M42 and Solihull office market research — Q1 2019

A balanced, healthy quarter by the Solihull office market has kicked off 2019. At 119,236 sq ft across 14 office space transactions, it was the strongest quarter since Q2 15, but with available office space now truly running dry, it could be the last for a while.

Solihull office market at a glance

  • Solihull catches the serviced office bug – second big letting to a serviced office operator in 12 months
  • Consistently strong at the top – market delivers more great deals
  • IT sector snaps up space – Solihull IT businesses thriving with five lettings in Q1 2019
  • Expansions – prospering businesses continue to need more space
  • Birmingham Business Park triumphs and runs dry – the Park’s office space is all but let
  • Design & Build may be an occupier’s only option – new space now comes with a wait
  • Blythe steps up to the mark – by delivering refurbished and speculatively developed space

Solihull catches the serviced office bug

The largest letting this quarter was to serviced office provider, MSO Workspace, which took 27,764 sq ft at 2010 The Crescent on Birmingham Business Park. This is the second substantial letting to a serviced office operator in the area in the last 12 months, after Bizspace took 23,749 sq ft at Zenith in Solihull in Q1 2018.

2100 The Crescent where serviced office provider, MSO Workspace, took 27,764 sq ft in Q1 2019 Solihull office market

2010 The Crescent

Whilst Birmingham city centre has seen flurries of lettings to serviced office operators over the past two years, the out-of-town office market has been slow to respond to the growing demand for flexible office space. This may simply be due to the difference in types of occupier that are attracted to these two areas. However, by looking at the reasons behind the growth in demand for flexible office space in Birmingham city centre, another reason comes to light.

Requirements for flexible office space in Birmingham city centre have been strong over the past couple of years due to two specific reasons. The first is the uncertainty surrounding Brexit, which affects various businesses, both in the city centre and out-of-town. However, the second is the demand for project-led space.

Infrastructure projects, such as HS2, have created requirements for fixed short-term space that can’t be fulfilled by a traditional lease. Contractors instructed on the HS2 project have instead opted for a solution involving either a serviced or managed office operator.

In the managed model, a managed office provider – such as Instant Offices – takes on a traditional lease, most likely for 5-10 years, within a building and the occupier then takes on a contract with the provider. To date, we have not seen an HS2 contractor take space in the out-of-town office market. This is because these contractors have opted to locate themselves close to the headquarters of HS2 at Two Snowhill.

As such, occupiers that take serviced office space in Solihull, either with MSO Workspace or Bizspace, are likely to be either in the camp of flexibility during uncertainty or they have resorted to serviced office space because there are so few places left for small businesses to go.

Other than a few remaining town centre office locations and the occasional office above a shop, small businesses have nowhere to go. These serviced office locations should help to change that. They also offer businesses the opportunity to be located within a prosperous business community, such as Birmingham Business Park.

Consistently strong at the top

At the top end of the market, Q1 2019 bears a striking resemblance to the transactions that took place in Q1 2018.

In 2018, the first quarter saw the top four transactions – all of which were over 10,000 sq ft – total 72,378 sq ft. This year, the top four transactions – also all above 10,000 sq ft – totalled 79,624 sq ft – with both quarters including a 20,000+ sq ft letting to a serviced office operator. The consistency and resilience that this demonstrates have become trademarks of Birmingham’s out-of-town office market.

Close behind MSO Workspace was the letting to science and technology group, UTC. The group, which already has space in the area for its aerospace division, took 25,820 sq ft at 3 Fore Business Park. It’s understood that this location will feature a laboratory and will be involved in research into the life sciences.

IT sector snaps up space

Although it is often said that the out-of-town office market has a wide and sustainable occupier-base, there are some sectors which are more prevalent than others.

IT sector transactions for Solihull office space in Q1 2019
Office building Location Size (sq ft) Occupier
Building 300 Solihull, J6 M42 4,639 Park IT
6220 Bishops Court Birmingham Business Park 4,335 4PS
6180 Kings Court Birmingham Business Park 3,846 EQ Technologic
De Montfort House Coleshill 3,310 Mercury XRM
2675 Kings Court Birmingham Business Park 2,180 Altus Group
Total 18,310 15% of quarter take-up

Q1 2019 saw strong activity in the IT sector taking office space in Solihull and the M42 corridor. IT companies took a total of 18,310 sq ft, equating to 15% of space transacted, across 5 of the quarter’s 14 transactions.

Expansions

Expansions have been common in Solihull and the M42 corridor. The prosperity enjoyed by businesses in the area drives up team sizes, and for a long time the office buildings have been able to accommodate an occupier’s requirement for extra space.

A number of the transactions this quarter represented businesses expanding either within their existing building or relocating and moving into larger space, including:

  • Perfect Homes – the lender for household goods relocated into larger space at Eagle Two in Solihull. The company, which now occupies 13,300 sq ft, had previously occupied space at Coleshill Manor.
  • Secure Trust Bank – with offices at One Arleston Way, the bank has now taken 9,365 sq ft of office space in an almost neighbouring property, Yorke House.
  • MAC Interiors – the construction company took an additional 4,316 sq ft at 39 Dominion Court in Solihull town centre, where it was already based.

With available space reducing to nil in many areas, fewer companies will have the privilege of being able to increase their office space within the same property and are far less likely still to be able to find a larger property nearby.

Yorke House where Secure Trust Bank took 9,365 sq ft in Q1 2019's Solihull offfice market

Yorke House

Birmingham Business Park triumphs and runs dry

Birmingham Business Park enjoyed an excellent first quarter, securing just under half of the deals. The six transactions secured at Birmingham Business Park totalled 52,146 sq ft – 44% of total office space take-up.

Transactions for office space on Birmingham Business Park in Q1 2019
Office building Size (sq ft) Occupier Business sector
2010 The Crescent 27,764 MSO Workspace Serviced offices
2100 The Crescent 12,740 IPS Engineering consultants
6220 Bishops Court 4,335 4PS IT
6180 Knights Court 3,846 EQ Technologic IT
2675 Kings Court 2,180 Altus Group Property / IT
6110 Knights Court 1,300 Glencar Construction
Total 52,165 44% of quarter take-up

The impact of Birmingham Business Park’s consistent success in take-up is that the amount of available space has dried up. 2010 The Crescent was the last available building of its size available on the Park. The remaining 13,172 sq ft of office space at 2100 The Crescent on Birmingham Business Park is now under offer, as are Compton House and 2480 Regents Court, which both offer around 10,000 sq ft of office space.

If all this office space is secured, the largest available property left remaining will be 3900 Parkside at 11,474 sq ft and, below that, the available office buildings are significantly smaller. However, May will see the introduction of 11,023 sq ft, providing the Park with some much-needed space, but just like the buildings mentioned as under offer – the space won’t last.

This drought of space is indicative of business parks across the out-of-town office market, which are all now either nearly fully let, fully let, or only offering development opportunities – which wouldn’t deliver space for a long time.

Plans that once existed for new space to be built on Birmingham Business Park have been scrapped in favour of industrial and residential developments – also in high demand and short supply – which were determined to be of greater appeal. Industrial space, for example, can be built at roughly a third of the price of office space. Whilst the yield of this space is smaller, ultimately – through larger space and longer lease commitments – it can generate the same money whilst presenting less of a risk.

Design & Build may be an occupier’s only option

Unlike Birmingham city centre, it’s been a while since the out-of-town office market saw any cranes. There has been just one speculative development in the area, of some 15,000 sq ft, since the FORE office development completed in 2010.

FORE office development completed in 2010 was the last significantly sized speculative build in the Solihull office market

FORE

Only two or three buildings of 10-15,000 sq ft are now available in the area, all of which are being discussed with a number of occupiers.

IM Properties announced this month that it is conducting a £5m refurbishment of 01 Blythe Gate on Blythe Valley Business Park, which it acquired last year. The 53,882 sq ft property is being comprehensively refurbished and, when complete, it will add some much-needed stock. However, given the demand within the market, this is likely to be snapped up quickly.

Once space at the two or three available properties and Blythe Gate are gone, there’s nothing that’s ‘ready to go’ to take its place. Over the last year or so, we’ve seen a number of companies resort to moving further down the M42 to areas such as Warwick and Coventry, which have now also dried up.

As such, if occupiers wish to stay within the area, they will have to stay put long-term or extend their stay to consider, and accommodate time for, Design & Build. This will require them to commit to a significant amount of space, at least 10-15,000 sq ft, on a 15-year lease, which is longer than many are now willing to sign up for.

Blythe steps up to the mark again

IM Properties delivered the first piece of speculatively developed office space since 2010, last year, in the form of FIRST on Blythe Valley Park. This year, in addition to the announcement of 01 Blythe Gate’s refurbishment, IM Properties has now submitted an application to build a further 15,500 sq ft on Blythe Valley.

FIRST was let to Jerroms Accountants during construction and, in the previous quarter, a Design & Build development of 15,288 sq ft on Plot F of Blythe Valley was agreed with Prologis. It wouldn’t be surprising if this new development was also pre-let during construction, given demand and the precedent that has been set.

The proposed build is a self-contained headquarters office building, which could be ready to welcome an occupier in Autumn 2020. This potentially conservative timeframe also highlights the wait that occupiers can expect with a Design & Build project. As such, occupiers must be proactive and be thinking several years ahead of their lease events.

Outlook

If you need space, act now. The lack of available office space is now significantly restricting the market. If more occupiers decide to stay put at the point of their lease end, due to the availability of space, the market will stagnate.

Unfortunately, this is at a time when the Solihull office market is expected to be particularly active, as 2019 contains more lease events for the market than a typical year. The ‘churn-driven’ activity this year is wholly dependent on occupiers deciding to relocate and, if they don’t, the occupiers hoping to take their place at their current property will be disappointed.

As such, the Solihull office market is dependent on seeing significant input from the local council and BID to ensure the approval of new developments and the creation of new office development opportunities.

See full details of the transactions featured in our M42 and Solihull office market research.

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

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