Reduced demand dampens Birmingham office market in Q2

Two Snowhill

Reduced demand for space saw a subdued second quarter for Birmingham’s office market.

Colliers International said take up during the three-month period amounted to 112,263 sq ft, spread across 27 deals – 75% of which were below 5,000 sq ft.

Samuel Cooke, senior surveyor in the national offices team at Colliers International, said: “The Birmingham office market is little bit like a coiled spring at the moment.

“Despite the hesitant take-up so far this year, several known transactions are currently progressing and a number of requirements are at the decision making point.”

He said the second half of the year was set to be stronger as the Birmingham market awaited news on the Government Property Unit’s advanced plans to take 240,000 sq ft of offices at Miller Developments’ Arena Central.

“The recently secured Royal Assent by HS2 is likely to be reflected in lettings as the year progresses,” he added.

“Headline office rents in Birmingham currently stand at £32.50 per sq ft, but we can expect rents to surpass its record £33.00 per sq ft by the end of 2018, as key Grade A office schemes near completion.  Due to constrained levels of supply, secondary rents are also likely to see an upward movement to around £24.50 per sq ft by 2021.”

HS2-related office demand is expected to be contract-driven for short-term space with a shelf life of 12 to 36 months.  Engineering firms currently make up 6% of office demand and Colliers said this was expected to grow further still over the next two years.

It concludes there is also understood to be an initial need for at least 100,000 sq ft of offices for satellite engineering services groups that will work alongside the main HS2 contractors.

HS2-related demand is likely to trigger further rental growth as ‘north-shoring’ firms seek to take advantage of cost-efficiencies, particularly in the Birmingham out-of-town market.  The high level of transactional activity in the Birmingham out-of-town office market in previous years has depleted the supply of Grade A office space by 41% since 2009, helping to push rental growth to a record £23.00 per sq ft – 5% above the 2008 peak.

“In the face of limited Grade A stock, the only way to secure new office space in the Birmingham out-of-town market is to agree a pre-let on a minimum 15-year lease.  In the past, developers have chosen to refurbish existing space, but now new-build developments are being considered and the market will soon see its first speculative development for almost 10 years at Blythe Valley Business Park,” said Mr Cooke.

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