Birmingham office market research — Q3 2019

The Birmingham office market achieved 160,593 sq ft across 35 transactions, despite many larger occupiers holding fire on relocation or expansion.

This total was primarily thanks to the pre-letting of 110,780 sq ft at Platform 21 to the Secretary of State. Elsewhere, however, demand for smaller office space in the Birmingham office market has been buoyant and some landmark transactions are understood to be on the horizon.

Birmingham office market at a glance

• Pre-let arriving on Platform 21 – Government departments consolidate into 110,780 sq ft
• On hold, but just for now – mid-size occupiers wait for the uncertainty to clear
• Haines Watts and Liquid PR make exciting investments – occupiers put money into office fit out
• Serviced office operators take a pause for now – but further deals on the horizon
• A flurry of deals in the fringe areas – uptick in activity outside the core
• Big fish set sights on new builds – landmark deals ahead, including BT
• Outlook – market on course to surpass long-term annual average

Pre-let arriving on Platform 21

Flying high above all other deals in the quarter was the Secretary of State’s lease of 110,780 sq ft at Platform 21 in Birmingham city centre. The letting, which took place in September, was a surprise announcement at the beginning of October.

It’s understood that all staff coming to the offices on New Street are from in and around Birmingham. Platform 21 will provide a hub for 1,700 civil servants from different organisations, including Public Health England and The Consumer Council.

The offices are currently under refurbishment in preparation for welcoming the nearly 2,000 members of staff in 2021.

Platform 21, Birmingham

The consolidation of Government-used office space in Birmingham city centre has become somewhat of a regular feature in the transactions. We have seen a number of large lettings to Government departments in recent years.

Back in 2016, we discussed the plan for various Government bodies to consolidate multiple office locations into singular buildings. This would deliver improved working efficiency, lower running costs and, potentially, a reduction in overall space occupied.

Since then, we’ve had notable deals to the Government, such as:

• Q3 2017’s landmark pre-let of 238,988 sq ft at 3 Arena Central to HMRC
• Q1 2018’s letting of 12,239 sq ft at 42 Bull Street to the Home Office
• Q2 2018’s letting of 26,799 sq ft at Aqua to the Environment Agency
• Q3 2018’s letting of 36,484 sq ft at Norfolk House to the Secretary of State

The public sector has always provided some of the market’s largest deals, being such a significant occupier within Birmingham city centre. The consolidations since 2016 have also freed up smaller space, as satellite locations move to larger centralised buildings.

On hold, but just for now

Given the lack of deals over 7,000 sq ft, we can see that some mid-sized businesses are sitting on their hands. We can see that lease events are occurring, but many occupiers are choosing to stay put for a while.

The office market has seen occupiers negotiating rolling contracts with their existing landlords, once their agreed lease term ends. This enables businesses to bridge the gap between lease end and the desired property becoming available. In this case, however, this decision relates to ‘the B word’.

We believe the uncertainty that continues to surround Brexit, rather than the act of leaving the EU, is what has businesses pressing pause. Once Britain has either left the EU or there is more clarity on the direction the country is to take, companies will resume decision making.

Haines Watts and Liquid PR make exciting investments

In Q2’s second-largest transaction, Haines Watts took 6,846 sq of ‘Grade A’ office space over two floors at 5-6 Greenfield Crescent in Edgbaston. The accountancy firm has been enjoying excellent growth in the region of late, 10% in the last 12 months alone.

Interior of Haines Watts’ office fit-out at 5-6 Greenfield Crescent, Edgbaston

The new offices represent a significant increase in footprint for the business and will house its 45 staff – with room to accommodate a few more, as growth continues.

Darren Holdway, Managing Partner at Haines Watts Birmingham LLP, says: “2018 was a good year for the business and, following the recent acquisition of Michael Kay & Company, we needed a new Birmingham home that could house the larger team and help us with planning for future growth.”

Matt Long, Portfolio Development Director at Calthorpe Estates, says: “Haines Watts is the eighth business in as many months to relocate or open new practices in Edgbaston Village, following the likes of Kat & Co, Wright Silverwood, Fisher’s Estate Agents, Donald Insall Architects and Childbase Nurseries.”

Edgbaston could, in fact, be an area of increased office occupier interest in the coming years. It is worth considering that Edgbaston is set outside of the proposed clean air zone and will be served by the Midland Metro system as of 2021.

Much like Haines Watts, Liquid PR is investing significant funds in creating premises that will support its aspirations.

It follows a period of sustained growth for the design and marketing business, which has increased both the size and specification of its office space requirements.

The company took 3,609 sq ft at New Oxford House in Q3. Relocating from Enterprise House, the new location is set to include a fully-fitted demonstration kitchen and ‘team theatre’.

The kitchen space will enable Liquid PR to develop and test recipes, as well as film content on-site for its clients. Being able to fulfil this content production will reduce costs and improve collaboration.

New Oxford House, Birmingham

Serviced office operators take a pause

This quarter saw no lettings to serviced office operators, who had all but dominated the figures in 2018. We understand that a couple of providers are seeking additional space but there has certainly been a slowing in the rate of take-up.

In many cases, the transaction is just the beginning. After the deal, the operator must turn the space into an on-brand serviced office with a specification to match.

The question remains, of whether the Birmingham office market could support that many competitors across that much space. Given the sheer number of serviced and managed office providers in the market, it’s difficult to imagine them all succeeding.

Until the serviced or managed space becomes occupied by businesses, these transactions in the Birmingham office market still represent empty space.

This potential oversupply issue was punctuated by the major introduction of WeWork into the office market at the start of the year.

The success of WeWork’s substantial investment in Birmingham in Q1 – totalling 229,042 sq ft – is yet to be seen. However, recent reports regarding the company’s financial difficulties have concerned the serviced office giant’s London landlords. Whether this could signal trouble for WeWork’s first ever Birmingham locations, remains to be seen.

A flurry of deals in the fringe areas

Birmingham’s fringe areas of Jewellery Quarter, Eastside, Digbeth and Edgbaston have been noticeably quiet over the past few quarters. Lack of supply is primarily responsible, with many fringe office buildings converting to residential rather than being refurbished.

In Q3 2019, however, it is encouraging to see transactions in these areas – affirming occupier interest for fringe office space.

Some of the fringe location transactions in Q3 that are of note include:

• 5-6 The Crescent, Edgbaston: 6,846 sq ft – Haines Watts
• Fazeley Studios, Digbeth: 3,345 sq ft – Global Banking School
• 40 St Pauls Square, Jewellery Quarter: 2,574 sq ft – Taylor Maxwell

It is also worth considering that many businesses in fringe areas are “happy where they are”, so to speak. As such, they are renewing leases at their existing premises and thus will not appear in the office market figures.

Big fish set sights on new builds in the Birmingham office market

We understand that there are a few major occupiers understood to be taking some of the city’s largest Grade ‘A’ office space. This provides a reassuring picture of the quarters to come for the very top end of the Birmingham office market.

The largest of these is BT, which has a 200,000 sq ft requirement representing the relocation of hundreds of staff.

The telecoms company is reported to be eyeing up half of the 400,000 sq ft building, Three Snowhill, owned by M&G Real Estate. Three Snowhill is a prestigious property and the largest single office building under construction in the UK outside London.

The regional hub is part of BT’s process of consolidation of office space, which is due to complete in 2023. The transaction was expected to complete before the end of the year, but early 2020 is now more likely.

Three Snowhill, Birmingham

Outlook

As the previous section outlines, we expect there to be some potentially landmark transactions in upcoming quarters. These will provide a great boost to the market and Birmingham’s economy, should they materialise.

Last quarter, we said the 5-15,000 sq ft bracket would continue to see healthy levels of take-up. Uncertainty has compromised this somewhat. However, we would expect a return to form following a significant development on Brexit.

In regard to the overall performance of the market, the current year-to-date total is 675,202 sq ft. Consequently, it would be surprising if the Birmingham office market did not achieve the annual long-term average of 729,839 sq ft.

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.