stranded assets than scarce ones.

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