Savills World Research UK Commercial

Spotlight Offices Autumn 2017

After recent successes, 55 Colmore Row, above provides 54,360 sq ft of available prime Grade A office space

g With Q3 2017 take up exceeding g Top rents in the city are £33 per 400,000 sq ft and over 160,000 sq ft sq ft and we expect the delivery of of other known deals under offer, we new speculative space to achieve in expect take up to exceed 850,000 sq excess of £34 per sq ft by the end of "Flexibility of lease term has ft by the end of the year, 20% above 2019. the 10 year annual average. grown to become a key g Office investment volumes in requirement for many occupiers g There remains a limited supply of Birmingham reached £408m as at prime Grade A space, which currently end Q3 2017, 2% above the 10 year and landlords have adapted stands at 187,350 sq ft. With no new annual average of £400m. However, to embrace this." Ben Thacker, speculative developments scheduled the round-trip costs of buying and to complete until Three and selling have discouraged landlords Director, Office Agency, Birmingham 1&2 Chamberlain Square in 2019, from disposing of assets in an income competition for the best quality space driven environment. will intensify.

savills.co.uk/research 01 UK Commercial | Birmingham Offices

Large scale urban regeneration, previous month. Any figure above 50 inward investment and key indicates positive growth. infrastructure projects are driving occupier interest in Birmingham city HS2 contracts, and the centre. financial sector will drive larger deals Top city centre office rent Unemployment has £33/sq ft continued to fall Birmingham’s office take up over 1,000 sq ft reached 639,000 sq ft as at Q3 Occupiers are increasingly on the look Strong growth in the number of people 2017, 2% above the 10 year annual out for flexible lease terms amid new in work has seen the unemployment average of 627,000 sq ft. However, Hs2 and other infrastructure related rate fall to 4.3%- the lowest level since with around 160,000 sq ft of space contracts, the emerging tech sector May 1975. However, subdued annual currently under offer, we expect take up and continued uncertainty around the wage growth of 2.1% coupled with CPI to exceed 850,000 sq ft by the end of ultimate implications of Brexit. inflation rising to 2.9% has meant that the year, 36% above the 10 year annual real wages are continuing to fall. average (Graph 1). There remains a limited volume of prime Grade A supply which currently stands Lower real wage growth has continued The GPU (Government Property Unit) at 187,350 sq ft and without exception to boost employer sentiment. Employer announced HMRC's long anticipated is targeting in excess of £30 per sq sentiment provides an indication of 240,000 sq ft move to 3 Arena Central ft (Graph 2). With no new speculative future office demand, as we have seen during the third quarter, which is being developments scheduled to complete across the UK regions since the EU forward funded by L&G. Further GPU until Three Snowhill (420,000 sq ft) and referendum. Of the FTSE 100 CFOs requirements are also in the pipeline 1&2 Chamberlain Square (232,000 sq surveyed by Deloitte at end Q2 2017, for the next five years as departments ft) in 2019, competition for the best 9% expected to increase hiring over including Ministry of Justice and DWP quality space will intensify, creating the next 12 months, a marked increase also seek to consolidate and upgrade a positive outlook for well located on the 1% recorded immediately post their operational portfolios in line with Grade A product. At current rates of Brexit. government strategy. Grade A take up, Savills anticipates a significant proportion of the new space Whereas decision makers sat on their Birmingham remains well shielded being delivered could be let before hands during the second half of 2016, to Brexit, with sustained office completion. occupiers have realised that “Brexit” is a requirements arriving from direct Hs2 process, not an event and occupational contracts and the associated supply There remains strong demand for IM decisions must continue to be made. chain. The serviced office sector took Properties’ 55 Colmore Row, cover Nearly six months on from triggering 82,000 sq ft of space as at end Q3 image, where just 54,360 sq ft of Prime Article 50, the self imposed deadline of 2017, the strongest year on record. Co- Grade A space remains. Savills have March 2019 to leave the EU is rapidly working operator ihub signed for 18,000 taken 17,000 sq ft there on the sixth approaching. sq ft at , whilst landlord floor and will relocate more than 150 CEG have taken the initiative to open staff in January 2018. According to the Lloyds Bank Regional their own co-working serviced office PMI Index, the West Midlands showed business Alpha Works at their landmark Savills estimate that in the region of the strongest output and employment refurbished Alpha tower scheme in a bid two million sq ft of office space has growth of all UK regions in August 2017, to support the city’s growing number been converted to alternative uses reaching 58.6, up from 56.7 during the of start-ups and small businesses. since 2013. In light of this wave of

GRAPH 1 GRAPH 2 Take-up has exceeded the 10 year average by 2% Prime Grade A supply now stands at only 187,350 sq ft

Q1 Q2 Q3 Q4 Forecast Annual Average 900,000 1,000,000 800,000 900,000 700,000

800,000 ) ft

sq 600,000 700,000 (

600,000 500,000

500,000 400,000 400,000

Take Up (sq ft) (sq Up Take 300,000 300,000

Prime Grade A Supply 200,000 200,000

100,000 100,000

0 - 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Graph source: Savills Research Graph source: Savills Research

02 Autumn 2017

conversions to alternate use, there sq ft and we expect the delivery of new Q3 2017, 2% above the 10 year annual are increasingly fewer repositioning speculative space to achieve in excess average of £400m. This was largely opportunities available on dated existing of £34 per sq ft by the end of 2019 driven by the £265m office buildings to achieve the kind (Graph 3). acquisition during the first quarter of of success enjoyed by Bruntwood at the year, the largest regional office Cornerblock, Cornwall Street where the London cost pressures transaction this year (Graph 4). building has been almost completely let could increase north prior to practical completion. shoring In line with the UK regions, Birmingham’s prime office yields have We are seeing Birmingham’s expansion Figures from Oxford Economics indicate moved in from 5.25% to 5% during the over the inner ring road and into that the finance and insurance sector course of 2017. This yield sharpening previously “fringe” areas. Great has seen a 3% fall in output per head has been partly driven by overseas Charles Street is now achieving rents over the past five years in the City of investors in search of attractive income in excess of £20 per sq ft, whilst London, more than any other sector. outside London for the first time. occupiers are now willing to pay in This has been partly down to banking The spread between prime assets in the high £20's per sq ft to be located regulatory reform which has increased Birmingham and City of London now at the Mailbox, attracted by the headcount, and ultimately, staff cost stands at 100 basis points. unique nature of the scheme, its rail pressures on the banks. Of the 54,000 connectivity and amenity offering. This net additional office based jobs forecast Despite UK institutions having funds to is further supported as the traditional in Birmingham over the next five years, spend, they have been unwilling to meet city boundaries to the west expand, 30,000 of these are expected to be landlords’ valuations. The round-trip helped by the redevelopment of New delivered in Administrative and Support costs of buying and selling have also Street and Argent's redevelopment of roles, representing growth of 8.6% in discouraged landlords from disposing of Paradise. this sector. assets.

The evolution of Westside will also We have already seen both HSBC and Property companies have been active benefit Brindleyplace where the Deutsche Bank relocate over 1,000 during the third quarter of 2017. Kier redevelopment of Nine Brindleyplace roles from Central London and Savills Property acquired 19 Cornwall Street will provide an additional 30,000 sq ft expect more London based companies from Standard Life Investments for by the end of Q1 2018, with rents in the from the financial and insurance sectors £35m, their first purchase in the West mid to late £20s per sq ft, as the area to be weighing up the benefits of north Midlands, whilst Longmead Capital benefits from the Midland Metro tram shoring in order to reduce costs going acquired 145 Great Charles Street for extension. forward. Savills estimate the average £13m. savings per employee for businesses Savills What Workers Want survey relocating from Central London to the A shortage of on market stock will indicates the factor that workers most UK regions to be £10,000 in staff costs continue to limit buying opportunities wanted to change was the length of and £10,000 in property costs. as landlords look to sit on long income. commute to work. Creating mixed However, we expect 2017 office use environments, where workers can Office investment has investment volumes to exceed the benefit from leisure/amenity provision already exceeded the £433m recorded during 2016 and yields and transport links after work is annual average to remain stable for the rest of 2017. n essential. Office investment volumes in Top rents in the city centre are £33 per Birmingham reached £408m as at end

GRAPH 3 GRAPH 4 Top rents will continue on an upward trend At end Q3 2017, office investment volumes are 2% above the 10 year annual average £36 £900 NA Occupier Overseas Investor £34 £800 Private Individual UK Institution Property Company £32 £700

£30 £600

£28 £500

Top Rent (£) Top £26 £400

Investment (£m) Investment £300 £24 £200 £22 £100 £20 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 £0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q3 17 Graph source: Savills Research Graph source: Property Data

savills.co.uk/research 03 UK Commercial | Birmingham Offices

Headline stats, definitions and contacts

8.6% 7 652k administrative months worth of Prime office development £34 per sq ft employment growth Grade A office supply currently under Predicted top rents at over the next five years in city centre construction (excluding end 2019 pre-lets)

Take-up: out-of- Top rents (£ per Headline statistics Take-up: in-town town sq ft) Prime yield

Q3 2017 239,000 sq ft 140,000 sq ft £33 5.00%

End 2017 outlook

Property criteria Transactions and supply recorded for units in excess of 1,000 sq ft.

Top rent Highest rent achieved in one or more transactions during given period. New and comprehensively redeveloped buildings considered to be located and speci- Prime Grade A fied of the highest quality and capable of achieving rents close to the market headline. Grade A All other Grade A quality buildings including both new build and refurbishments

Grade B Space previously occupied, completed or refurbished in last 10 years.

Grade C Space previously occupied, completed or refurbished more than 10 years ago.

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Nick Williams Ben Thacker Andrew Bull Stephen Benson Mike Barnes Leasing Leasing Investment Investment Research 0121 634 8401 0121 200 4561 0121 634 8403 0121 634 8401 0203 107 5459 [email protected] [email protected] [email protected] [email protected] [email protected]

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