M42 and Solihull office market research – quarter 4 and full year 2016

Where, in Birmingham city centre, we saw a sharp contrast between the two halves of the year, the M42 and Solihull office market achieved almost exactly the same amount of square footage in both halves. The 312,497 sq ft total transacted in the year was made up of 154,341 sq ft in HY1 and 158,156 sq ft in HY2.

Defiantly consistent

When you consider how visible it is in the city centre’s figures, where HY1 accounted for 72% of the year’s total, an impact of the Brexit vote is far harder to determine in the transaction figures of Birmingham’s out-of-town M42 and Solihull office market.

Generally speaking, the market for offices in Solihull and the M42 corridor has seen a more sustainable level of take-up than that of Birmingham city centre. This year is down on 2015’s total take-up, which saw two landmark deals – 114,000 sq ft at International House, an off-market letting, to Interserve, and a sale of 80,000 sq ft at Parkside on Birmingham Business Park to Changan. However, if these are removed from the equation, we see a very similar level of activity between 2016 and 2015.

Year-on-year M42 and Solihull office market take-up (sq ft)

Solihull office market

Transactional analysis by size bracket

We see a similar pattern of transactions with regard to size bracket as we did in 2015, the key difference being the absence of a landmark 50k+ sq ft deal. Instead, the 0-5k sq ft bracket represents a far higher proportion of the overall number of transactions, at 35%, compared with 22% in 2015. Also, the 10-20k deals, whilst similar in number, were larger in size and equated to a 27% share in 2016 (12% in 2015).

Solihull office market

Business sector analysis

In 2015, professional services was the business sector that accounted for the largest share of Solihull office market take-up, bolstered by the off-market pre-let of 114,000 sq ft to Interserve at International House. However, in 2016, automotive, manufacturing and engineering accounted for 26% of the sales and lettings in Solihull and the M42 corridor. This business sector always holds a significant position in this respect, due to the size of JLR’s operations in the M42 and Solihull office market, as well as the industrial market.

Key transactions

  • Uniper – 32,692 sq ft at 2300 The Crescent, Birmingham Business Park
  • Occupier not disclosed – 26,498 sq ft at 2920 Trident Court, Birmingham Business Park
  • Phoebus Software – 14,967 sq ft at Lansdowne Gate, Solihull
  • Caterpillar Financial Services – 13,811 sq ft at Friars Gate, Solihull
  • Canon UK – 11,989 sq ft at 3180 Park Square, Birmingham Business Park
  • MWH – 11,952 sq ft at One Paper Mill Drive, Redditch

New stock

We now face a situation, within the M42 and Solihull office market, where there is no brand new Grade ‘A’ office space available. Property developers have, instead, moved to refurbish the stock that remains unoccupied, to dispose of this before considering any new development. The only current way in which an occupier can acquire new space within the Solihull office market is to agree a pre-let. With new build costs at c. £145 per sq ft on gross internal area, then rents of at least £23.50 per sq ft and at least 15-year certain lease terms will be required.

Refurbished stock

Notably, Canmoor has done, and continues to do, an excellent job of refurbishing the available space on the Birmingham Business Park portfolio, and that has both secured new occupiers and put much needed space into the Solihull office market. However, demand still outstrips supply.

Grade ‘A’ under refurbishment Sq ft
Completing 2017
One Central Boulevard, Blythe Valley Park 40,000
2800 The Crescent, Birmingham Business Park 30,000
Trinity Central, Solihull 23,000
2650 Kings Court, Birmingham Business Park 17,000
Total 110,000

Friars Gate offices Solihull

Rental levels

This gap between demand and supply has nudged quoting rents upwards in 2016. The pre-let of 15,000 sq ft on Blythe Valley Park to Prologis, announced at the end of 2016, is anticipated to be in excess of £23.50 per sq ft – representing the market’s highest rental level since 2009. Setting this precedent is expected to drive rents on in the area.

Return of transactions for offices in Bromsgrove and Redditch

This year, we saw a number of sales and lettings for offices in the Redditch and Bromsgrove areas. This followed a year where we saw all but silence in the office market for these towns. The primary reason behind this recent activity is that 2016 saw several pieces of desirable office stock come back to the market, following landlord refurbishment programmes.

Both Bromsgrove and Redditch have experienced a level of drought in available office space that has prevented activity appearing in the transaction figures. Because of demand, particularly for self-contained office buildings, much of what has recently come to market has been swiftly snapped up.

There are small pieces of self-contained office space in this area of the out-of-town market, that are not found on developments such as Birmingham Business Park. Transactions for these pieces of space are primarily sales, allowing owner occupiers – who have the working capital – to purchase through a SIPP and secure a long-term location for the business and a sound investment, not subject to rent reviews or lease renewals.

UK Central and Arden Cross

With Royal Assent for HS2 granted, the regeneration projects of Arden Cross and UK Central take a step closer to becoming a reality. Arden Cross is a mixed-purpose development, proposed to surround the HS2 Interchange station. The development will consist of residential, retail, industrial and commercial space.

At this point, however, UK Central and Arden Cross do not pose a viable solution to an occupier that has an existing or upcoming requirement. The fundamental drought in office space in the Birmingham out-of-town office market can be met, in part, by the development opportunities at existing business parks, with Blythe Valley Park offering a million sq ft of outlined, but undeveloped, space and Birmingham Business Park offering 500,000 sq ft.

“Looking ahead, our plans for ‘UK Central Solihull’ are gaining momentum, capitalising on the opportunity that the HS2 Interchange station presents, in addition to significant development and investment in infrastructure across the area. To realise the growth ambitions in this area, known as the ‘Hub’, we have established an Urban Growth Company to drive development and deliver £1bn of infrastructure investment to create a truly compelling and globally connected destination.”

Anne Brereton, Director for Managed Growth & Communities, Solihull Metropolitan Borough Council

Arden Cross Solihull

Outlook for 2017

Office space continues to run dry and rents will increase – following in the footsteps of the pre-let to Prologis. There are still significant opportunities to occupy high quality office space in the area, in the thoroughly refurbished units that have come to market, and these are likely to be snapped up very quickly.

Occupiers that are looking for new space at this point, their only option is a pre-let or to identify a design and build opportunity, which could be fulfilled at existing sites such as Birmingham Business Park and Blythe Valley Park. Occupiers that decide to take this course may need to re-gear, and extend their existing lease in order to wait for their new development to be built.

UK Central and Arden Cross plans will become more of a prospect, following Royal Assent on HS2, and they represent the most exciting development in the Solihull area for a long time. Should these developments come to fruition, they will supply the market with much needed, new Grade ’A’ office space.

“With the fastest rate of private sector employment growth outside London, Solihull remains a key location for national and international occupiers and investors.

“2016 has seen strong take-up of office space, and commercial supply continues to decrease. As a result, we are seeing further investment in development opportunities, across the Borough – including Blythe Valley Park, which recently gained outline planning consent for over one million sq ft of commercial space.

“We are also progressing plans for Solihull town centre, with opportunity sites identified for the delivery of c. 800,000 sq ft of new office space, as well as homes, retail and leisure space.

“2017 will be a key year for the area, progressing our growth and infrastructure plans and ensuring that we remain at the forefront of the region’s economy.”

Anne Brereton, Director for Managed Growth & Communities, Solihull Metropolitan Borough Council

For more information

See full details of the transactions for office space in Solihull and M42 corridor.

Download KWB Office and Industrial Market Review 2016.

For more information on M42 corridor and Solihull office space, please contact Mark Robinson on 0121 212 5994 or email mrobinson@kwboffice.com.