Strong take-up in 2018 has reduced the vacancy rate in Solihull office space, and the wider M42 corridor office market, to a 10-year low. With no speculative office developments planned, this makes design and build projects almost the only option for large office occupiers desiring ‘true’ new space in the next few years.
The M42 and Solihull office market finished strongly in 2018 with final quarter transactions of 89,431 sq ft increasing the full year’s take-up to 348,662 sq ft, well ahead of 2017’s 269,498 sq ft, and exceeding the seven-year average of 337,602 sq ft.
Writing in KWB’s 2018 research into the Solihull office market, Malcolm Jones, Head of Office Agency at KWB, said: “Demand remains strong thanks largely to the area’s excellent communications and skilled workforce, but 2018 take-up has significantly reduced the amount of available office stock.
“The extent of the drought is clear when taking into account the office vacancy rate of Birmingham Business Park reaching a 10-year low of 6% and Blythe Valley Park now being effectively fully occupied until the refurbishment of the Oracle building, which is not expected to be completed until 2020. Not only this, but there are plans to convert some 200,000 sq ft (22.5%) of Grade ‘A’ and ‘AB’ office space in Solihull town centre to residential use – driving down availability in the town centre to just 3%.”
Only one new office building (FIRST at Blythe Valley Park) was developed speculatively in 2018. Despite the fact that it was let prior to completion to accountants Jerroms, at a record headline rent of around £25 per sq ft, it was the first speculative development in the market since FORE in 2010, and there is little sign of any more coming forward.
Unlike Birmingham city centre, there are very few unexploited refurbishment opportunities in the market and those with potential are looking for pre-lets.
Malcolm continued: “All this makes design and build projects almost the only option for large occupiers in the next few years, and we are increasingly involved in a number of conversations about design and build as occupiers are typically starting the search for new office space at least two years before the end of their lease.”
In Q2, Prologis acquired Plot F3, at Blythe Valley Park, for a new 15,288 sq ft design and build office building, while in Q4 national professional services consultancy Barnett Waddingham announced it had signed for a 15-year lease on a new 21,000 sq ft design and build office building in Longbridge.
The current lease on Barnett Waddingham’s 10,000 sq ft office on Bromsgrove’s Topaz Business Park does not expire until September 2020 but, having assessed the likely availability of office space to meet its future needs in the Solihull and M42 office market in the next two years, the firm chose instead to commit to a new building in Longbridge, which will be completed for them in 2020.
A shortage of available development land may dampen design and build activity as some landowners will prefer to take advantage of the more active industrial market and offer any available plots for industrial rather than office development.
Malcolm continued: “The shortage of both office stock and development land will inevitably lead to more office occupiers, like Barnett Waddingham, choosing to leave the area, if they fail to find suitable office space to meet their future needs, or if they are not prepared to make the necessary compromises to stay. Instead, they will look to the available office space in Birmingham city centre, along the M5 corridor and M40, and in Warwickshire.”
The advent of UK Central, which includes 2.65 million sq ft of commercial space, will markedly change this situation, but only when it starts to come on stream from around 2026.
With this strength of demand and lack of supply for Solihull office space, rents and freehold prices continue to increase. Rents on refurbished buildings, now 15-20 years old, mirror what they achieved as new buildings prior to the recession, while headline rents on new buildings are high £20s per sq ft, the level needed to make design and build projects stack up.
Birmingham Business Park dominated the final quarter’s take-up with 65,687 sq ft of office space transacted in eight deals.
Malcolm said: “With the most available space, we expect Birmingham Business Park to continue to dominate office transactions in 2019. It’s one of the few locations that occupiers looking for immediately available office space in excess of 5,000 sq ft can look to. Buildings such as 3900 Parkside, 2100 The Crescent, 2480 Regents Court and 6260 Bishops Court remain available, but they will not be around for long.”
KWB is one of the most active office agents in Solihull and the M42 corridor. Each quarter it produces comprehensive M42 and Solihull Office Market Research, listing all the office transactions and providing its view of the current and future market. Further details about the current research can be found here.
Full details of the transactions featured in the 2018 M42 and Solihull office market research, can be found here.