Birmingham office market research – quarter 4 and full year 2016

Year-on-year office take-up

Transactional analysis by size bracket

This year, whilst we see fewer Birmingham city centre office space transactions above 5,000 sq ft, there is a significant increase in the 0-5,000 sq ft bracket. This led the market to achieve more lettings this year than in 2015. As with the previous year, and as is generally to be expected, this bracket was the most active and, this year, provides the largest contribution to the overall square footage, 206,149 sq ft or 30% of the total. Lettings in the larger size brackets are particularly lacking in the second half of the year, and their absence significantly contributes to the size of the Q3 and Q4 totals.

Business sector analysis

Bolstered by lettings such as PWC, professional services represented the largest sector of occupiers taking Birmingham city centre office space in 2016. In 2015, banking and financial services represented the largest sector of occupiers taking space, driven primarily by the letting of 212,000 sq ft at 2 Arena Central to HSBC.

Key transactions

• PWC – 90,000 sq ft at One Chamberlain Square
• Network Rail – 83,406 sq ft at Baskerville House
• Pinsent Masons – 40,538 sq ft at 55 Colmore Row
• DAC Beachcroft – 40,045 sq ft at Tricorn House

HS2 halo effect

In February 2017, Royal Assent was granted  for the HS2 project, but 2016 transactions in the Birmingham office market show that ‘the wheels had already been turning’. Laing O’Rourke and Galliford Try’s relocations to Birmingham city centre in 2016 are regarded as direct reactions to the forthcoming train line, and they join a short but significant list of other inward investors that have moved to the city centre since Two Snowhill was selected as the HS2 headquarters.

Location analysis

The city centre, Edgbaston and Birmingham’s Jewellery Quarter, respectively, increased their share of total square footage, at the expense of Aston/Eastside/Digbeth which, in 2015, was bolstered by the education sector.

Birmingham office space availability

The amount of Grade ‘A’ Birmingham city centre office space currently available stands at around 550,000 sq ft, which equates to c. 10% of total Grade ‘A’ stock and just 3% of all central Birmingham office stock. Of this, only 130,000 sq ft is considered ‘new’ Grade ‘A’, and 104,000 sq ft of this is provided at just one property – The Colmore Building.

There are three buildings under construction, totalling 849,000 sq ft. One and Two Chamberlain Square, Paradise will provide 429,000 sq ft, of which a minimum of 90,000 sq ft at One Chamberlain Square has been pre-let to PWC. The remainder will be provided at Three Snowhill, where 180,000 sq ft will be completed to Grade ‘A’ specification and the balance finished to ‘shell and core’.

Three Snowhill

‘Hipster’ space

For the first time in Birmingham’s office market history, we are seeing an increasing number of properties offering aesthetic interior features such as exposed brickwork and services, such as The Assay Studios in Birmingham’s Jewellery Quarter pictured here. The identities of these buildings, akin to what we see in areas of London like Shoreditch, hold currency for a select area of the market, which consists predominantly of companies in the TMT sector.

The city has seen an increasing number of shops and restaurants that demonstrate this trend in recent years, catering for the Millennial demand, and now we see the market for Birmingham city centre office space following suit.

Rental levels

Prime office rents in Birmingham peaked at £33 per sq ft in 2008, before dropping back during the recession. They have since recovered, with prime rents now standing at £32 per sq ft. With Royal Assent for HS2 now granted, its ‘halo effect’ should continue to attract further occupiers, both directly and indirectly.

Outlook for 2017

We anticipate some significant Birmingham city centre office space lettings in the coming months. The much reported HMRC requirement is anticipated to see a letting of 200,000-300,000 sq ft this year, with the relocation programme amounting to close to 1,000,000 sq ft of lettings over the coming years.

With Royal Assent for HS2 now granted, we expect to see an intensifying of the HS2 halo effect. So far, we have seen several companies relocate to Birmingham city centre and close to the HS2 headquarters at Two Snowhill. These companies are either in, or seeking to be in, the HS2 supply chain, or are attracted by the anticipated economic growth that the line will bring.

Headline rents on the best quality, new, Grade ‘A’ office stock are expected to hit the pre-2008 recession high of £33 per sq ft.

“Birmingham’s substantial investment in infrastructure and new commercial real estate is combining to create an internationally competitive investment destination. The city’s office market has seen the highest levels of development for 15 years along with some major investment deals, most notably M&G’s funding of Three Snowhill, which will be the largest speculative development to have ever taken place outside of London.

“With our plans for the HS2 terminal set to expand the city centre, alongside increasing interest from overseas investors and the strengthening of the business, professional and financial service sectors, the demand for new and refurbished office space in Birmingham is set to continue into 2017.”

Waheed Nazir, Strategic Director, Birmingham City Council

For more information

See full details of the transactions for office space in Birmingham city centre and Edgbaston.

Download KWB Office and Industrial Market Review 2016.

For more information on Birmingham city centre office space, please contact Nigel Tripp on 0121 212 5981 or email ntripp@kwboffice.com or Mark Robinson on 0121 212 5994 or email mrobinson@kwboffice.com.