Office space Birmingham city centre – quarter 4 2014 take-up
Q4’s huge transaction figures for offices in Birmingham city centre turn 2014 on its head.
After an active, but underwhelming, first three quarters of the year for office space in Birmingham city centre, the figures for Q4 2014 achieved over 90% of the preceding three quarters’ total. The final tally increased from 373,000 sq ft to 713,000 sq ft. Accounting for almost a third of this was HS2’s leasing of Two Snowhill.
Q4’s notable transactions show that larger lettings for offices in Birmingham are finally coming to fruition
The previously predicted larger lettings of office space in Birmingham city centre began to appear towards the end of 2014. With five deals this quarter above 20,000 sq ft, average letting size has soared to 8,123 sq ft, almost triple that of the rest of the year. These more sizeable deals are set to continue into 2015, with some of the bigger requirements in the market still due to be settled.
The most significant deal of the quarter was HS2’s leasing of 97,958 sq ft of office space at Two Snowhill. This deal has been reported on throughout the year and was finalised in the last quarter, testament to the longer due diligence periods for larger office space transactions.
Two of the 20,000+ sq ft deals occurred at properties in Edgbaston, giving a huge boost to the year’s transaction stats for this area of the city. These were Yardley Court (22,411 sq ft), and Regent Court (31,694 sq ft), both acquired by the NHS Trust, with a combined square footage of nearly 60,000 sq ft.
The remaining 20,000+ sq ft deals were made up of HSBC increasing their holding at 120 Edmund Street by taking a further 37,530 sq ft of office space, and BDO taking the 24,307 sq ft 7th floor at Two Snowhill, as a subtenant of Wragges, leaving only limited office space available now within this building.
There was also a series of expansions into larger office space:
- Hogan Lovells International: 7,846 sq ft at Colmore Plaza
- Amey plc: 6,700 sq ft at Colmore Plaza
- The Highways Agency: 5,920 sq ft at The Cube
Lowest level of Grade ‘A’ office space availability in nearly a decade
Following the letting of Two Snowhill and, in comparison with Manchester or even Coventry, the fact that there are no cranes currently on Birmingham’s horizon, it begs the question “what new, Grade ‘A’ office space in Birmingham city centre remains to be let?” It’s thought that the leasing of Two Snowhill took 25% of all available new Grade ‘A’ office space in Birmingham city centre off the market. From this we can estimate that less than 500,000 sq ft of new, Grade ‘A’ office space remains available to potential occupiers.
Birmingham office rents set to improve
We’ve seen demand and supply for new build, Grade ‘A’ office space over the course of the year reduce incentives and consolidate rental levels in the high twenties, per sq ft. We predict this to increase slowly over the coming months and years and, in the immediate term, an increase of 5-10% over the coming 12 months.
Office refurbishment and new build back on the agenda
These elements drive demand for second hand, high quality, refurbished office space, such as the recently let 158 Edmund Street – properties that appeal due to their availability, quality and affordability. We anticipate that more property owners of second hand stock will want to capitalise on Birmingham’s considerable, internal investment and the rising demand for high grade office space, in the wake of HS2, by refurbishing their office properties. Supply of second hand office space will, in turn, start to be eroded.
Return of the cranes
We also foresee this prompting commercial property developers to seriously consider new build, city centre office schemes, as we view this as a highly opportune to time to start building. This coincides with a re-submission by Rockspring and Sterling for planning permission to create 200,000 sq ft of office space, in a single building, at the site of the long vacant, Natwest Tower, 10 Colmore Row, which is thought would be speculatively developed. In addition, we believe IM Properties are set to announce plans for a speculative office development at 55 Colmore Row.
So far, the only confirmed crane shortly to be visible in our skies is that over Paradise Circus, (to be renamed ‘Paradise’), which is expected to contribute 250,000 sq ft of new, Grade ‘A’ office space by 2018, for which there is rumoured to be strong interest and pre-let opportunities. The outlook is therefore very positive for Paradise, which will link the established core of Birmingham city centre to Brindleyplace. When the Children’s Hospital relocates in 2019, this could extend to Eastside.
Highest number of transactions for offices in Birmingham since 2008
As previously, stated the Birmingham city centre office market, although active, particularly with small lettings, had seen a fairly unremarkable year, right up until the 3rd quarter. Throughout the year, we had seen high levels of small lettings, which although made only ripples in the quarterly totals and pulled down average letting sizes, hinted that activity from larger companies was still to come.
With a substantial number of larger lettings having gone through at the end of the year, we know now that these predictions were indeed correct. The biggest surprise of the year has been to see HS2 come to Birmingham. Although the huge office transaction was a big boost to the market, we’ve only just begun to see the impact it will have on the office market within the city and the economy of local and greater Birmingham, as well as the rest of the Midlands. HS2’s leasing of Two Snowhill, along with the rest of a superb Q4, has meant that 2014 has brought the highest transaction total for offices in Birmingham since 2008.
|Year||Total transactions for office space in Birmingham city centre (sq ft)|
Residential market strengthens and Birmingham office space supply takes the hit
During 2014, we’ve seen the growth in demand for residential space within Birmingham city centre and this has driven a trend of repurposing of office stock as residential space. Seven Capital has taken this measure with properties such as 1 Hagley Road, Devonshire House, Broadway and Britannia House, four buildings totalling somewhere in the region of half a million sq ft. Whilst this year has seen the highest level of net loss of office space in Birmingham, contributing to the office space shortage across the city, these are fringe properties which have been harder to shift as office space, and so this trend is removing less desirable office stock from the market.
Ultimately, this encourages the drive for both commercial property developers and occupiers in the direction of new, high grade office space. It’s worth noting that the increased demand for residential space within the city is the need for more student housing; this coincides with the growth of Birmingham City University, as it colonises the east side of Birmingham at Millennium Point.
Transactions for offices in Edgbaston and fringe areas demonstrate depth within the market
There was actually a higher number of transactions for office space in the fringe locations of Birmingham Jewellery Quarter, Digbeth and Edgbaston combined than in Birmingham city centre, demonstrating depth within the office market. They were also good sized deals, withthe second largest transaction of the quarter being the acquisition of Regent Court and Yardley Court, totalling 54,000 sq ft, by NHS Foundation Trust. Other notable deals included:
- The Challenge Network: 8,337 sq ft at 52 Charlotte Street in Birmingham Jewellery Quarter
- Clarity: 7,500 sq ft at 100 Hagley Road in Edgbaston
- Hub Birmingham: 6,090 sq ft at the Walker Building in Birmingham Digbeth
Outlook for Birmingham office market in 2015
2015 is expected to be a big year for Birmingham as the Big City Plan progresses. The larger deals we saw at the end of 2014 are expected to continue through into the New Year. The tram system linking Snow Hill to New Street is due to be completed, as well as the new John Lewis department store, above New Street Station.
We also expect consultants to the HS2 project, the first of which is already looking for office space in Birmingham, to become more active in the market. Exciting times lie ahead.
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 firstname.lastname@example.org.