Strong take-up in 2018 has reduced the vacancy rate in the Solihull and M42 corridor office market to a 10 year low. With no speculative developments planned, this makes design and build projects almost the only option for large office occupiers in the next few years, according to Solihull and Birmingham-based independent commercial property agency KWB.
The M42 and Solihull office market finished strongly in 2018 with final quarter transactions of 89,431 sq ft increasing the full year’s take-up to 348,662 sq ft, well ahead of 2017’s 269,498 sq ft, and exceeding the seven year average of 337,602 sq ft.
Writing in KWB’s 2018 M42 and Solihull Office Market Report, Malcolm Jones, KWB’s Head of Office Agency, says: “Demand remains strong thanks largely to the area’s excellent communications and skilled workforce, but 2018 take-up has significantly reduced the available office space.
“Also taking into account plans to convert some 200,000 sq ft (22.5%) of Grade A and AB office accommodation to residential use in Solihull town centre, the office vacancy rate is now at a 10 year low of 6% at Birmingham Business Park and 3% in Solihull town centre, while Blythe Valley Park is effectively fully occupied until the refurbishment of the Oracle building which is not expected to be completed until 2020.”
Only one new office building (FIRST at Blythe Valley Park) was developed speculatively in 2018. Despite the fact it was let prior to completion to accountants Jerroms, at a record headline rent of around £25psf, it was the first speculative development in the market since FORE in 2010, and there is little sign of any more coming forward.
Unlike Birmingham city centre, there are very few unexploited refurbishment opportunities in the market and those with potential are looking for pre-lets.
“All this makes design and build projects almost the only option for large occupiers in the next few years, and we are increasingly involved in a number of conversations about design and build as occupiers are typically starting the search for new accommodation at least two years before the end of their lease,” continues Mr Jones.
In Q2, Prologis acquired Plot F3, at Blythe Valley Park, for a new 15,288 sq ft design and build office building, while in Q4 national professional services consultancy Barnett Waddingham announced it had signed for a 15 year lease on a new 21,000 sq ft design and build office building in Longbridge.
The current lease on Barnett Waddingham’s 10,000 sq ft office on Bromsgrove’s Topaz Business Park does not expire until September 2020 but, having assessed the likely availability of accommodation to meet its future needs in the Solihull and M42 office market in the next two years, the firm chose instead to commit to a new building in Longbridge which will be completed for them in 2020.
A shortage of available development land may dampen design and build activity as some landowners will prefer to take advantage of the more active industrial market and offer any available plots for industrial rather than office development.
Mr Jones continues: “The shortage of office stock, and of development land, will inevitably lead to more office occupiers, like Barnett Waddingham, choosing to leave the area if they fail to find suitable accommodation to meet their future needs, or if they are not prepared to make the necessary compromises to stay. Instead they will look to the available space in Birmingham city centre, along the M5 corridor, along the M40 and in Warwickshire.”
The advent of UK Central, which includes 2.65 million sq ft of commercial space, will markedly change this situation, but only when it starts to come on stream from around 2026.
Rents and freehold prices remain under upwards pressure. Rents on refurbished buildings, now 15- 20 years old, mirror what they achieved as new buildings prior to the recession, while headline rents on new buildings are high £20s psf, the level needed to make design and build projects stack up.
Birmingham Business Park dominated the final quarter’s take-up with 65,687 sq ft of space transacted in eight deals.
Mr Jones says: “With the most available space, we expect Birmingham Business Park to continue to dominate transactions in 2019, as one of the few locations for occupiers looking for immediately available space in excess of 5,000 sq ft. Buildings such as 3900 Parkside, 2100 The Crescent, 2480 Regents Court and 6260 Bishops Court remain available, but they will not be around for long.”