Office take-up shows signs of recovery
Property advisers have predicted a surge in Grade A office take-up in Birmingham as the city begins its recovery from recession.
Birmingham is seen as a very attractive base for cost-conscious firms looking to relocate, DTZ has said.
Factors determining the prediction include the great choice of property and relatively stable rents.
However, the city still has some way to go yet before it is truly out of the woods.
In its latest Property Times report, DTZ said prime office activity in Birmingham during Q4 of 2009 returned to levels seen earlier in the year following a spike of activity in Q3.
DTZ said take-up for the final quarter was just over 100,000 sq ft – in line with Q4 2008 and Quarters 1 and 2 of 2009 – but the composition had changed, with nearly two-thirds (64%) accounted for by Grade B space.
David Tonks, head of office agency, said: “Demand has focused on Grade B stock, either by virtue of its location or specification, largely due to churn from flexible, maneuverable firms which already have a presence in the city centre.
“However, the make-up of Grade A supply in Birmingham is strong and diverse, and I believe we will see much more take up of this stock during 2010.
“Birmingham is now very attractive for any footloose, cost-conscious UK firms interested in making a move. We have great property choice and rents are not significantly higher than any other comparable regional centre.”
Martin Davis, head of UK Markets Research at DTZ, added: “UK regional office take-up fell 20% in 2009 compared to 2008. In Q4, as expected, take-up fell back on aggregate across the nine key regional office markets we track. This followed a peak in Q3 when a number of exceptional deals saw take-up increase in the UK by 150%.
“This national trend was clearly highlighted in Birmingham with a spike in take up in Q3, and a fall in Q4. With the overall volume of leasing transactions remaining low, individual deals continue to have a big impact on take-up figures.”
As a target for investors, central Birmingham offices fared well in Q4, with demand intensifying against very limited supply. Pricing has moved aggressively, with Birmingham prime city centre office yields estimated to have compressed to 6.25%.
Geoff Thomas, Birmingham-based regional chairman at DTZ, said: “Demand is still mostly focused on a very narrow range of properties in prime locations that are well configured and let to strong covenants on long leases. There is tentative evidence that purchasers have loosened their investment criteria (primarily by considering shorter income) to access more opportunities.
“The current weight of money is set to persist and compress yields into the first half of 2010, which is likely to encourage more stock on to the market. Current pricing presents an opportunity for the release of some better quality bank-controlled stock, so we are likely to see a drip-feed of bank-led sales during the year.
“All-in-all, Birmingham offices remained resilient during the downturn and represent an excellent investment class going forward, especially as DTZ assesses that they remain ‘fair value’ at current prices.”
