Birmingham office market set for record year despite slow start

Birmingham’s office market is likely to see increased pre-letting activity in 2018, driven by an ever-decreasing supply which could also see prime Grade A rents reach £34 per sq ft within the next 12 months and potentially £35 per sq ft in 2019.

Savills said demand from supply chains linked to infrastructure projects, such as the Midlands Metro extension and HS2, and the continued rise of serviced offices would be two key themes for 2018.

In terms of office take up, Savills reports that 2017 has been a year of two halves for Birmingham, with the lowest H1 total of recent years at circa 238,000 sq ft. However, with the second half total set to reach circa 750,000 sq ft, the city is now on track for a record year.

Prominent leasing deals of 2017 include 240,000 sq ft at Arena Central to GPU; 75,000 sq ft at Crossway to Spaces by Regus; 60,000 sq ft at Paradise to PwC; circa 50,000 sq ft at 55 Colmore Row to Savills and RICS; 24,000 sq ft at The Colmore Building to Hogan Lovells and 16,000 sq ft at No 1 Colmore Square to Hays.

Ben Thacker, office agency director at Savills, said: “After a slow start to 2017, Birmingham’s office market has demonstrated a year of both depth and diversity from occupiers. A key issue now is that no new build supply is due for delivery until 2019, when Three Snowhill and 2 Chamberlain Square at Paradise will enter the market. In the interim the increasingly limited existing supply will continue to decline and ultimately this will encourage ongoing rental growth.”

The firm also notes that flexible space has become more established as a concept in Birmingham in 2017, for example CEG’s Alpha Works which has gone from strength to strength. Serviced office providers have accounted for 12.7% of total office take up in the city in 2017 to date, up from zero transactions in 2016.

Jonathan Ottewell, associate director in the office agency team at Savills, adds: “There are still a number of the major serviced office operators not yet present in Birmingham, particularly those providing a co-working environment. We think the picture will be completely different this time next year, particularly as the city is an obvious choice for those potentially reaching saturation point in London. However, if more occupiers seeking sub-5,000 sq ft space focus on flexible offices, this will present challenges for the traditional leasing market at the smaller end. Landlords will need to evolve and adapt to stay relevant.”

Savills also highlights that the general evolution of the workplace is starting to impact occupier requirements and consequently what owners are delivering in terms of base build and Category A specification.

The amenity offer within office buildings and the immediate surrounding area is now a critical factor to occupiers in building selection and this will likely become more pronounced in 2018.

One example is 9 Colmore Row, where owner Aberdeen Standard is reconfiguring the reception and vacant office space at the entrance of Snowhill station, an area with a diverse range of wider amenities.

Looking beyond the city centre, the firm says more speculative development out of town on the M42 corridor is needed to meet latent demand. The only current example is Blythe Valley Park, where IM Properties is speculatively developing a self-contained building, which has aptly been named First.