KWB’s latest transactions research for offices in Solihull and the M42 corridor shows that the market is seeing the first growth in rental rates since the property crash of 2007 – driven by a diminished supply.
Rental growth can also be seen for new developments of offices in Birmingham city centre, for similar reasons, with quoting prices reaching an 8 year high of up to £35 per sq ft. Birmingham city centre’s lack lustre quarter, after a spectacular Q2 may well highlight the impact of dwindling supply – as demand continues.
Rental rates increasing as market sees a second great year
Across the Midlands we are seeing the lack of larger, readily available, high quality space begin to drive a rise in rents. In the Solihull and the M42 corridor, there are substantial requirements in the market that cannot be met in the way the occupier’s desire. Where larger occupiers are looking for large amounts of new space, they find themselves having to consider properties – of the right size – that require refurbishments, up to and including the overhaul of their mechanical and electrical provisions.
The improving economy, combined with the wrestle between supply and demand that has developed, is now pushing rents up, on the M42 corridor. Rent reviews are back on the table for the first time in ages, and we are seeing prices of £16-17 per sq ft become £20-24 per sq ft – for the highest quality space, following refurbishment. This adds financial incentive to landlords – who are already feeling the pressure – to refurbish properties in order to provide good quality – ideally ‘Grade A’ – office space.
KWB’s Mark Robinson, pictured right, said: “Rents have not been able to increase until this point, however, that’s beginning to change, with the lack of supply and continued demand for offices in Solihull and the M42 corridor. We’re also seeing similar increases in Birmingham city centre, with quoting rents on new office development schemes ranging from £30-35 per sq ft.
“Landlords of existing space will use this return to form – for rents on new space – in rent review negotiations with their current occupiers. This shift in power-play sees things go in favour of the landlord, and as such occupiers need to ensure they are protected against unfair rental increase.”
Research highlights for offices in Solihull and the M42 corridor
KWB achieves over 60% of Q3 2015 Solihull office deals: KWB continues to account for the dominant share of lettings for office space in Solihull and the M42 corridor. 11 (61%) of the 18 deals and just under 54,000 sq ft (57%) were transacted by KWB, with an additional two further deals at Kings Norton Business Park. This is testament to the depth, range and strength of KWB’s instructions along the M42 corridor, as well as local knowledge and ability to match occupiers with the right property.
Another healthy quarter for Birmingham’s out of town office market: Activity continued at a steady pace this quarter, with 94,001 sq ft of offices in Solihull and the M42 corridor, across 18 deals. With a year-to-date of nearly 400,000 sq ft means that the region is well on target to surpass last year’s total and come in significantly above the long term annual average. It’s worth noting that the largest deal this quarter was almost double the size of the largest achieved for offices in Birmingham city centre; BT has relocated from their offices in Coventry to 19,625 sq ft at Aquarius, 4520 Birmingham Business Park, to take a sublease from EE.
Lack of office space supply pushes occupiers north along the M42: With large amounts of office space proving scarce in Shirley, nearly two-thirds of the region’s take-up this quarter was at Birmingham Business Park, Quartz Point Office Park and Coleshill. Excellent communication links and the ability to provide larger amounts of office space mean that companies will continue to be attracted to offices at Birmingham Business Park as evidenced by BT, GP Strategies, Team Relocations and Create Health all taking office space at the Park this quarter, and accounting for 50% of the quarter’s take-up.
Consistent level of demand for offices in Redditch and Bromsgrove: Redditch saw the fourth largest deal of the quarter with sports fitness brand, Gym Shark, acquiring 7,814 sq ft of offices at 1 Brooklands. The recent lack of deals in Redditch and Bromsgrove (with no deals for Bromsgrove at all this quarter) is firmly down to lack of supply.
This has even driven companies located out-of-town to consider office space nearer to Birmingham. USN relocated from offices in Bromsgrove to Seven House in Longbridge and Lorne Stewart has relocated from offices in Redditch to 4,100 sq ft at Imperial Court on Kings Norton Business Park. Owners of below-par vacant offices in Redditch and Bromsgrove are strongly advised to refurbish and reposition their assets to prevent other occupiers looking elsewhere.
Research highlights for offices in Birmingham and Edgbaston
Most development activity in over a decade: The joint venture between Sterling Property Ventures and Rockspring on 103 Colmore Row/NatWest Tower is now underway, with scaffolding installed as part of the demolition process. The work will see the replacing of the current structure with a new, speculatively-built 26-storey, 200,000 sq ft office building. Elsewhere in the city, we have the Paradise development, which continues, Three Snowhill looking increasingly likely with a new funding deal and 55 Colmore Row. This ultimately means that developments for offices in Birmingham city centre have reached their highest level in over 10 years – a welcome statistic for a market running low on new office stock.
Big deals spent in Q2, though demand for office space in Birmingham continues: Q3’s lack of substantial deals was not due to lack of demand but just lack of take-up, as enquiries within the market remain good. We expect several larger enquiries to be settled next quarter, with further large transactions likely to fall into Q1 2016 as due diligence periods become lengthy. Despite this Q3 lull and even without a projection for Q4, 2015 year-to-date has already surpassed the annual take-up for office space in Birmingham city centre since 2008’s end of year sum of 959,317 sq ft.
Incremental expansions show Birmingham businesses are prospering: Q3 saw the corporate relocations that defined Q2 replaced with cautious expansions, by many local businesses that are doing well, continuing to grow and increasing their office space requirements. Transactions that represented an expansion included: Freeths Solicitors at Colmore Plaza, Gleeson Recruitment Group at Edmund House, Blackhams Solicitors at Lancaster House and Mazars at 45 Church Street. This tells a different but never-the-less positive story for Birmingham’s economy; while corporates are taking particular interest in the city, we are also seeing local businesses prosper and invest – although cautiously.
Fringe locations are cost effective and attractive: The healthy amount of deals in fringe locations such as Edgbaston, Digbeth and Jewellery Quarter, throughout the year, underlines the current strength and depth of Birmingham’s office locations. With the second largest deal in Q3 being Willoughby PR’s taking of 9,150 sq ft at 39-40 Calthorpe Road offices in Edgbaston. Further to this, Q4 opened with Staples taking 20,000 sq ft at Euro Innovation Centre at Aston Cross Business Village – the largest letting at the park in the last ten years.
For more information, please contact Mark Robinson on 0121 212 5994 or email firstname.lastname@example.org.