Birmingham office market research – quarter 1 2018

Q1 2018 saw the Birmingham office market achieve 148,483 sq ft of transacted office space – a good, average quarter – with a number of larger lettings completed.

The majority of Birmingham office market lettings in the quarter was lease event-driven – with occupiers taking better quality space – and were concentrated within Birmingham city core rather than fringe areas. Underpinning the landmark deals, was a notably strong recruitment sector amongst a wide range of smaller occupiers taking space.

A good start to the year

With four lettings over 10,000 sq ft, and a diverse range of lettings, the 148,483 sq ft total achieved by the Birmingham office market bodes well for the year. In square footage, it is also above average, based on first quarter performance over the last 7 years:

Quarter Office space (sq ft) Share of annual total Transactions Average size (sq ft)
Q1 2018 148,483  – 22 6,749
Q1 2017 138,943 14% 31 4,482
Q1 2016 283,697 41% 36 7,880
Q1 2015 123,760 13% 30 4,125
Q1 2014 102,353 14% 28 3,655
Q1 2013 113,326 17% 30 3,778
Q1 2012 54,573 11% 28 1,949
Average 137,876 18% 29 4,708

One of the most notable things that can be taken when looking at the transaction figures for Q1 2018 is the spread of lettings. The top 4 deals total 91,425 sq ft, with the remaining 18 deals demonstrating great diversity and accounting for c. 57,000 sq ft. The lettings over 10,000 sq ft were:

Office building Size (sq ft) Occupier
The Mailbox 46,100 WSP Parsons Brinckerhoff
134 Edmund Street 21,743 West Midlands Trains
42 Bull Street 12,239 Home Office
The Colmore Building 11,343 Orega
Total 91,425 62% of total space transacted

WSP Parsons Brinckerhoff

The largest transaction of the quarter was the letting of 46,100 sq ft of Birmingham city centre office space to engineering giant, WSP Parsons Brinckerhoff, at The Mailbox’s newly refurbished offices.

The letting was understood to have been lease-event driven, with the HS2 contractor deciding to relocate from its existing offices at 1 Queens Drive, set behind TK Maxx on Smallbrook Queensway, moving into higher quality office space.

Last December, WSP revealed that it would be working on Phase 2 of the HS2 project – joining an ever-growing list of HS2 contractors with substantial office stakes in the City. The five-year contract awarded to WSP is worth c. £15 million over the period, which will see them working on the first 50 miles of track on the Phase 2 route – a stretch from Birmingham to Crewe.

Birmingham office market - The Mailbox

The Mailbox

West Midlands Trains on the right track following large instruction

West Midlands Trains has taken 21,743 sq ft of Birmingham city centre office space at 134 Edmund Street, relocating from its offices at 102 New Street. It is understood that West Midlands Trains is taking a substantial upgrade in quality of office space, whilst also saving money and looking to increase efficiency with proposed ‘agile working’ initiatives, such as hot desking.

West Midlands Trains has recently taken over from London Midland in running the West Midlands rail franchise, having won the contract from London Midland in August 2017. Its new office headquarters will give some gravitas to match its newly increased operational stake within the West Midlands region.

Home Office moves into the City

The Home Office has moved a substantial team into Birmingham city centre office space from its Solihull offices at Sheldon Court, taking 12,232 sq ft at 42 Bull Street. It’s thought that this was, in effect, a back-office function, which the government wanted to be located in the City.

The government is thought to have a long-term property strategy, which will create regional hubs with various factions of public service combined into one location. We have seen the government already carry out one of these consolidations in the pre-let of 238,988 sq ft at 3 Arena Central for a number of HMRC’s local offices.

It’s therefore possible that this letting, which brings the Home Office into Birmingham city centre, is part of an interim series of preparations for the government’s regional hubs in the years to come – getting the Home Office into place ahead of time.

Birmingham office market - 42 Bull Street

42 Bull Street

Serviced offices

The Birmingham serviced office market is still going strong, with 11,343 sq ft at The Colmore Building let to serviced office operator, Orega – which was taking further space within a building in which it already had a stake. It may be the only letting in Q1 to a serviced office operator, but it is the latest in a long streak for the City – with over 200,000 sq ft of Birmingham city centre office space being let to serviced office operators in 2017.

Last year, it was established that serviced offices are becoming increasingly popular to occupiers – for the flexibility they provide in these uncertain times, and due to the cultural shift in the millennial generations towards cooler space with more freedom.

Birmingham office market - The Colmore Building

The Colmore Building

Recruitment

Despite a patchy terrain in recent years, recruitment companies – which tend to be some of the more volatile and susceptible businesses where economic change is concerned – have continued to be one of the most active business sectors within the Birmingham office market.

Q1 2018 was a good quarter for recruitment. Over the 5 transactions (which represented 23% of Q1’s total transactions), the sector achieved 21,015 sq ft or 14% of square footage. This is compared with the whole of last year, which saw recruitment represent 9% of transactions and 5% of square footage – even these are still appreciable numbers.

Office building Location Size (sq ft) Occupier
The Counting House Birmingham Jewellery Quarter 8,540 Angela Mortimer plc
Edmund House Birmingham city centre 6,311 People Plus
9 Brindleyplace Birmingham city centre 2,486 Odgers Berndtson
GN House Birmingham city centre 2,449 Care Orb
2 Edmund Gardens Birmingham city centre 1,229 SimkissGuy Recruitment
Total   21,015  

A strong rate of office space transactions for the recruitment sector – in any city – is seen by many as a very good sign. Whilst these transaction numbers are up, so tend to be the levels of actual recruitment within the City and wider area. This also implies that any current signs of apathy in the market should – given time – come good because companies are still employing new staff.

Middle of the market

The middle of the Birmingham office market is beginning to struggle, ever so slightly, due to a lack of availability. Last year, we identified that a drought of office space was forming within the 5-15,000 sq ft size bracket, due to a string of lettings within this bracket over recent years, particularly 2017.

Occupiers know what they want, and there is little desire to take on more office space than required, regardless of the opportunity to grow within the space or to sublet the remainder – it’s seen as extra cost and extra hassle.

Occupiers in the middle of the Birmingham office market remain cautious and, rather than rushing to acquire something quickly, they are instead holding back until office space – which better represents what they require in terms of size or specification – becomes available. Buildings with floorplates of c. 2,500 sq ft, such as Bank House and Church Street, have been very desirable for this area of the market.

In the sub 5,000 sq ft market, there has been less of a problem. Refurbished office suites of a smaller size are being let quickly, at properties such as Guildhall Buildings, Assay Studios and 126 Colmore Row.

Assay Studios hipster office space Birmingham

Assay Studios

Location

The majority of lettings in the Birmingham office market, both from a square footage point of view and in terms of transactions, took place in the core area of Birmingham city centre. Edgbaston, which would at one time – not so long ago – take a decent amount of the space each quarter, saw just 3,680 sq ft of lettings, equating to little over 2% of all office space transacted in the quarter.

9% of transactions, 13,276 sq ft, was secured in Birmingham’s Jewellery Quarter – bolstered substantially by the 8,540 sq ft at the Counting House. This was acquired by, recruitment company, Angela Mortimer plc – a London-based company, which also operates under the Katie Bard and AM Legal brands in Birmingham and Solihull. The Counting House is a self-contained part of the Grade II-listed Derwent Foundry, at 3 Mary Ann Street close to St Paul’s Square. Derwent Foundry is a Victorian building, which manufactured presses for the jewellery trades but, in 2006, was converted into apartments. The Counting House was developed at this time and is an office building of partly new build and partly from the Victorian Foundry.

This was the largest transaction in the Jewellery Quarter since the sale of 13,142 sq ft at 10 St Pauls Square to, serviced office operator, MCR in Q4 2016.

Digbeth and Eastside are completely absent from the Q1 2018 figures, indicating that, for the time being, Birmingham city core really is the place to be. It’s possible that some occupiers may be drawn from fringe area office space into the city centre’s serviced offices – as many companies in these areas are the target market for flexible office space.

Outlook

Activity at the top and bottom ends of the Birmingham office market is going well and we would expect to see this represented in the figures for the rest of 2018. We are likely to only see a significant upturn in the 5-15,000 sq ft bracket if an equally significant change occurs in available office stock of this size.

Channel 4 announced in Q1 2018 that it would not be relocating its entire headquarters out of London – instead it has announced its ‘4 ALL in the UK’ search for smaller regional premises. It is understood that Channel 4 will create an additional national headquarters outside of London and a further two regional creative hubs. At this point, the jury is out on where the headquarters will be, with the decision to be announced in October. However, Birmingham continues to be a strong contender, with the support of the Mayor of the West Midlands, Andy Street.

With the next Commonwealth Games confirmed to be taking place in Birmingham in 2022, the strong level of investment in regeneration and infrastructure, which is to be ploughed into the City – starting from now – may well invite further inward investors. This will be a nice addition to the growth we’ve seen stimulated by HS2 and the regeneration of New Street station and Grand Central.

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, please contact Malcolm Jones on 0121 233 2330 or email mjones@kwboffice.com.

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