Birmingham office market research — Q4 and 2020 annual review

In an immensely challenging year for many businesses, the Birmingham office market achieved 72% of its 10-year average in 2020.

This wasn’t the lowest annual take-up for the Birmingham office market in the last 10 years – 2012 holds that record. However, in 2020, the market pins a large part of its 520,810 sq ft total on the landmark letting to BT, right at the start of the year.

Birmingham office market at a glance

• Key transactions
• Why were companies taking space in 2020?
• Serviced offices stop and WeWork bubble pops
• Pressing ahead without WeWork
• Public sector continues to consolidate
• Grey space yet to come back
• Construction carries on
• Fringe locations show resilience
• Rent and incentives
• Outlook

Birmingham office market key transactions

In 2020, transactions in the Birmingham office market over 10,000 sq ft total 418,217 sq ft – c. 80% of the market’s total take-up for the year. When you look at what we would traditionally call ‘key transactions’, those over 20,000 sq ft, the market achieved just two transactions of this size – totalling 331,860 sq ft – compared with seven in 2019.

Transactions for office space in Birmingham city centre over 10,000 sq ft in 2020

The figures this year are dominated by the largest single office space transaction ever to have taken place in the Birmingham office market. The letting of 283,073 sq ft at Three Snowhill to BT represents a staggering 54% of the year’s take-up. BT took the lion’s share of Three Snowhill’s 400,000+ sq ft of office space.

Three Snowhill will be the first of BT’s future-fit offices in the UK to open as part of its ‘Better Workplace Programme’, designed to improve and consolidate the company’s 300 UK locations to around 30. The state-of-the-art building includes smart building technology, flexible workspaces and collaboration areas. There will also be a range of catering options including a ground floor café open to the public, world class event spaces, and a large media screen in reception.

In December, Graeme Paton, BT’s managing director of Property and Facilities Services, said: “This year has been so tough on everybody due to the impact of COVID-19 and we know how acutely this has been felt in Birmingham. We believe in the power of our teams and want to give them the best environments to connect, collaborate, create and innovate.”

“As the UK’s second largest city, Birmingham is a strategically important location as part of BT’s future. Despite the issues caused by COVID-19, our contractors have been doing an amazing job getting the building prepared so we can occupy it.”

BT’s new regional office hub which, pre-lockdown 3.0, was set to open in early 2021, will host more than 3,000 of BT’s staff. This may now be delayed slightly by the lockdown but, when they are able to move, they will occupy the majority of Three Snowhill’s 17 floors. Meanwhile, the property, which is the largest speculative development in the UK, outside of London – has 119,950 sq ft remaining.

Why were companies taking space in 2020?

Despite the pandemic, several notable occupiers took space, continuing with their medium and long-term plans.

Mazars took a pragmatic approach to their relocation to Two Chamberlain Square. The international audit, tax and advisory firm took substantially less than the size of their initial requirement, but with an option over additional space, as and when they need it.

The 11,764 sq ft they took in Q3 on the first floor of Two Chamberlain Square is effectively a like-for-like swap, size-wise, with the c.11,000 sq ft it occupied at 45 Church Street. The firm had originally been relocating to expand – which their existing building could not accommodate – but, for now, they have taken the same amount of space in a building that provides the opportunity for further expansion within a high-quality environment.

In November 2020, Mazars appointed its office fit-out contractor and confirmed its plans to relocate its 200-strong team in Q1 2021. The space is being designed to reflect “progressive ways of working and the needs of a modern firm in a post-COVID working environment.”

Knights, took 17,835 sq ft at Two Chamberlain Square in the largest letting in Q3 2020, representing a consolidation of its various acquisitions within the legal market and an upgrade in quality and profile of office space.

The legal and professional services firm has been expanding rapidly recently, acquiring two legal firms in Birmingham in the past 18 months. In 2019, Knights acquired law firm, Emms Gilmore Liberson (EGL), based at Lancaster House on Great Charles Street. In January 2020, they announced the purchase of ERT Law. The new office space will house both teams and support their continuing expansion plans.

Other stories behind lettings in 2020, most notably in Q4, include:

• Groundwork – the charity took 3,836 sq ft at The Walker Building in Digbeth, moving from a building near Brindleyplace, which was converting to residential.
• Gensler – the architects relocated to 4 St Phillips Place in pursuit of good quality office space.
• iCare24 – the healthcare recruitment business are relocating out of Cobalt in Edgbaston and back into the Jewellery Quarter. They have taken 2,507 sq ft at Ludgate Court, which is situated on St Pauls Square.

Serviced offices stop and WeWork bubble pops

We only saw one office letting to a serviced office operator in 2020, after this sector had been a dominant occupier taking office space for the previous three years. Whilst we expect there to be a bounce back for serviced offices in 2022, we could well see some casualties ahead. This can’t be surprising, given that their space has been vacant for a large part of 2020 – and the numbers of returning occupiers remain unknown.

Serviced office operators’ share of take-up in the Birmingham office market

In 2019, the market’s lettings to serviced office operators went entirely to WeWork – which until then had no presence within the Birmingham office market. The serviced office giant took 229,042 sq ft across three properties, representing 29% of 2019’s overall take-up. All three of these lettings were taken on long-term leases of up to 15 years.

The business had been in widely-reported difficulties and, at the end of 2019, received a rescue package, announcing that it would be backing out of up to 100 of its locations worldwide. All the locations in question were either yet to open or were newly opened locations that had been slow to fill or had required deep concessions to attract customers. Despite this, none of the Birmingham locations were on that ‘at risk’ list.

However, as the pandemic impacted heavily upon serviced office operators, WeWork has now made the decision to reverse much of its Birmingham plan. WeWork is now only pursuing 55,092 sq ft of its original 229,042 sq ft commitment to Birmingham city centre – representing just 24% of that figure.

WeWork planned locations in Birmingham city centre

The properties in more detail:

• 6 Brindleyplace – WeWork no longer plans to fit out and open this location and is currently seeking a solution to allow it to cut ties with the property.
• Louisa Ryland House – WeWork has cancelled its plans for the property and has expunged its lease.
• 55 Colmore Row – WeWork is understood to be continuing with its smallest Birmingham letting, which is the only location that was opened. It was also announced towards the end of last year that the building, of which WeWork occupies about 35%, had been sold for over £100 million to Germany’s Union Investment.

Pressing ahead without WeWork

Landlords at Louisa Ryland House, Euro Properties Investment, have decided to press ahead with their multi-million-pound refurbishment of the Grade II listed building, despite their coworking tenants pulling out.

The refurbishment will provide Grade ‘A’ office space over six floors, with floorplates ranging in size from 3,784 sq ft to 15,360 sq ft. On-site tenant amenities will include a roof terrace, external courtyard, café, showers and changing rooms, and cycle facilities. The quoting rent is £31.50 per sq ft.

Public sector continues to consolidate

Government, government-related and public sector occupiers consistently feature prominently within the take-up of the Birmingham office market. This has been the case particularly at the larger end of the market. The reason for this is that, in recent times, we have seen an extensive programme of consolidation of public sector office space – bringing together a variety of locations to achieve higher operational efficiencies and lower costs.

In Q2, we saw the Department for Work and Pensions (DWP) become the latest in a series of large deals to public sector occupiers as it took 48,787 sq ft at B1, 50 Summerhill Road in Birmingham’s Jewellery Quarter. This, as with other large public sector lettings, represented a consolidation, namely of the DWP’s two Birmingham offices:

• Five Ways House, which houses back-of-house operations and welcomes visitors for Health and Disabilities Assessments; and
• Temple Row House – another back-of-house location.

In addition to this we also saw, in Q2 2020, the Ministry of Justice take 5,249 sq ft at Edward House, Quay Place.

Grey space yet to come back to the Birmingham office market

In Birmingham city centre, whilst teams are working from home, we have yet to see occupiers trying to shake themselves loose of their office space commitments. This is despite numerous and varied reports over recent months that many occupiers will be considering major and fundamental adjustments to their operations.

In part, this is because many do not yet have a clear view of what their business and their working practices will look like post-COVID, and navigating the pandemic has taken precedence. However, though working from home at least some of the time will undoubtedly become more commonplace, many occupiers are itching to return to their offices and bring their teams back together.

Furthermore, those occupying larger space, and have a substantial presence within Birmingham city centre, are unlikely to want to relinquish that. Particularly when we consider international business, any decisions that these companies make in response to a changing marketplace will most likely be made considering the full, national – indeed global – picture and taking a long-term view.

Construction carries on

Throughout the pandemic, construction across the city has continued. The government has encouraged the construction industry to continue throughout 2020 and now in the 2021 lockdown.

Developments that have progressed in the past 12 months include

Fringe locations show resilience

The fringe locations of the Birmingham office market were more resilient in 2020 than Birmingham city centre. In 2019, 10% of office take-up took place in Birmingham’s fringe locations; in 2020, it accounted for 18%.

Office space transactions in fringe areas of the Birmingham office market in 2020

The fringe areas of the Jewellery Quarter, Edgbaston, Aston, Eastside, Digbeth and the Chinese Quarter saw 96,241 sq ft of office space secured, across 13 transactions. If, for a moment, you ignore the landmark once-in-a-blue-moon letting to BT – the fringe areas account for 40% of the remaining 237,737 sq ft transacted. This emphasises the resilience of Birmingham’s fringe areas in 2020.

The Jewellery Quarter saw five transactions in the year, totalling 56,381 sq ft. The letting to the DWP at B1, 50 Summerhill Road of 48,737 sq ft represents the majority of the Jewellery Quarter’s total – 87%.

Edgbaston secured six transactions in 2020 totalling 34,118 sq ft. Edgbaston’s presence within the figures has fluctuated within recent years, as so many buildings and prominent locations have either been converted or redeveloped into residential.

Rent and incentives

Impressively, in a COVID year, the Birmingham office market set a record rent in Q3 with £37 per sq ft at Two Chamberlain Square in the letting to Knights.

Nevertheless, when things start opening up again post-vaccine, we may see companies acting quickly to secure more favourable deals on the basis that landlords will be pragmatic and keen to secure occupiers. Indeed, this may have formed part of the decision-making processes for those that did take space in 2020, making use of the negotiating power forwarded by the pandemic.

Outlook

Firstly, the DWP, which took 48,787 sq ft at B1, 50 Summerhill Road in 2020, is expected to take more space within the same building in early 2021. The letting had been expected to be signed off at the end of 2020 but has been pushed into the new year.

With the UK plunged into another lockdown in light of a more transmissible coronavirus variant, many have had to delay plans for returning to the office – or have had to move back to working from home, having already brought at least some of their team back into the office. As such, Q1 2021 will see many businesses extending the delay on their plans and hoping to make good later in the year – ‘survive the first half and revive in the second half’.

That being said, the marketplace is far from dead and there are distinct enquiries seeking office space across a range of sizes, albeit certainly not at the level of previous Q1 quarters. There are many companies that need to do something at some point soon, as they have lease events approaching or there is another pressing driver.

Lastly, in November we saw the reveal of the winning design for Three Chamberlain Square, the next office building to form part of the redeveloped Paradise site. The selected design, featured below, for the c. 160,000 sq ft office building was created by the architecture practice, Feilden Clegg Bradley Studios. The next stage for the project is a submission for planning permission, which will be made this year.

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 Nigel Tripp on 0121 233 2330 or email ntripp@kwboffice.com.

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