Birmingham’s office market could receive a significant boost from the migration of professional and financial services jobs from South East and overseas into the regions.
According to property experts at CBRE, Birmingham is poised to take advantage of the increasing number of companies looking to reduce their overheads by relocating jobs to regional towns and cities, where office and employee costs are cheaper.
A squeeze on professional and financial companies’ profits has forced them to look hard at costs. Moving jobs to the regions, known as a ‘northshoring’, or from overseas (‘nearshoring’), can save around 40 per cent in salaries. Office occupancy costs are also cheaper when compared to London, for example.
In Birmingham, the average cost of occupying a Grade A office is £43.70 per sq ft per annum, compared to £146 per sq ft in London’s West End and £87.50 per sq ft in the City.
Ashley Hancox, senior director and CBRE’s Birmingham-based head of regional offices, said: “There are a number of critical factors that make Birmingham a compelling option for companies considering moving operations out of the South East or from abroad into the regions.
“Firstly, there is the cost savings on office occupancy costs and salaries; then there’s access to a rich and diverse talent pool; and finally there is Birmingham’s excellent transport links, which will be enhanced by the extension to Birmingham Airport’s runway, enabling direct flights to China, South America and the West Coast of America, the redevelopment of New Street station and the prospect of HS2’s link directly in to the city at Eastside.
“Take all this into consideration and it’s easy to see why Birmingham is an attractive proposition.”
Mr Hancox said Deutsche Bank’s expansion in Birmingham following its acquisition of 134,000 sq ft at Five Brindleyplace demonstrates the northshoring trend, and
although the letting has further exacerbated the lack of available Grade A office space in Birmingham, he said it bodes well for investor confidence and the prospect of development progressing in the central business district.
According to CBRE’s latest Birmingham Office MarketView, total availability at the end of the first half of the year is 2.58m sq ft, down marginally on the position six months ago, with supply buoyed by further releases of secondhand space.
Take-up reached 342,132 sq ft in the first six months of the year, continuing the momentum from the final quarter of 2012.
Mr Hancox said: “Grade A office space continues to decline, to the extent that a couple of significant requirements would severely deplete existing stock.
“Hines and Ballymore’s Two Snowhill has added 120,000 sq ft to the available supply, but this is likely to be the last major office scheme to be delivered to the market for at least another two to three years.
“However, there is a healthy development pipeline, with a number of schemes on the drawing board. Together with the major infrastructure projects that are happening, these plans will help attract further inward investment into Birmingham.”
In the investment market, during the first half of the year, £66.3m of offices were transacted across six deals within the city’s central business district, with demand ibeing driven by Birmingham’s relative pricing to London, as well as improvements in the occupational market.
Ed Gamble, senior director in the investment team at CBRE in Birmingham, said: “Investors who previously focused only on the South East are increasingly turning their attention to the major regional markets, including Birmingham, in search of more attractive returns.
“As more buyers start to look seriously at offices in the city, yields have come in by 50 base points over the last six months to six per cent. This has had a knock-on effect in other parts of the market with yields beginning to stabilise at other pricing levels. Nevertheless, yields are still fair value when compared with both Central London office yields and are above the historic average.
“As we head into the second half of the year and on into 2014, the lack of prime stock means we will start to see genuine buyers for secondary assets. Properties further up the risk curve, such as those with voids and redevelopment opportunities, will also see more interest.”
