Birmingham office market set for brighter 2017 aided by HS2

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Birmingham city centre’s office market could bounce back from a disappointing 2016 thanks to strong demand from firms looking to take advantage of Royal Assent for HS2.

Savills’ latest Spotlight: Birmingham Offices report forecasts take up could reach 750,000 sq ft this year – a 19% on 2016’s subdued 670,000 sq ft.

There are also strong rumours in the market that HMRC could be set to lease around 250,000 sq ft at the under development Three Snowhill – although that building won’t be ready until 2019.

The Savills report also notes that the traditional defined boundaries of the central office district are expanding outwards due to a combination of improved infrastructure, such as the £600m Grand Central, plus major commercial developments coming forward.

One consequence of the shortage of supply has been a rise in prime city centre rents to £32.50 per sq ft.

Major redevelopments including 55 Colmore Row (160,000 sq ft), Cornerblock (114,000 sq ft) and the Lewis Building (112,000 sq ft), all completing in 2017, will help to bolster supply until 2019 when Three Snowhill and Paradise will deliver a combined 765,000 sq ft of new Grade A office space, says Savills.

The firm highlights Solihull and the M42 Corridor as the West Midlands’ key out of town office market and expects take up there to continue picking up pace after a buoyant 2016.

Recent deals there have included PKF’s 19,000 sq ft acquisition at Blythe Valley Park and National Grid acquiring 46,000 sq ft Lansdowne Gate in Solihull town centre.  As a result, prime Solihull rents have already grown 16% to £23.50 per sq ft and Savills said it anticipated a positive tone moving forwards.

Ben Thacker, office agency director at Savills Birmingham, said: “The current strength of the M42 office market has largely been boosted by the ever improving wider Midlands economy, but also driven by the evolution of business parks, which are now providing a far more diverse offer for occupiers.  IM Properties’ Blythe Valley Park is a prime example of the future business park model, combining commercial, residential, retail and leisure amenities to ensure a vibrant 24/7 sustainable environment.”

Clare Bailey, associate director in the commercial research team at Savills, added: “The Solihull and the M42 Corridor office markets have grown in tandem with Birmingham city centre, meaning the West Midlands has a truly comprehensive offer.  As HS2 connects the airport, the M42 and city centre, this new infrastructure will see certain sectors become less concrete in their traditional location preferences.”

The report coincides with Savills’ annual results, which show the group revenue rising 13% to £1,445.9m (2015: £1,335m), with group pre-tax profit up 1% at £99.8m (2015: £98.6m).

Commenting, Barry Allen, head of Savills Birmingham, said: “Last year was a landmark one for the Birmingham office, as we expanded significantly with our acquisition of GBR Phoenix Beard.  This particularly strengthened our client offering in property management, agency, building surveying and investment, cementing Savills’ role as one of Birmingham’s leading advisory firms.

“We experienced growth across all departments in 2016, in particular our industrial agency team had a highly successful year completing circa 4.5 million sq ft of transactions.  Highlights included the pre-let of 560,000 sq ft to Screwfix at Prologis Park Fradley on behalf of Prologis and a 245,000 sq ft pre-sale to the Wholesale Markets for IM Properties at The Hub.

“A number of our high-profile instructions have also reached major milestones over the last 12 months, including the appointment of Stoford as development partners for The Gooch Estate’s £200m Typhoo Wharf, and the start of construction for M&G and Ballymore’s Three Snowhill development.”

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