A total of £789.2 million of transactions took place in Birmingham in 2014 according to the latest report from Bilfinger GVA.
The Regional Investment Market Outlook report reviews investment activity within the ‘big six’ regional UK cities of Birmingham, Bristol, Edinburgh, Glasgow, Leeds and Manchester across the retail, commercial and industrial sectors.
According to the research, all three sectors are demonstrating strong performance in the Birmingham area, with prime rents rising and yields falling in response to increasing occupier demand and returning market confidence.
This is against the backdrop of a national economy that grew by 2.6% in 2014 and a resurgent labour market that saw unemployment drop from 7.2% to 5.7%, with falling inflation driving growth in earnings in real terms for the first time in five years.
Damian Lloyd, Investment Director in Bilfinger GVA’s Midlands office, said: “This research demonstrates both the quantity and the quality of the current regional investment market with a significant number of these transactions representing some truly first-class assets.
“Against the positive national backdrop, we have seen a constriction of Grade A supply across all regional office markets and particularly here in the Midlands. This has driven prime rents up towards the £30 per sq ft mark, with Birmingham attaining £29.50 per sq ft in some instances, a significant rise on the £28.50 recorded in 2013.
“This all underpins Birmingham’s reputation as a world-class business destination, with significant levels of interest from foreign as well as domestic investors and funds. Birmingham’s business and financial services sector is the second largest in the UK and employs more than 100,000 people in the city and 350,000 in the wider region, a figure that is expected to grow by over 30% by 2020.
“Factor in the strong performance in terms of office demand, which saw the five-year quarterly average of take-up more than double towards the end of 2014, and the likely benefits HS2 will bring to the city, then Birmingham’s office market offers plenty of investment potential for many years to come.”
Industrial rents also saw an increase – albeit a more modest one – rising from £5.25 to £5.75 per sq ft, with yields falling from 6% to 5.75%, a drop that is in line with many of the other regions.
Damian Lloyd continued: “In Birmingham, the industrial and logistics market is running hot, and the secondary market is now moving in from the double-digit yields of only two to three years ago. Distribution opportunities in the golden triangle and the south east in particular are keenly sought out by institutional and overseas buyers, specifically we are seeing records tumble on long-lease ‘big box’ distribution.”
Despite not recording any growth in prime rents in the retail sector, Birmingham’s figure of £275 per sq ft remains well above both Leeds (£270) and Manchester (£260), underscoring the burgeoning desirability of the city. Yields also remained steady at 5.5%.
Damian Lloyd said: “Birmingham is one of the UK’s top retail destinations and will be further enhanced during 2015 with the reopening of the refurbished Mailbox in April and the brand new Grand Central at New Street in September.
“These latest schemes demonstrate the city’s continuing ability to attract leading domestic brands, international retailers and high quality restaurant and leisure providers, particularly those who are finding London and the south east to be increasingly competitive.
“The prime retail pitch is dominated by a small number of large schemes and, as such, transactional activity tends to be relatively scarce. The largest investment transaction in 2014 was Legal & General’s purchase of the 500,000 sq ft House of Fraser department store for £71.5 million.
“Other notable transactions were CBRE Global Investors’ £15.1 million acquisition of the Great Western Arcade and Primark’s purchase of the 250,000 sq ft Pavillions Shopping Centre, which it will convert to accommodate a 150,000 sq ft department store for its own occupation.”