Available office space in Birmingham city centre has shrunk to a ten-year low, according to new research from CBRE.
Current availability is 1.76m sq ft, which is 19 per cent lower than the five-year average.
Will Ventham, who heads the Midlands office agency team at CBRE, said: “First impressions suggest the Birmingham office market is in a position to fulfill anticipated demand in the short term. The alarming reality is that total availability could fall below ten per cent over the course of the year.”
The city’s only two committed development schemes – Three Snowhill and the first phase of Paradise Circus (One and Two Chamberlain Square) – support the region’s attractiveness for inward investment and large corporate consolidations. However, the existing Grade A pipeline is in danger of looking parched.
Recently completed ‘redevelopment’ schemes within the central business district have seen high levels of demand, with Cornerblock and One Colmore Square delivering the most significant lettings in Q2 2017, to Arcadis and Hays respectively.
Will expects this trend to continue into the second half of the year, with 55 Colmore Row offering a compelling prime Grade A proposition, supported by the recent opening of Pinsents’ new office in the building. The completion of The Lewis Building by Legal & General Investment Management will inject a much-needed 94,000 sq ft into the market.
Take-up for the first half of the year totaled 234,266 sq ft, marginally higher than the previous six months, but 35 per cent down on the five-year average. All the space let was secondhand, reinforcing the lack of oven ready new build.
Will believes that take-up for the remainder of the year will support the argument for sustained investment into new and existing offices across the city.
He said: “Delayed decision making and inertia as a result of economic uncertainty continued into 2017, resulting in subdued take-up for the first half of the year. However, the fundamentals of the Birmingham offer remain strong and we are optimistic about the lead up to year end. The emergence of the collaborative and serviced office sectors, directly influenced by the prospect of HS2, will impact on take-up and further impinge on supply.
“Evidence of latent tenant demand will result in improved take-up figures for Q3 and the much mooted Government Property Unit’s hub requirement remains unsatisfied in the city.
“Whilst the economic uncertainty has not been helpful, we believe it has merely delayed short-term decision making rather than shelving requirements altogether. I’m confident that we will see strong take-up figures recorded for the full year”.
For property investors, Birmingham offices remains a key target. According to Nick Woodward, head of CBRE’s Midlands capital markets team, levels of investor demand have far outstripped supply.
He said: “Whilst investment volumes during the first half of 2017 are ten times higher than the previous six months the number of transactions is significantly down on the medium term average.”
£385m has traded in 2017 across the central business district in eight transactions. However, this is skewed by the sale of Brindleyplace for £260m, with the next largest deal 19 Cornwall Street at £35m. Investors are looking to grow their portfolios in Birmingham and with limited opportunities to reinvest sales proceeds, motivated vendors are few and far between.
That’s not stopping investors from trying though, according to Nick: “Both established investors and new entrants, particularly from overseas, are getting up to speed with the city’s recent transformation and improving property market dynamics in order to react quickly when new opportunities arise.”
Yields have moved on from 5.25 per cent to 5 per cent during the year, and the gap between prime and secondary has narrowed as investors have competed for more secondary assets to gain exposure to the Birmingham market in the absence of primer opportunities.
