Take-up of office space in Birmingham in the first half of 2016 was the highest among the UK’s major regional cities, according to Knight Frank’s latest ‘Regional Offices Market Report’.
Knight Frank measures take-up in ten regional cities (Aberdeen, Birmingham, Bristol, Cardiff, Edinburgh, Glasgow, Leeds, Manchester, Newcastle and Sheffield). In Birmingham, 501,000 sq ft of office accommodation was consumed, a 42 per cent increase on the ten-year average for a H1 period.
The largest transaction was the 90,000 sq ft letting at One Chamberlain Square to PWC, followed by Network Rail’s 85,000 sq ft deal at Baskerville House.
Bolstered by the PWC letting, the professional services sector accounted for more than half of the take-up – 52 per cent. Of the six 20,000 sq ft+ transactions completed between January – June this year, four were to professional services firms. In addition to PWC, DAC Beachcroft took 40,000 sq ft at Tricorn House; Pinsent Masons acquired 40,000 sq ft at 55 Colmore Row and accountants Syed & Co leased 26,000 sq ft at 76-80 Sherlock Street.
Jamie Phillips, partner and head of the office agency team at Knight Frank’s Birmingham office, said: “Take-up levels in 2016 to date are on the hoof of the record levels witnessed in 2015 and demonstrate the city’s resilience against a turbulent political backdrop.
“The third quarter is likely to be more subdued, but in view of known lease expiries and significant outstanding enquires – including a 200,000 – 400,000 sq ft requirement from the Government Property Unit – we should see a strong finish to the year.”
Stock levels in the city are some of the lowest among regional cities. Of the ten cities monitored by Knight Frank, only Bristol has less available space. Just 127,500 sq ft of Grade A space is currently available to lease in Birmingham’s traditional core, a 21 per cent fall over the 12 months to date and the lowest on record in the city since 2009.
Encouragingly, the city has a good development pipeline of 1.4m sq ft spread over the period to Q4 2019, providing much needed stock with staggered delivery, so as not to create oversupply. Of the 4.8m sq ft planned across the ten regional cities, more than a third is planned in Birmingham and Manchester. The capitals of the Midlands Engine and the Northern Powerhouse account for 36 per cent of projected new build offices.
There is now evidence of deals being agreed at £32.50 per sq ft in Birmingham, which compares to Manchester’s £34 per sq ft prime rents – the highest rent outside London and the South East. Knight Frank expects Birmingham prime rents to firm up at this level by the end of this year, with incentives further eroded.
The first half of 2016 also saw a spike in investment activity in the city.
The £356m turnover figure is the highest on record for a H1 period in Birmingham. The £200m forward sale of Three Snowhill to M&G Real Estate, and the £75m purchase of Phase I, Paradise Circus, by the Canadian Pension Plan Investment Board, were the headline deals.
Prime yields were unchanged at five per cent, 50 basis points above the market peak of 4.5 per cent in 2007.
Ashley Hudson, who heads Knight Frank’s capital markets team in Birmingham, said: “Pre Brexit, UK institutions accounted for 69 per cent of turnover in 2016. Going forward, we expect home funds to retrench for a period, with overseas buyers taking advantage of favourable exchange rates.
“Birmingham is today a truly international market with buyers drawn from the U.K. institutions, European private buyers and funds, the Middle East, Far East and the U.S. Recent purchases have been primarily made by U.K. managed funds including DTZIM and Canada Life. Moving forward, as larger assets trade, we expect to see the return of institutional buyers.”
