Office space Birmingham city centre – quarter 4 2015 research

970,458 sq ft – a record year for office transactions within Birmingham city centre. The second city is experiencing its highest level of property and infrastructure development in 13 years.

The forward purchase of 212,000 sq ft of office space in Birmingham city centre by HSBC at 2 Arena Central was the standout transaction of the year, representing the largest example of both the relocation and consolidation trends that have dominated key transactions in 2015.

 A new city

With the progression of the city’s Metro system – due to run through to New Street as of March 2016 – bringing the key areas of this large city closer together, it’s clear to see Birmingham is changing. 2015 saw the launch of the new New Street Station and Grand Central Shopping Centre, galvanising both the high street and railways – ahead of HS2 in a few years’ time, which will surely do the same.

New money – inward investment

Birmingham’s recent and ongoing investment in infrastructure, transport and amenities have made the city very appealing. The inward investment transactions we have seen in response include HSBC’s forward purchase of 212,000 sq ft at 2 Arena Central and Advanced Computer Software taking 45,045 sq ft at The Mailbox. Relocations such as these are big news – bringing new money and the promise of many new jobs to the city.

It’s also worth noting that, just 5 months since its opening, Grand Central has been sold by Birmingham City Council to London based retail property firm, Hammerson, for £335 million.

HSBC takes over 200,000 sq ft of office space, Birmingham city centre

HSBC’s relocation from Canary Wharf and huge inward investment was, understandably, the biggest story of the year. The 220,000 sq ft forward purchase kick-starts the Arena Central programme. It is likely that the move to Birmingham was encouraged by Deustchebank’s relocation 2 years ago, to 5 BrindleyPlace – which provided them with 134,000 sq ft of Birmingham city centre office space. HSBC will see reduced costs of occupation and staffing in the relocating of its retail division – and, in doing so, will create 1,000 jobs for the city. We anticipate HSBC’s relocation having its own halo-effect, as with HS2; lettings of this magnitude often create ripples – galvanising the property market.

“The city’s substantial investment in infrastructure, such as the £750m redevelopment of New Street Station and opening of Grand Central, coupled with the value to be found in the office market, meant that Birmingham’s office market had a fantastic 2015.  We’ve seen major investment taking place in Birmingham, as shown with HSBC moving its retail division to the city.” 

Waheed Nazir, Strategic Director of Birmingham City Council

Key transactions and business sector analysis

Aside from HSBC’s landmark forward purchase, several other very significant sales and lettings of Birmingham city centre office space occurred in 2015. Advanced Computer Software took 45,000 sq ft at the newly refurbished offices at The Mailbox in Q4, establishing a new regional hub by consolidating four different branches. Their choice of location was motivated by a particularly young workforce and its excellent public transport links.

Key transactions

  • HSBC – 212,000 sq ft
  • Advanced Computer Software – 45,045 sq ft
  • Extra Energy Supply – 34,397 sq ft
  • Jacobs Engineering Group – 19,284 sq ft

Business sectors

2015 saw continued growth in the city core’s dominant occupier industries: construction, professional services and financial services. Office activity in these areas is a positive reflection on the state of the city’s economy – with recruitment companies also strongly represented in the year’s Birmingham city centre office space transactions.

Birmingham city centre office space transactions by size bracket

Ignoring the HSBC forward purchase, the most active size bracket was between 0-5,000 sq ft which accounted for 93 of the 132 transactions in the year, representing 20% of total take-up.

HS2 now stimulating demand

The letting of 19,284 sq ft to Jacobs Engineering Group at 2 Colmore Square signified the beginning of the HS2 effect. It is the first major transaction of Birmingham city centre office space in support of HS2’s occupation of Two Snowhill, a letting which was secured in Q4 2014. Jacobs is one of the key companies in HS2’s supply chain, and their new location puts them close to the headquarters of the high speed rail company.

The HS2 ‘halo effect’ will stimulate demand, attracting further occupiers in 2016, both directly to support the project itself, and indirectly in response to the ensuing investment in Birmingham city centre and the growth of its economy.

Availability of new office space, Birmingham city centre

There is currently c. 750,000 sq ft available of Grade A and Grade A/B office space in Birmingham city centre, representing 4% of total stock. Of this supply, only 144,000 sq ft is brand new Grade A space. With the 10 year annual average take-up totalling 705,000 sq ft, landlords and developers have been keen to meet the forthcoming Birmingham city centre office space supply shortage, with 506,000 sq ft of Grade A offices now under construction/ refurbishment.

When 2015 came to a close, Birmingham was experiencing the most building development work for 13 years. The Paradise demolition has been in full swing for a couple of months, NatWest Tower is also coming down slowly, and Three Snowhill is to be bought by M&G for a speculative development totalling 360,000 sq ft of office space in Birmingham city centre. We are seeing the much needed injection of new stock in buildings, such as the renovated and refurbished 55 Colmore Row. This new stock – in a prime location – may be refurbished space but could be able to demand near-new stock price.

There are currently no Birmingham city centre office space projects completing in 2017, some 700,000 sq ft in 2018 and nearly 200,000 sq ft in 2019. There is, however, a number of both new build and refurbishment schemes that could – should they come to fruition – provide over 1 million sq ft of Birmingham city centre office space and some of these, no doubt, will plug the gap in 2017.

Grade A under construction/refurbishment   Sq ft
Completing 2016
55 Colmore Row 147,220
Two Cornwall Street 110,000
The Lewis Building 113,000
One Colmore Square 60,000
Phoenix House 45,000
10 Temple Street 34,000
Total 506,220
Completing 2018
Three Snowhill 360,000
One & Two Chamberlain Square 339,000
Total 699,000
Completing 2019
103 Colmore Row 196,000

 

City fringe locations

2015 saw the resurgence in popularity of Edgbaston. This area of Birmingham offers good value for money for price-sensitive occupiers when compared with increasing rents on comparable core Birmingham city centre office space. An example of this is Extra Energy Supply taking 34,000 sq ft at 54 Hagley Road.

Lettings in Digbeth and Eastside have been propped up by Birmingham City University, in their colonising of Millennium Point and Eastside Locks.

The investments by the university, in growing its postgraduate programmes, will help meet the demands of the region’s talent pool over the coming years. Eastside is now, in fact, almost full and this has been the motivation behind the forthcoming 50,000 sq ft speculative office space build by Goodman at the location.

Birmingham city centre office space rents to rise

In the Birmingham city centre office space market for Grade A stock, rent-free periods have been eroded – on lettings such as Colmore Plaza and 2 Colmore Square. However, rents themselves have yet to rise. It’s been a while since the market has seen new Grade A stock, and because the grade of stock hasn’t fundamentally changed, and new refurbishment projects have yet come to market – rental increase hasn’t been able to occur. This is soon to change – properties such as Colmore Plaza and 55 Colmore Row are likely to be the first examples of Grade A rent increase that we will see, going forward.

The Birmingham city centre office space market for Grade B has, however, seen new stock enter the market, and this has stimulated rental growth – this goes some way to confirm what we can expect from the Grade A market when new stock becomes available. Grade B properties with good floorplates offer affordable yet well-equipped and presented Birmingham city centre office space. Demand is strong for this section of Birmingham’s office stock and that is why rental prices can rise when such space come to market.

Investment transactions for office space, Birmingham city centre

There is a substantial weight of cash in the UK’s commercial property market, but opportunities in Greater London have become less appealing. This has contributed to the record volume of investment transactions in Birmingham city centre office space during 2015. Amounting to over £550m, a 10% improvement on the previous year and 75% over the 10-year average of £310m.

Legal & General proved to be a particularly active purchaser of Birmingham city centre office space last year, acquiring 43 Temple Row, One Colmore Square, 14-28 Corporation Street and the Mitchells & Butlers HQ. This was in addition to their Priory and Temple Court purchase in 2014. Prime net yields in the core have fallen some 50-75 bps from a starting point of 5.5% at the beginning of the year.

Key 2015 investment transactions

Address Purchaser Sq ft Price Yield
Colmore Plaza Ashby Capital 310,000 £138.3m 6.09%
7, 8 & 10 BrindleyPlace VGV 276,000 £130.0m 5.75%
63 Temple Row EPIC (UK) 39,515 £11.6m 5.67%
One Colmore Square Legal & General 202,807 £87.4m 4.04%

Outlook for 2016

Business and financial services are likely to dominate take-up in 2016, with an increase in public/quasi-public sector requirements as they strive to save money.  Rents on new pre-lets are expected to exceed £33 per sq ft, with a positive knock-on effect on refurbished space.

“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 is set to continue into 2016.”

Waheed Nazir, Strategic Director of Birmingham City Council

For more information

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

Download KWB Office Market Review 2015.

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