HS2’s arrival depletes Birmingham of Grade A office space – DTZ
THE arrival in Birmingham of the company developing the HS2 high speed rail link will deplete the city’s Grade A office space to its lowest levels in more than a decade, a senior property consultant has said.
Andrew Berry, Associate Director in DTZ’s Office agency team in Birmingham, said the news that the HS2 operation was taking 100,000 sq ft of floorspace at 2 Snowhill would improve the chances of the city reaching its annual office take-up average but it would reduce Grade A supply to its lowest level since 2003.
“At current Grade A take-up levels there is just 18 months of Grade A accommodation remaining with approximately half of this located in Colmore Plaza,” he said.
“This supply and demand dynamic will see diminishing incentive levels and increasing rents that will enable speculative development to start again in Birmingham.”
His comments came as DTZ said first half office take up in Central Birmingham totalled 216,000 sq ft, leaving the market some way short of the long term annual average of 625,000 sq ft.
The DTZ data also shows that occupier sentiment has improved in 2014. It said enquiry volumes had been fairly constant, but were now typically of a better quality, which was more often leading to actual viewings.
However, improvements in output have not yet been associated with significant increases in office-based employment and actual deal volumes were down in H1 2014. A significant proportion of lettings were for Grade B space, reflecting the lack of suitable Grade A options and the more plentiful good quality refurbished Grade B with more modest rents.
The majority of transactions involved local companies, principally involving occupiers from the financial and professional sectors with imminent lease events. Notably, the period saw law firm Weightmans take 15,000 sq ft of Grade B space at St Philips Point in Temple Row.
DTZ said pre-letting activity was making a comeback and is set to push up headline rents towards the £30 per sq ft mark over the medium term.
It said while the development pipeline for this year and next was empty, it was widely anticipated that there would be Grade A completions in 2016 and beyond in the city’s prime central core.
Five year leases are still commonplace, arguably in part because firms want to keep their options open with the better quality stock coming on line.
Overall, it said investor sentiment in regional office markets remained robust in the first six months. Some prime yields in the regions are expected to tighten in the second half of 2014, but the weight of money continues to push investors up the risk curve, it concludes. Secondary yields are set to continue falling this year and next.
