Prime commercial property rents and yields in Birmingham plateaued in the third quarter of 2011, according to the latest figures released by CBRE.
Prime office rents in the city saw no change on the previous quarter, remaining stable at £28.50 per sq ft. They did, however, show a modest increase of 3.64 per cent year on year. Prime office yields also saw no change, remaining at six per cent.
According to CBRE’s EMEA (Europe, Middle East and Africa) Rents and Yields Market View, prime office rents across Europe increased by a notional 0.1 per cent in the quarter, but showed a year-on-year increase of 1.9 per cent. Eight of the 53 locations in the survey saw increases in the level of prime rent, four fell, and 41 remained unchanged, including all of the UK cities – Birmingham, Edinburgh, Glasgow, London City, London West End and Manchester.
Ashley Hancox, head of regional office agency at CBRE in Birmingham, said: “The market background over the past quarter has been dominated by concerns over the escalation of the Eurozone sovereign debt crisis, and its possible market consequences. This has clearly heightened occupier caution towards new building commitments and tempered the rental recovery. At the same time we are seeing more evidence of tenants increasingly favouring modern prime space across all sectors, and as a result a growing polarisation between prime and secondary space.
“In Birmingham, while rents remain at £28.50 per sq ft for Grade A office space, there has been some positive movement since Q3 2010, which is encouraging, and with a number of larger transactions expected to commit before the end of the year we should start to see terms hardening.”
In the industrial market, prime rents also saw no signs of improvement in the third quarter, with rents in Birmingham remaining at £5.25 per sq ft. Edinburgh, Glasgow, London Central and Manchester also recorded no positive rental movement during the same period. It was a similar picture across Europe, with 36 of the 46 locations in the survey seeing prime rents stabilise.
Like rents, prime industrial yields in Birmingham stayed the same in Q3, at 6.85 per cent.
Richard Meering, senior director in the industrial agency team at CBRE in Birmingham, said: “Investor demand continues to be concentrated on the prime end of the market, particularly on assets with unexpired lease terms of 15 years and above, let to strong retail covenants with fixed rental uplifts to provide certainty of future income.
“However, we are also seeing significant interest from institutional investors for modern, well located distribution warehouses with shorter unexpired lease terms, typically less than five years. The rationale for such acquisitions is the immediate attraction of a strong short-term income stream plus the significantly reduced stock of modern buildings.
“Looking forward, we expect investor demand to continue to come from UK funds, overseas investors and private investors. There is a marked lack of stock currently available for purchase, and the trend seen during the first half of the year for short-term income on well specified assets is expected to increase during the remainder of the year.”
On the High Street there was little evidence of prime retail rents improving. Only London’s West End saw rents increase during Q3. The rest of the UK cities surveyed, including Birmingham, saw no rental improvement over the quarter. Prime retail rents in Birmingham did, however, increase by 7.14 per cent year on year.