Office space Birmingham city centre – quarter 2 2015 take-up

Fantastic Q2 figures – the highest quarterly take-up of office space in Birmingham for 8 years – with 521,000 sq ft across 40 transactions. Most notably, HSBC’s pre-let of 220,000 sq ft of offices in Birmingham city centre’s Two Arena Central has completed – in a quarter that yielded many larger Birmingham office lettings. With high levels of inward investment, the Paradise redevelopment well underway and a healthy supply of newly proposed Birmingham office developments, the city gears up for positive change.

Highest level of quarterly take-up for offices in Birmingham for 8 years

The past 3 months have brought an extraordinary level of take-up, with Birmingham city centre’s office market achieving 40 deals that totalled 521,000 sq ft – 80% of its average annual take-up – in just one quarter. Even without the largest deal of the quarter, the 220,000 sq ft pre-let of office space at Two Arena Central to HSBC, the market would still have transacted over 300,000 sq ft – nearly half the 675,000 sq ft annual average take-up. Quarter 2’s transaction figures yield many decent sized lettings for offices in Birmingham city centre. This turnout from corporates is proof that predictions throughout 2014 were correct – the high volume of lettings to SMEs that occurred throughout the year hinted that we could expect numerous larger deals in the future, as larger companies complete lengthy due diligence.

HSBC pre-letting comes over the line, kick-starting Arena Central office development

HSBC’s true relocation from Canary Wharf to Birmingham’s Two Arena Central has been made concrete, with the completion of a pre-let on 220,000 sq ft of offices in Birmingham city centre – kick-starting the Arena Central programme. To see the bank make a huge inward investment in Birmingham will have been encouraged by Deustchebank’s relocation 2 years ago, to 5 Brindleyplace – which provided them with 134,000 sq ft of office space in Birmingham city centre. HSBC can expect to see the same benefits Deustchebank have had since 2013, such as reduced costs of occupation and staffing.

This affirms, on a corporate level, the desire for better cost efficiency – by seeking viable and sustainable operating costs and rents, as well as living costs for employees. Although not on a huge scale, the relocation of individuals and companies from London to Birmingham is now evident. London’s ever rising property prices impose considerable strain on both a company and its employees. In some cases, London is effectively pricing itself out of the market, and UK cities such as Birmingham and Manchester provide an increasingly enticing alternative, for those who struggle to foot the London bill.

Many companies have already had very positive experiences in relocating to Manchester from London. Birmingham, with its equally highly-skilled talent pool developed across several growing universities, is also proving to be a great prospect for those in the capital looking to relocate. As regeneration projects and high inward investment draws in new corporate HQs, the city’s ‘brain drain’ – of Birmingham’s graduates relocating for work post-study – is also likely to slow.

Notable transactions for offices in Birmingham city centre

Jacobs Engineering: 2 Colmore Square, nearly 20,000 sq ft let to Jacobs Engineering – who will be one of the contractors on HS2. The letting will allow Jacobs to be close to HS2’s Two Snowhill offices, and represents a consolidation of two local branches – one in Sheldon and the other office at Birmingham city centre’s Alpha Tower.

Merger of SGH Martineau and Shakespeares: The two law firms recently completed their merger and Q2 saw them consolidate their collective office space. Shakespeares had been looking for suitable office space for some time – in order to relocate from Temple Street – and have now taken 22,500 sq ft at 1 Colmore Square, where SGH Martineau were already based.

Spark 44: The marketing and design company, whose largest client is Jaguar Land Rover, has taken all 18,718 sq ft of the 2nd floor at Norfolk House, having been at 300 Trinity Park in Solihull. This letting represents a relocation from Birmingham out-of-town offices into Birmingham city centre, a rare property decision that is thought to be driven by the desire to generate business from corporate clients within the city core.

Salhia Investments: 12-21 Albert Street, which comprises 21,284 sq ft of Birmingham city centre office space, was purchased in order to “relocate a Digbeth occupier”. The purchaser, Salhia Investments, is the Kuwaiti investment company behind the Beorma Quarter – a Digbeth commercial property scheme of offices and a hotel complex. It is believed that the office space at Albert Street will have been acquired as part of an agreement for the sale of the relocated occupier’s offices – at the Beorma Quarter’s location on Allison Street – in order to free up the development site.

Reinvigorated interest in offices in Edgbaston

Having received mixed levels of occupier interest throughout 2014, activity within the market for offices in Edgbaston has been on the up for some time. Q2 has seen some great office space transactions in this fringe area of Birmingham city. The largest Edgbaston office space letting was let to Extra Energy, who took nearly 35,000 sq ft at 54 Hagley Road. This letting in fact acted as a catalyst for the sale of the building to Opus Land – the sale reinforcing the investment prospects of offices in Edgbaston.

Also moving into 54 Hagley Road’s offices in Edgbaston are Alliance Surgical, who had a long standing requirement satisfied by 5,371 sq ft at the property, as well as Salhan Accountants who took 1,348 sq ft. 54 Hagley Road currently offers the highest quality refurbished office space in Edgbaston and, as the refurbishment work has been recognised and resulted in lettings, property owners with office space in this area should consider refurbishing their property to a competitively, high standard.

Edgbaston saw one other substantial letting in this second quarter. Al Rayan Bank took 17,308 sq ft in Edgbaston at, the combined, 24a and The Mews Calthorpe Road – a healthy sized letting for an established finance company.

Fringe locations continue to prosper for offices in Birmingham

Cumulatively, Birmingham city centre’s fringe locations remain popular. Edgbaston’s excellent Q2 is confirmation of this, but in the past 3 months we have also seen:

• 11,193 sq ft let to jewellers Rocks & Co at Fazeley Studios in Digbeth
• 5,410 sq ft let to Divitie Capital, a private investment company, at The Cube off Broad Street
• 3,238 sq ft let to architects Seymour Harris at the Walker Building in Digbeth

Meanwhile, Birmingham’s Eastside remains the core focus of government and educational bodies with the pre-letting of 46,000 sq ft at Eastside Locks to BCU, with its developer also having already proposed the development of an office building opposite. BCU appears to be driving to centralise its campus, at Eastside. Whether this will ultimately lead to a restructuring of the university from a metropolitan campus, to a consolidated city-campus – which would offer a closer relationship between student and institution – is not yet known. It has been confirmed, however, that Eastside Locks will house staff and students that are currently attending BCU’s campus at Perry Bar – a former polytechnic – which is to be demolished.

Consolidations and new build propositions put Birmingham on an upward trajectory

With larger corporates continuing to drive demand, with requirements to facilitate consolidation – as they aim to improve efficiency – there is a very positive outlook in the Birmingham office space market for the rest of year. There is a strong, and growing, confidence that the market will continue to prosper, and developers and building owners share this view. There are many newly proposed developments for offices in Birmingham city centre, and these schemes include: 55 Colmore Row for IM Properties, Natwest Tower/103 Colmore Row in a joint venture between Sterling Property and Rocksprings as well as Three Snowhill’s potential – if reports are correct – to be speculatively built.

In the meantime, new Birmingham offices, even at Paradise, where work is currently underway, are still some time off being ready to welcome occupiers. Refurbishments have been the key to bridge this gap, with 13 Colmore Street having just been fully refurbished by Sunlife and work currently underway at 10 Temple Street – both adding around 40,000 sq ft of high quality, Birmingham office space to the market. But this space will only spread so far, and it won’t be long before it is fully occupied. When a drought of immediately available, good quality office stock develops, occupiers may decide to re-gear in order to allow the consideration of newly proposed developments.

First we saw rise in employment, now we see rise in skill set

Last year we saw many recruitment and financial companies take office space in Birmingham city centre. Although many of these lettings were small pieces of office space, the frequency of these lettings was high and this was a great sign for the city’s economy and employment rate. This year, in addition to an increasing number of recruitment and financial service office occupiers, we are seeing many decent sized lettings of Birmingham city centre offices to companies providing professional services. Many of these businesses are likely to be looking to capitalise on the inward investment being driven into the city. Redevelopment projects are likely to have been a big draw, with companies such as project managers Turner & Townsend, architects Seymour Harris and engineers Jacobs, all taking office space this quarter. Importantly, this also means that, given the nature of these businesses, the skill level within certain sections of the city’s talent pool are likely to be increasing.

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

For more information, please contact Mark Robinson on 0121 212 5994 or email mrobinson@kwboffice.com.