The commercial property market in Birmingham and the wider West Midlands region has experienced a renaissance not seen in the region for a generation.
Driving this major improvement was the Commonwealth Games in August with the city undergoing a complete transformation over the last five years in preparation.
But more high quality office and industrial space is urgently needed if the UK’s second city is to maintain its upwards growth.
This is highlighted in View West Midlands, the latest insight into the region’s commercial property landscape compiled by property consultancy Vail Williams.
The 2022 edition, reviewing activity looking at trends for next year, is authored by Regional Managing Partner Carole Taylor, Associate Charlotte Fullard and Surveyor Oli Muscutt.
Carole said: “The outcome of all this activity is a second city of which we can be absolutely proud and a commercial property market which has undoubtedly benefitted as a result. The market has experienced a renaissance not seen in the region for a generation.
“In tandem with the delivery of public realm and infrastructure improvements in Birmingham, we’ve seen some fantastic new office space. But more is needed if we are to meet the demands of occupiers returning with a hybrid working strategy.
“In the industrial, warehouse and logistics market, new, high-quality, energy efficient space simply cannot come to market quickly enough, and we must see more development land come through to address the supply/demand dynamic.
“Of course, the ever-evolving economic situation, the prospect of a challenging winter and the potential impact this could have on businesses, together with rising rents and business costs, is something that we continue to monitor closely for clients.”
The flight to quality within the office market has translated into demand for high-spec office space across the region to encourage workforces back to the office and attract talent.
The main thrust of office activity in the first two quarters of 2022 was within the professional, insurance and financial services sectors, where several firms committed to new or expanded space.
There were 32 deals totalling 175,261 sq ft of office space in Quarter 1 2022 (Q1) – the most transactions in a quarter since Q3 2019, and in Q2, 117,599 sq ft of space was let across 28 deals. The 60 deals represent the strongest activity in a half-year (H1) period since 2016 in transactional terms.
Office specialist Charlotte Fullard said: “Both new build space and refurbishments will focus on sustainability, wellness credentials and smart technology into 2023, particularly with changes in EPC Regulations and a race to net zero carbon emissions on the horizon.
“Roof terraces and an increased focus on biophilic design are helping workforces to connect with the natural environment, and bike racks and showers are supporting a more sustainable commute and better wellbeing which, in turn, is boosting workforce productivity.
“This is creating an environmentally conscious, safe and desirable city in which to work, and those landlords that answer to the demand for better sustainability credentials in their buildings will continue to win out over their competitors.
“As well as investing in the refurbishment of existing office stock, landlords are offering more flexibility and fully-fitted Cat A+ sustainable solutions, allowing occupiers to sign up quickly on short leases – saving both time and capital expenditure on fit-out.”
Charlotte said demand for Grade A office space would continue throughout 2022, but the market for high-quality office space in the city remained significantly undersupplied with estimates of less than 250,000 sq ft of Grade A office space currently available in the city.
This was giving developers the confidence to push on with the next phase of their schemes, with 597,400 sq ft of space currently under speculative development.
Rents continue to rise in central Birmingham, particularly for serviced accommodation, as businesses hedge flexibility and speed of entry into space, against a cost premium, where desk rates now exceed £450 per month.
The industrial and logistics market across the Midlands continues to thrive with the first quarter of 2022 witnessing the highest logistics take-up nationally – accounting for almost half of the total space taken across the UK – but a shortage of premises persists.
Approximately 28.6 million sq ft of industrial stock was transacted in the first half of the year, with a significant level of logistics space under offer across the region as demand continues in distribution and last mile delivery. This surpassed last year’s H1 total of 24.5 million sq ft, highlighting a notable increase in occupier appetite.
Vail Williams Surveyor Oli Muscutt said: “However, as rents continue to rise and a lack of meaningful supply goes on, this is creating a worrying picture for the occupier – with many asking just how high will rents go and what Rating Revaluation 2023 might bring in terms of business rates hikes across the industrial and logistics sector.
“Also, the whole nature of an industrial deal has changed and occupiers need to budget for rent inflation and ensure that, working with a property professional, they forecast for every potential scenario to avoid any unwanted surprises.”
He added that most industrial stock currently available across the Midlands was made up of lower quality second-hand units, with less than a quarter of available stock comprising the more in demand new high specification space.
“Ahead of the EPC Regulations coming into force next year, we must see more investment in the refurbishment of existing buildings with green credentials in mind, or else landlords will find that their buildings, particularly those with EPCs of F and G, simply will not let.”
Rental growth has continued with big distribution space ranging over 100,000 sq ft in West Midlands between £7.50 per sq ft to £8.25 psf, depending on location. Mid-sized space of between 30,000 to 100,000 sq ft is between £7.75 psf to upwards of £9.75 psf.
Brand new units of between 10,000 and 30,000 sq ft will command rents of between £7.75 to £8.75 psf, depending on exact location and size. The average industrial rent across the Birmingham market is now £6.10 per sq ft, 20% above its pre-global financial crisis peak, and prime Birmingham rents are now £7.50 psf to £8.00 per sq ft for units over 40,000 sq ft, with smaller units significantly higher.
Based at Edmund House in Newhall Street, Vail Williams has operated in the Midlands commercial property market for the past 14 years, working with a variety of public and private sector occupiers, landlords and investors across the region.