Experts at DTZ in Birmingham review the 2013 commercial property market and look ahead to 2014:
INDUSTRIAL MARKET
‘Logistics sector has driven demand in 2013’ – Jonathan Robinson, Associate Director in DTZ’s Industrial agency team gives a review of the West Midlands Industrial market over 2013:
“There has been a significant amount of activity across the West Midlands during 2013. Take-up levels of buildings over 50,000 sq ft over the first three quarters of 2013 reached 3.7 million sq ft in 21 transactions, an increase of 1.6 m sq ft on 2012 Q1 – Q3. Grade A take-up constituted 1.7 m sq ft and 1.6 m sq ft was grade B.
“Demand has come mainly from the logistics sector including transactions from Hi Logistics which has taken 165,200 sq ft at a purpose built unit at Prologis Park, Ryton and IM Properties has also secured 168,000 sq ft a pre-let to Bunzl at Birch Coppice. We have also seen Hermes Parcelnet complete a lease on part of an existing building at Prologis Tamworth 594. The balance has recently been taken by Euro Car Parts. In Q4 of 2013 IM Properties also confirmed they have secured a 50,000 sq ft pre-let to John Lewis at Solihull Business Park. We have also seen CSL Sofas take 66,000 sq ft at Unit C Swift Valley in Rugby and Sertec taking 120,000 sq ft at the former Greenwoods Limited building in Coleshill. The largest grade A deal took place in Q3, where Gazeley’s 383,000 sq ft Blue Planet building at Chatterley Valley, Stoke-on-Trent was taken by JCB.
“We have also seen Jaguar Land Rover start construction of their new engine plant at i54 Wolverhampton where they are creating a 1 million sq ft bespoke facility in the first two phases. i54 also recently attracted International Security Printers (ISP) for a new 70,000 sq ft facility. Looking forward, demand levels in 2014 are set to remain positive but will be stemmed by the lack of good quality available space given the shortage of available Grade A stock in the West Midlands.
“The two largest Grade A buildings still available in our region are Goodman’s 330,000 sq ft Citadel junction in Bilston and Prologis’s 300,000 sq ft former Pallet Network unit at Prologis Park, Midpoint.
“The West Midlands is one of the few regions currently seeing speculative development taking place. Grade A stock is set to be boosted by a total of 450,000 sq ft of speculative built buildings at IM Properties’ Birch Coppice, Tamworth, one of which has now been let to Bunzl, and Prologis Park Ryton. We are also aware of other speculative schemes of smaller units starting in 2014, for example Clowes Developments is proposing to build a 35,000 sq ft small unit scheme at Bentley Bridge Business Park, Wolverhampton.
“Total availability figure has been increasing steadily for over a year and now stands at 22.9m sq ft, a 791,000 increase on Q2 and a 1.9 m increase on Q2 2012, while over the first three quarters of 2013, total availability increased by 1.1 m sq ft. However, prime availability has been decreasing since Q1 2011, with a total of 1.9 m sq ft available over the whole region.
“Employment land supply in the West Midlands is restricted, which is exacerbated by HS2 requiring the PXP LDV site at Washwood Heath and Heartlands Park Birmingham as part of its infrastructure. It has become apparent that we need more employment land to be brought forward in the West Midlands in order to cater for market demand.
“During 2013 we have started to see landlords’ positions hardening with both incentives on new leases reducing and also signs of rent growth on grade A buildings and the better estates. Birmingham is forecast to continue to see rental growth over the next five years averaging at 1.5% per annum and is also likely to be one of five of the industrial markets that will outperform the UK industrial average, the others being the smaller markets of Newcastle, Leeds, Bristol and Edinburgh.”
OFFICE MARKET
‘Improving market conditions will provide opportunities for both occupiers and investors’ – Andrew Berry, Senior Surveyor in DTZ’s Office agency team comments on the Offices market:
“At the outset of 2013 there was a general expectation that there would be a significant change in market conditions compared to the relatively benign market witnessed during 2012. Occupier sentiment was beginning to improve and the DTZ Office Agency team was predicting that during the second half of the year the improving sentiment and general take-up of better quality space would eventually impact on quoting terms across the number of sectors in the market.
“As the year unfolded a number of significant decisions sent mixed messages across the market. The expansion of Deutsche Bank represented a huge vote of confidence in Birmingham and helped to demonstrate the city’s ability to recruit talent from across the wider region. Elsewhere there were signs of continued caution as DAC Beachcroft’s decision to remain within Brindleyplace demonstrated. Whilst there were few large transactions completed during the second half of the year the general direction of travel suggests that there will be a discernible improvement in market conditions as we enter 2014.
“The predicted trend in the market has become evident with increased confidence amongst both landlords and tenants. For better quality space within the central Birmingham market, there is now a general reduction in incentives offered to relocating occupiers and the upward trend in quoting rents is starting to become apparent. In contrast, the modest amount of demand for poor quality tertiary space has resulted in a continual outward drift in achievable terms. On the supply side the diminishing stock amongst Grade A and Grade B accommodation is largely attributable to the net absorption of space within the city centre and the absence of any significant refurbishment activity and the well reported gap in Birmingham’s development pipeline. There is also a gradual decline in the availability of Grade C accommodation. During 2013 almost 200,000 sq ft of tertiary space (representing 12% of currently availability) was removed from the market as a consequence of conversion to residential or educational uses.
“Take-up during 2013 within the central Birmingham area was almost 650,000 sq ft which is broadly in line with the long term average and represents a second year of improved take-up since the low point in 2012 when take-up reached 502,000 sq ft. Over 125 transactions were completed during the year involving an average headline rent in excess of £15 psf. During 2014, there are over 250,000 sq ft of lease events involving Grade A accommodation, although over half of the occupiers in this bracket are either already in discussions with their landlord or have relocated to new accommodation. Based upon active demand in the market it is obvious that occupiers have expanded their horizons from purely cost control to a more aspirational business plan that will assist in raising the profile of the business and attracting the best talent to their organisation. The financial and legal sectors are expected to be the most active occupiers during the next 12 months.
“The gradual shift in demand towards better quality space will serve to highlight the diminishing supply of better quality accommodation and improve the prospects for any refurbishment or redevelopment scheme that can fill the evident gap in Birmingham’s supply pipeline. Furthermore, the prospects of any speculative scheme are improving as funding becomes more readily available from a wide range of sources. In summary, the improving market conditions will doubtless provide opportunities for both occupiers and investors and the increase in corporate activity will doubtless bring new enquiries to the central Birmingham market thereby reaffirming its position as the regional capital.”