Birmingham office market research — Q2 2019

Bolstered by WeWork, the Birmingham office market achieved a total of 320,595 sq ft across 30 transactions, bringing the total for the first half of the year to 514,609 sq ft.

In a quarter that took many in the Birmingham office market by surprise, WeWork secured almost 230,000 sq ft across three office space transactions in the three-month period. These large deals resulted in the quarter’s average letting size of 10,687 sq ft, the highest since Q3 2017.

Birmingham office market at a glance

• WeWork gets to work in Birmingham – three deals represent landmark quarterly take-up
• ‘Bread and butter’ spread of small to medium deals – 0-15k sq ft bracket delivers again
• WeWork Effect’ remains to be seen – office market fixes its eyes on 0-5k sq ft bracket
• Buzz in the Colmore Business District – strong concentration of office deals within CBD
• Fringe falls silent – lack of supply leaves the core to get all the glory
• Sitting pretty with city living – where is the demand for convenience taking us?
• Outlook – 5-15k sq ft to stay strong through Q3 and Q4, unaffected by WeWork and the like

WeWork gets to work in Birmingham

As had been expected, WeWork has entered the Birmingham office space market – taking more space than many had anticipated. In three deals, WeWork took 229,042 sq ft of the 320,595 sq ft transacted in total, 69% of sq ft take-up. ‘True’ occupiers, rather than serviced office providers, took c.100,000 sq ft over 27 deals.

The high profile of the buildings chosen by the co-working space provider adds to the statement WeWork is seeking to make.

• 55 Colmore Row – in 2017, the property underwent a £30 million refurbishment to provide competitively high specification office space in a prominent location in Birmingham’s Colmore Business District. The heritage of the Victorian property adds to its stature in the market.

• Louisa Ryland House – located at the edge of the Colmore Business District on Newhall Street next to Edmund House, which homes a Regus serviced office offering – putting the properties in direct competition. Last year, it was reported to be converting into a hotel, but plans have clearly changed for the previously council-owned property vacant since 2012. Ultimately, as it will need to be refurbished by WeWork, the specification of the office space could be different to the other two properties.

• 6 Brindleyplace – pictured below, this property offers a difference in location and target audience to that of 55 Colmore Row and Louisa Ryland House. Notably, following the sub-let of 72,261 sq ft at One Brindleyplace to the team that will deliver the Commonwealth Games, WeWork’s serviced office space in the immediate vicinity will offer an ideal location for appointed contractors to set up an HQ.

6 Brindleyplace, Birmingham

WeWork is well-versed in hitting the headlines, and its introduction to the Birmingham office market in Q2 2019 is no exception. The three lettings, all of which are understood to be have been undertaken on long-term leases of up to 15 years, represent the largest commitment made in a quarter to the Birmingham office market by a single company since records began.

The primary differentiator for WeWork is the lifestyle angle it puts on its office space offering. The facilities commonly found in its properties – such as its trademark breakout areas with free bars and snooker tables – are a big draw. The range of co-working businesses and individuals that the property tends to attract, also provide a unique cultural and collaborative appeal.

The ‘bread and butter’ spread of small to medium deals

Despite the proliferation of serviced offices in Birmingham city centre, we are still seeing a healthy level of small and medium-sized transactions. The deals are focused predominantly around the city centre’s bread and butter occupier sectors: property and construction, finance, and engineering. This follows one of the most varied quarters the Birmingham city centre office market has ever seen.

The 0-5,000 sq ft bracket, considered to be the target market in London for serviced offices, saw 21 traditional office deals transacted in Q2 totalling 49,993 sq ft. In Q1, this bracket achieved 41,356 sq ft – making 91,349 sq ft for the first half of the year. Should this be replicated in the rest of the year, it will show the smaller end of the market to be resilient both to the growth in serviced offices and political uncertainty.

The 5,000-15,000 sq ft bracket, which at the beginning of last year had been approaching a supply drought, has been enjoying good activity. So far, the bracket has seen 10 deals, with the demand for supply being fulfilled by the timely introduction of refurbished space to the Birmingham office market. The six deals between 5-15,000 sq ft in Q2 2019 total 41,560 sq ft and can be seen below.

The ‘WeWork effect’ remains to be seen

WeWork’s achievements in London are well-known and their dominance of the serviced office market there is the product of aggressive marketing and acquisition strategies. The provider has also seen some success in Manchester, but as this is their first appearance in Birmingham city centre, it will be interesting to see how the City’s occupiers will respond.

In the coming quarters, we will begin to see WeWork ramp up the marketing of space at the three properties, and they will compete directly with serviced and managed office providers such as Regus and BE Offices, as well as buildings providing their own serviced office solution, such as Alpha Works.

With this number of players in the marketplace, will we see competition on ‘desk price’, with providers with comparative offerings seeking to undercut each other? As we have previously stated, serviced offices tend to be 2-3 times the cost of office space let on a traditional basis. If the desk price were to lower by a significant amount in Birmingham’s serviced office market, will there be a more substantial change in the traditional 0-5,000 sq ft bracket than we have seen so far?

WeWork common area

The buzz in the Colmore Business District

With a quiet quarter for Birmingham’s fringe areas of Eastside, Edgbaston and Jewellery Quarter, a significant number of the deals were primarily centred around a small area within the Colmore Business District (CBD). This area of the CBD is situated behind Colmore Row and Newhall Street and stretches to the edge of the Jewellery Quarter, marked out by the A4400 and A38 / Great Charles Street Queensway.

This activity within the core indicates the importance of location and accessibility to occupiers. Making your offices as quick and easy to get to as possible is a priority now more than ever. The Colmore Business District has excellent transport links, such as Snowhill train and Metro stations, which sit within the CBD, and its proximity to bus routes, the Birmingham ring road and New Street train station.

Marked out below are the buildings that saw activity in Q2 2019, the most substantial of which was the letting to WeWork at 55 Colmore Row. The properties also include 45 Church Street that saw three lettings, 60 Church Street and Interchange Place both of which secured two new occupiers, and the successful Cornerblock that secured yet another letting. As depicted, all of these properties, which welcomed occupiers in Q2 2019, are within a stone’s throw of each other.

Aerial of a section of Birmingham’s Colmore Business District

Fringe areas of Birmingham office market fall silent

Q2 2019 saw an absence of deals in the fringe areas of Eastside, Digbeth and Edgbaston, with the only transactions outside of the core taking place in the Jewellery Quarter.

Many of the office buildings that have been available in Eastside and Digbeth have been converted into residential apartments and, whilst there are mixed property schemes such as Beorma Quarter on the table, we have yet to see the progression that guarantees new office space in coming years.

Last year saw Birmingham City University take 118,240 sq ft at Belmont Works for the creation of the next phase of its STEAMHouse project. Whilst the building will include a number of industrial facilities for product development, it could also deliver small suites of office space on a serviced arrangement basis.

Edgbaston, which was once a hive of activity, has fallen silent in the past couple of years, because availability in the area has diminished substantially, with high levels of both take-up and conversion to residential.

Last of the Jewellery Quarter’s investment gems

With fringe space drying up across the City, the only fringe area to see activity within the Birmingham office market was the Jewellery Quarter.

39–41 Vittoria Street was purchased by MJ Group Holdings, which owns a jewellery business and occupies part of the 3,300 sq ft property. Half of 39-41 was subsequently let within the same quarter to two other occupiers. Arkade Property now occupies 863 sq ft at 41 Vittoria Street and J Van Dijk has taken 656 sq ft at 39 Vittoria Street.

Many of the Jewellery Quarter office space transactions in recent years have been freehold purchases, which differs from the other fringe locations such as Digbeth. Smaller-sized office space available in the Jewellery Quarter is acquired quickly as an investment by owner-occupiers because it is virtually the only area of Birmingham city centre that can offer this opportunity.

City living sitting pretty

Conversions of office buildings and the development of properties such as The Bank and the recently announced super-slender 37-floor residential property, both on Broad Street, have increased Birmingham’s city living offering substantially. This growth in residential has taken place simultaneously with the growth in serviced offices and the creation of new-build properties that provide dynamic, flexible and modern office space.

Lifestyle has become one of the most significant factors in the design and development of both residential and commercial property. There is a thirst for optimised residential properties in the city centre, which offer a commute-free life to live in, and workspace that includes large breakout and collaborative areas to work in.

This demand from young professionals is, in part, driven by a desire to continue the university way of living, which has been experienced by more young people in Britain in recent years than ever before.

Incidentally, there is a building now offering live workspace that addresses all of the above, which may prove to be a sign of things to come. The Lansdowne on Hagley Road is an apartment block that somewhat resembles an upgraded hall of residence by providing communal social areas, a fitness studio and co-working space, to service those living in its 1-3 bedroom apartments. This offers a freelance worker, for example, with no need to take up a desk with Spaces or WeWork – as they can live, work and collaborate all within the same building.

The Lansdowne, Edgbaston (image supplied by Way of Life)

Outlook

Space at WeWork’s 55 Colmore Row offices is now being marketed and its impact is something that many in the commercial property market in Birmingham will be paying close attention to.

The size bracket of 5,000-15,000 sq ft is unlikely to be affected by WeWork or the other serviced office providers, so we would expect to see continued healthy levels of take-up of this size. The 0-5,000 sq ft bracket will be watched with particular interest but, whilst this is the target audience for WeWork, so far, we have seen resilient demand for traditional lettings in this size bracket in the face of a growing serviced offices market.

Q2 also saw the closing of the Five Ways underpass, as work on the extension of the city’s Metro progresses. This improvement in the City’s infrastructure will bring Edgbaston and Birmingham city centre closer together, which could ultimately encourage commercial property development in Edgbaston.

See full details of the transactions featured in our Birmingham office market research, comprising office space in Birmingham city centre and Edgbaston.

For more information on the Birmingham office market, please contact Malcolm Jones on 0121 233 2330 or email mjones@kwboffice.com.To register for future research updates, click here. See also our M42 and Solihull office market research.