As the UK’s second city and the largest economy in the UK outside London, Birmingham has long been an appealing location for businesses searching for prime office space and investors looking to add value. But with the recession taking its toll on all aspects of the economy, how is the commercial property market holding up?
Well, according to a report published this month, at least one aspect of the market appears to be relatively robust despite challenging conditions. The Birmingham Office Market Review 2011, from BNP Paribas Real Estate, shows that the take-up level for office space in the city last year was better than initially expected following a slow first quarter.
Grade A serviced offices in Birmingham remain particularly attractive to businesses with over 100,000 sq ft let in the fourth quarter of the year. Overall the take-up of office space in the city during 2011 was 669,800 sq ft.
While this figure includes some large scale take-ups, smaller deals make up much of the volume. This shows that there has been no fall over the past two years and that take-up remains in line with 2009 levels.
The picture remains the same when it comes to rental values. Headline rates in Birmingham remained stable throughout 2011 at £27 per sq ft. This is broadly in line with rental values in other regional commercial centres like Manchester, Bristol and Leeds. Once again, there has been little movement since 2009.
Potential tenants can expect to be offered generous incentives to encourage take-up. For example, 12 months rent-free for every 5 years of the term of the lease is not unusual. This can rise to over 2 years when it comes to a 10 year lease.
The picture is less encouraging when it comes to investment property in Birmingham. As a major financial centre that has undergone substantial urban regeneration, offices in Birmingham have always been a popular investment option.
However, it appears that the financial constraints of the recession have taken their toll on the investment market in the city. Despite a number of overseas funds buying up mid-priced offices with sitting tenants, deals were down by 53% on the previous year. This is not surprising in the circumstances and a similar picture emerges when we turn to commercial property development.
In the current climate there has been a decline in speculative development in Birmingham and there is little prospect of this situation changing in the short to medium term. There is currently only one speculative development underway which will deliver over 300,000 sq ft in Snow Hill next year.
60% of this space has already been let but, even with tenants in place, raising finance for new commercial property developments can prove difficult as a result of the credit crunch.
This situation is leading to a shortage of prime office space in Birmingham. While this is not yet considered critical, a continuing lack of speculative development can only lead to a worsening of the shortage.
Overall, given the difficult economic climate, the Birmingham office market seems to be rather more buoyant than might be expected. Even more encouragingly, there has been a healthy level of enquiries during the first quarter of the current year, suggesting that, despite the challenges, this may continue in 2012.
