THE REPORT KNIGHT FRANK: THE BIRMINGHAM REPORT 2016/17 3

8-9 Relight my fire CONTENTS FOREWORD

Perhaps we are a lucky generation here in Birmingham, but that luck brings a touch of “THE RENAISSANCE HERE responsibility. “Lucky” because the property sector and wider business community is currently moving at great speed. That provides IS CLEAR FOR ALL TO SEE. opportunity for lots of us to play just a small part in defining our city’s history. Inevitably, CRANES ON THE CITY’S though future generations will say, “What did the class of 2016 make of their chance?” As ever the SKYLINE PROVIDE THE DAILY architecture we leave will, in one way define us. The renaissance here is clear for all to see. Cranes REMINDER OF PROGRESS, Andy Street, former managing director of on the City’s skyline provide the daily reminder John Lewis, and former Chair of the Greater of progress, whilst openings of new ventures Birmingham and Solihull Local Enterprise are commonplace. However, we should not WHILST OPENINGS OF 4-5 CITY EVOLUTION: BIRMINGHAM IS COMMING OF AGE Partnership. forget that this dynamism is the result of great 6-7 INTO THE FUTURE forethought, patience, and risk taking on many NEW VENTURES ARE peoples’ part. Waheed Nazir, the City Council’s 8-9 RELIGHT MY FIRE Development Director deserves huge praise for COMMONPLACE” the vision of the 2010 - a genuinely 10-11 RESIDENTIAL TRENDS long-term framework. Similarly, the LEP’s seizure of the Enterprise Zone opportunity has 4-5 12-13 HOT SPOTS been transformational. And most importantly, City Evolution: private business has waited its moment and Birmingham is comming then been decisive in its risk taking. The bets on of age 14-15 BIRMINGHAM OFFICE DEVELOPMENT & INVESTMENT Birmingham’s future are impressive. 16-17 RESIDENTIAL DEVELOPMENT & INVESTMENT John Lewis is amongst those who have placed Naturally, the property sector is highly 18-19 CONNECTED BIRMINGHAM a bet, and it was a moment of huge personal representative of the health of the wider economy pride when we opened a store last year at Grand across the West Midlands. Encouragingly any 20-21 PREDICTIONS Central. The welcome has been superb, and basket of economic statistics reflect the regions we now have a splendid West Midlands line up on our new-found, but genuine, leadership of the 22-23 RESIDENTIAL AND COMMERCIAL STATS including our shops in Solihull and Tamworth. UK. This has come about through unprecedented But John Lewis Birmingham is literally just the collaboration right across our region, and 24 CONTACTS AND CAVEATS cherry on top of the remarkable rebirth of New between the public, private and academic See important notice on the back page Street Station. The , designers and sectors. Moreover, the leading indicators, such contractors deserve great acclaim for seeing the as investment, and business start-ups provide potential to create what must now be one of the confidence that we are building a sustainable finest railway stations in Europe. It is a statement position. That is the prize. of our ambition. Thank you to them, and the whole Development sector for a splendid year. We should, however, recognise that much of our success has been based on the City Centre, the One senses we have not seen anything yet, dynamo that is Solihull, and the entrepreneurial Since writing this piece, Andy Street has as the investments press firmly on, and look towns that make up the balance of the Local stepped down from his role at John Lewis to be resilient to the Brexit shock. For me Enterprise Partnership area. There remains to stand as the Conservative candidate for the biggest symbol of this is the evolution of much to be done in some of our local suburban Mayor of the West Midlands. The Grand as a venue to live up to its centres. My hope is that the proven energy of Also standing for election are Sion Simon name. Moreover, it decisively addresses what the development sector can be applied with the for the Labour party, Beverley Nielsen had become a symbol of tougher years in same vigour to these areas and thus spread our for the Liberal Democrats and James Birmingham. Almost next door, the demolition economic success. There are wonderful heritage 12-13 Burn for the Green Party. This list was of 103 is similarly totemic. buildings to be preserved, and opportunities to Hot spots correct and comprehensive at the time Personally it is tinged with sadness as it was share our current energy more widely. Perhaps of going to print. There is more detail at the scene of my first ever job interview - mixed that will define our generation’s legacy, beyond westmidlandscombinedauthority.org.uk. memories there! our wonderfully re-imagined City Centre. 4 KNIGHT FRANK: THE BIRMINGHAM REPORT 2016/17 5

Since the mid-1990s, Birmingham has become a more confident place and one that has moved away from its roots as an industrial city, as important as the manufacturing sector still is. Like any provincial city, Birmingham will always be compared to the capital and as its CITY EVOLUTION retail, lifestyle, leisure and residential offerings continue to improve and employment prospects became better and broader, those comparisons BIRMINGHAM IS COMING OF AGE have become more favourable. Already popular amongst foodies from the 1990s BEFORE because of the Balti phenomenon, another key milestone for Birmingham came along in 2000 when Edgbaston restaurant Simpsons gained the Even allowing for the fact that the last two city’s first Michelin star. Four other restaurants decades can be categorised as an era of in the city now have one too, more than any UK widespread urban regeneration across the city outside , while Birmingham’s weekly UK, Birmingham’s transformation over that street food event, Digbeth Dining Club, is a national award winner. period has been truly remarkable With first-class entertainment venues attracting international artists and sporting events, and the ICC attracting major political party and business conferences, Birmingham became a place to visit Birmingham’s rennaissance can be dated back to and visitors liked what they found and returned. WRITTEN BY the mid-nineties. Our timeline of transformation multiplied to keep up with this demand. Ashley Hudson, starts in the mid-nineties, but it can be argued Partner, Head of that the catalyst was the completion two years New Street Station, though, provided a poor first Birmingham Commercial earlier of the huge (26 acre) mixed-use canalside impression of the city to visitors. That changed regeneration scheme . last year with the re-launch of the station as a major 21st century facility, complete with its It was followed in the period after 1996 by similar adjacent shopping and restaurant complex, large-scale, mixed-use schemes, including The Mailbox and the ‘phoenix from the ashes’ Grand Central. Newley-launched city centre Bullring scheme. now move past its front doors, improving connectivity across the city. While physical redevelopment is a starting point for any city’s renaissance, it has to be Much of the key infrastructure is now in place, accompanied by key events that enhance a city’s and there is the potential of the HS2 link reputation. between Birmingham and London and then onwards to the North of . Future growth The G8 Summit bringing world leaders to the is likely to be around attracting inward investors, relatively immature International Convention students and visitors to a vibrant and attractive Centre in 1998 was one such event. The sight of multi-cultural city with a young, skilled AFTER WRITTEN BY US President Bill Clinton waving to onlookers population. Mark Evans, from the balcony of the Malt House pub along Partner, Head of the regenerated canal area has become an A city, in fact, that is always moving forward, Birmingham Residential iconic image. as the motto on its coat of arms suggests. Above: Grand Central Station

TIMELINE 1996-2016 1996 2000 2005 2010 2015 Birmingham’s redevelopment continues apace with Car maker MG Rover’s decline finally ended in The Queen Elizabeth (QE) ‘super hospital’ opened in Selly The much criticised New Street Station was re-born with the attached the opening of The Mailbox which included Harvey collapse. From its ashes a huge regeneration project Oak. Something of an exemplar in the healthcare field, Grand Central scheme bringing a large of number of retailers - including Knight Frank opens its first office Nichols. Home of the BBC, the scheme was revamped began in Longbridge bringing a new town centre with the £545m hospital incorporates the Royal Centre for John Lewis to complement the already strong line up in the city which 1996in Birmingham 2000in 2015. 2005offices, retail and housing to the fore. 2010Defence Medicine and world class research facilities. 2015includes, Selfridges, Harvey Nichols, Debenhams and House of Fraser. 1998 2003 2008 2013 2016 G8 Summit. The world’s leaders arrive in Birmingham One of Birmingham’s most immediately recognisable landmarks, The opened with its cutting-edge design For the first time since 1953 ‘trams’ could be seen on the streets of in what was a huge coup for the city and the summit’s The new replacement Bullring arrived in 2003 and the 81 metre tall cylindrical high-rise Rotunda, re-opened as a - by architects Mecanoo. It is now one of the UK’s Top Ten visitor central Birmingham. The extension of the Midland Metro from Snow venue - the seven-year-old International Convention introduced the world to the iconic Selfridges ‘space residential development after an extensive makeover. The original attractions. The building it replaced has been demolished as part of Hill station to New Street station is the first stage of plans to extend 1998Centre (ICC). 2003ship’ building (or ‘bubble wrap’ if you prefer). building2008 dates back to 1965. 2013the on-going Paradise development. 2016further with routes to Eastside and Edgbaston in the pipeline. 6 KNIGHT FRANK: THE BIRMINGHAM REPORT 2016/17 7

Like the rest of the UK, for the Birmingham the 0.3% figure for the Eurozone. The government economy Brexit is a challenge, the size and scale has offered reassurances to car makers on EU of which is unknown. We were promised a vote single market access, and the FTSE 100 equities to leave would hit the economy hard, only to see index has been trading above pre-referendum benign trading conditions quickly re-emerge. levels for some time. Indeed the IMF recently upgraded its UK GDP forecast for 2016 to 1.8% - the strongest rate of Birmingham remains a cornerstone of the UK’s growth the IMF is predicting for a G7 nation. skilled based economy, which is why major banks like Barclays, Deutsche Bank, HSBC and RBS Being in the EU may add 50 or 100 bps to the 02 have relocated thousands of jobs to the city in annual GDP percentage growth rate, but it is far recent years. Nevertheless, with the approach of from being the sole driver for the UK economy. RE-SHORING MANUFACTURING Brexit and the changes brought about by digital WRITTEN BY As a G7 country with a population of 65 million people, firms like Coca Cola and BMW will revolution, we see new industries emerging in the James Roberts, coming years, and generating additional sources As hi-tech manufacturing moves towards ‘dark always want to sell to the UK consumer market. factories’ full of robots, the need to be in low Partner, Chief Economist of demand for offices and homes. HS2 moving Knowledge industry employers like PwC, KPMG, labour cost countries is gradually disappearing. closer to reality should accelerate the pace and Aon are sure to want to continue accessing As manufacturing activity returns to the UK we of change. Britain’s skilled workforce. are predicting the creation of more desk-based Brexit and the digital revolution Indeed recent economic indicators have been There are five future trends we see shaping engineering jobs, as humans will be needed to mean change is ahead for encouraging. UK GDP growth in Q3 was 0.5%, Birmingham’s economy and property market oversee and direct the robot factories; with the Birmingham’s economy. coming in ahead of expectations and exceeding in the future. West Midlands as a logical hub. James Roberts, chief economist at Knight Frank, sees the new industries emerging from those changes generating future demand for offices and homes

03 MEXICAN WAVE SERVICE CENTRES

Some law firms use ‘Mexican wave’ systems whereby London-based rainmakers win work, which is carried out by junior lawyers in regional offices. This model could be applied to a range of service industries. Given the UK’s position in the global time zones, Mexican wave centres in Birmingham could support front offices in the Far East, and US East Coast by operating shift systems. INTO THE 01 04 05 SECOND WAVE TECH DEMAND ROBOTICS, DRONES AND AUTONOMOUS CARS FINTECH (FINANCIAL TECHNOLOGY)

These look set to form the next big wave in FinTech firms have driven the development In the US, the first wave of tech office demand the tech revolution, which plays to the West of London’s Shoreditch tech village. However, was heavily concentrated in San Francisco Midlands’ strengths in engineering and the development of the Shoreditch tech hub has and New York, but it has now spread out into a automotive industry. However, now more been biased towards wholesale markets trading. range of regional cities, like Austin, Portland, research and development (R&D) takes place With Birmingham emerging as a centre for UK and Pittsburgh. Birmingham with its large via computer modelling, car and robot makers retail banking, there could be an opportunity universities and extensive rail connections can offer their R&D staff a better quality of life to position the city as the retail FinTech centre, would be a logical second wave tech location by basing them in the centre of Birmingham, applying technology to consumer banking. This for demand spilling out of London. This would rather than in traditional motor manufacturing may have implications for the housing market, also bode well for the housing market, given locations. This could also lead to more demand given Shoreditch’s tech-driven office boom has the impact tech has had on house prices in San for homes in or near the city centre, given the been shadowed by strong house price growth. Francisco, and New York’s tech districts like popularity of living near work among high- Chelsea and Brooklyn. skilled young professionals. FUT URE 8 KNIGHT FRANK: THE BIRMINGHAM REPORT 2016/17 9

“THE CITY CORE HAS BECOME A MAGNET FOR A RANGE OF NEW OCCUPIERS ... GLOWING TESTIMONY TO RELIGHT THE REPOSITIONING OF THE CITY AS A POST-INDUSTRIAL BUSINESS LOCATION”

and structure of businesses; the processes by which they deliver services; and the geographical footprint through which they operate is being MY FIRE constantly reformulated. As Knight Frank has argued, Disruption = Demand. These disruptive forces are also having three clear effects on the characteristics of occupier demand. First, they are fuelling a new approach to space. Occupiers are seeking to better utilise, WRITTEN BY more densely occupy and beautify their office Dr. Lee Elliott, space. They are doing so to create real estate Partner, Head of solutions that are more efficient and cost Commercial Research effective; that drive higher levels of collaboration and creativity; and which enable the attraction, and critically, retention of talented staff. Second, When the young future Queen Victoria passed OCCUPIER MIGRATION INTO BIRMINGHAM CORE occupiers are embracing new types of space. through industrial Birmingham in the summer (2014-Q3 2016) As the nature of work and workers is redefined, of 1832, she is said to have made much mention (SQ FT) with more reliance on short-term project of the glow of the fires raging throughout the teams, freelancers and partnering with other city. If her modern day ancestors were to take companies, co-working space has emerged as a a similar journey they would be unlikely to key consideration for many occupiers. Finally, occupiers are becoming more mobile. As we make similar comment. The obvious signs of Core London an industrial landscape are long since gone. maintained in our latest Global Cities report, Yet Birmingham is, in one sense, on fire, the 1,609,483 425,137 the notion that office occupiers are spatially city has become a magnet for a range of new fixed is being challenged daily. The occupier is office occupiers. The recent relocation of core increasingly comfortable with seeking real estate functions from HSBC and Deutsche Bank into solutions across a wider array of markets in an attempt to save costs; access different talent the city, together with more than 1 million sq ft Outer of active demand considering following suit, is Birmingham Other UK pools; conform to regulatory requirements; or a glowing testimony to the repositioning of the bring a new efficiency and productivity to their city as a post-industrial business location. 103,191 75,419 operations. What is the driver for this activity? Birmingham It is this mobility that has fuelled both the is increasingly seen as a viable option for unforeseen levels of active demand and take- businesses trying to get to grips with the West up from occupiers drawn in from outside the varied sources of disruption that characterise Midlands International city core over the last eighteen to twenty-four their operating environment. Most obviously months. As our info-graphic shows there have there is the onslaught of technology which 32,829 34,397 been significant inflows into the core from both has threatened the very existence of not just elsewhere in the city, the wider West Midlands businesses but whole industries. That same and beyond. Indeed of the 2.28 million sq ft of technology is changing the where, the when office space let in the core market since the start and the how of work. It is exposing companies of 2014, 30% of it has been taken by occupiers to the war for talent as technical, digital and moving in from outside. Occupiers are taking full creative skills become the primary source of advantage of a high quality market offering and competitive advantage. Simultaneously, the the wider benefits that a Birmingham location low growth economic environment is forcing can offer, not least the access to talent and businesses to embark on strategies to increase unrivalled transport connectivity. productivity, save costs and protect margins. Disruption is bringing the city firmly into Little wonder that we are in an unprecedented focus. There is no sense of the fire going out phase of business restructuring. The very shape Source: Knight Frank Research anytime soon. 10 KNIGHT FRANK: THE BIRMINGHAM REPORT 2016/17 11

rose to 1,162 last year, up from 714 in 2009. FIGURE 3: HOUSE PRICE INDEXED 100=2005 Source: Knight Frank Research/Land Registry However, this is still some way below the scale BIRMINGHAM of transactions in 2005 which averaged 1,663 130 a month. 120 The average price of a home in the city has grown in recent years to £162,000 with new-build units in the city centre averaging around £181,000. 110 Putting this in a UK context, the average cost of a RESIDENTIAL home is around 60% less than in London. Recent 100 data from the ONS shows that Birmingham is the most popular UK destination for those moving Birmingham’s economic renaissance has been out of the Capital, with more people moving to 90 Birmingham than any other major UK city, as 2011 2014 2012 2015 2013 2016 matched by an uptick in activity in the housing 2010 2007 shown in figure 6. 2005 2009 2006 2008 market, underpinned by strong demand for This relative differential in the cost of property, which crosses over to the commercial sector too, housing, both from local buyers and those moving FIGURE 4: Source: Knight Frank / IHS Market FIGURE 5: HOUSE PRICE SENTIMENT INDEX has acted as a draw to the city, attracting more from London and further afield Future index: West Midlands PROJECTED RENTAL Prices rising talent to Birmingham and adding to the demand TRENDS GROWTH BIRMINGHAM 80 for housing, especially in the city centre which has seen very little supply since the financial % crisis, a theme which is explored in more detail % 4.3 on page 16-17. FIGURE 1: MONTHLY RESIDENTIAL PROPERTY SALES IN BIRMINGHAM 1995 - 2016 4.1 70 3.9 % 3.8 % 3.6 % 2500 3.6 % The changes in over Sentiment rises 60 Brexit vote the last decade are notable, from the final

No change developments at Brindleyplace, one of the largest mixed-use re-generation schemes in the 50 UK, to the £600 million redevelopment of New 2000 Street Station, one of Birmingham’s main train stations - which runs regular train services to WRITTEN BY Financial crisis 40 London taking just 1 hour and 25 minutes. Gráinne Gilmore, Additional 3% stamp Partner, Head of UK duty charge 30 The Metro line extension from Snow Hill to Residential Research New Street has improved connectivity around

1500 Prices falling the City Centre. Further work is slated to create

2016 2017 2018 2019 2020 2021 20 additional links to the east of the city, including Curzon Street – the station where the proposed Source: Knight Frank Research 2009 2010 2011 2012 2013 2014 2015 2016 House prices in Birmingham rose by 8.2% in the HS2 line will terminate – and mean that all the year to August, according to the latest official city’s main railway stations are linked by Metro figures from the ONS. This is broadly in line 1000 for the first time, further enhancing connectivity with the average 8.4% growth seen across the FIGURE 6: MIGRATION FROM LONDON 2014 / 15 across Birmingham. wider UK market. In the 12 months to the end Source: Knight Frank Research/ ONS internal migration of Q2, Knight Frank Global Research shows that Ease of transport, along with schooling, safety Birmingham was in the top ten performing cities and housing are some of the factors considered in Europe in terms of capital growth. Birmingham by Mercer when it compiles its Quality of Living 500 index, ranking 230 cities around the world. It Since 2009, prices have risen by 32%, as shown is telling then, that Birmingham is placed 53rd, in figure 3 but most of this growth came during meaning it scores higher than other global cities or after 2013, the point at which the UK economy such as Rome, Dallas, Miami and Hong Kong. showed signs of sustained recovery from the Bristol financial crisis, which prompted an uplift in 0 There is more regeneration to come, all forming confidence among UK homebuyers. part of Birmingham’s ‘Big City Plan’, which aims 6016 to transform the city centre. This will include 2011 1997 2014 2012 2015 2013 1995 2016 1998 1999 2010 1996 2001

This change is clearly shown in the future House 2007 2004 2002 2005 2003 2008 2009 2006 2000 4188 nearly £1 billion of investment to regenerate the Price Sentiment Index for the West Midlands, area around Curzon Street station, including the shown in figure 5. This index reflects households’ 3975 creation of 4,000 new homes. expectations about how the value of their home will change over the next 12 months. Any figure FIGURE 2: BIRMINGHAM HOUSE PRICE FORECAST The increased pressure on housing in over 50 indicates that prices will rise – the 3200 Birmingham has seen steady rises in rents in Source: Knight Frank Research higher the figure the stronger the rise - whereas recent years, with stronger growth in asking any figure under 50 indicates that households 2809 Cambridge rents in the city centre as shown in chart 5. feel the value of their home will fall over the 2013 4.1% Asking rents in central Birmingham have next year. The UK’s vote to leave the EU had a 2014 5.6% 4.1% risen by 24% since 2009, and Knight Frank noticeable effect on sentiment – but the post- 2015 5.5% 5.6% 2800 projections, based on past rental performance, vote ‘bounce-back’ is also clear. 2016 7.1% 5.5% indicate 3.6% growth this year, and 4.3% next 7.1% 2017 5.5% 1867 year (figure 4). Sentiment in the market can also be gauged by 5.5% 2018 4.8% activity levels in the Birmingham market, shown 4.8% 1620 Average house price growth across the city is in figure 1, with the number of homes purchased 2019 4.7% 4.7% forecast to moderate slightly next year to 5.5%, 2020 4.5% 1150 1513 across the city picking up sharply from 2013. 4.5% with cumulative growth of 26% to the end of 2021 4.4% The average number of transactions each month 4.4% Exeter 2021, as shown in figure 2. 12 KNIGHT FRANK: THE BIRMINGHAM REPORT 2016/17 13

WRITTEN BY Ashley Hudson, Partner, Head of Birmingham Commercial

WEST SIDE DISTRICT

Westside originally provided large floor The major area of Central Business District plate development with the regeneration of growth in the last cycle. Major developments and HOT Brindleyplace in the late 1990’s. The noughties key lettings to KPMG, Barclays, AECOM, Amey, saw this trend shift to Snowhill and a disconnect Gowling WLG and EY re-established this as a New development is elevating the profile of in rental occurred between the two locations. location of choice for major corporates. As the Today, the major redevelopments at Arena Snowhill Masterplan begins to shape the locality large areas of the city, supporting both the Central and Paradise combined with the with further new development at 3 Snowhill, ambitions of residents and business alike landmark Library and Post and Mail and Birmingham’s ‘skyscraper will connect the whole of West Side to the zone’ this will continue to be one of the key traditional core and recent key transactions growth areas in the city. to HSBC, Network Rail and PWC demonstrate The improved connectivity at Snow Hill the vibrancy this location is generating. West station offering train services direct to London side’s connectivity is continually improving with Marylebone, the extension to the giving the opening up of vistas blocked by the former quick simple access to , to library, the new tram extension and soon to the north, and New Street, to the south. The arrive SPRINT system. The improved access planned Eastern Metro extension creating a to New Street and growing local amenity are direct link to Curzon Street station, the terminus making this more attractive to occupiers and for HS2 high-speed services from London and employees alike. LEP & Colmore BID plans recently announced SPOTS for a more pedestrian-friendly revamp of the public realm will only make this location more attractive.

WRITTEN BY COLMORE ROW Mark Evans, Left: Partner, Head of The Colmore Business Birmingham Residential District CBD. The traditional core of Birmingham’s professional quarter, Colmore Row was, in the last cycle, constrained by current occupiers and a lack of sites becoming available for development. There has been a dramatic change this cycle with CONVENTION QUARTER a number of redevelopment and refurbishment opportunities coming forward which is resulting The Jewellery Quarter has a wide range of This is arguably the area where the renaissance Sitting on the fringes of the Jewellery Quarter in a vast improvement in the quality and stock residential property, combining former factories in ‘city-centre living’ started in Birmingham in and Snow Hill, the Gun Quarter is only a short and consequently occupier expectations and which have been converted into stylish lofts the late 1990’s. Many of the city’s best-known walk away from the Central Business District. rental levels. IM Property’s 55 Colmore Row, to townhouses and more conventional new- residential addresses sit along the Canal basin Despite being so centrally located, there is a Rockspring/Sterling’s 103 Comore Row and build schemes. With the increasing number around Brindleyplace and The Mailbox, and relative price discount to some other central Ardstone’s 1 demonstrate of independent bars and restaurants opening there are still key residential development areas, adding to its appeal. As the Snowhill that this location remains very important in this area, and its industrial heritage being opportunities in this part of the city. The arrival Masterplan starts to come to fruition, this to occupiers and absolute prime. These will reinvented through thriving jewellery businesses of HSBC’s new headquarters in Arena Central, will become one of the key growth areas for continue to connect the city core from Paradise and exciting start-ups, it is becoming one of the planned for 2018, along with the redevelopment residential in the city. Snow Hill station, sitting at the west and Snowhill at the east. We have also most popular places to live in the city. The area’s of Paradise, Birmingham’s biggest regeneration on the edge of the Gun Quarter, offers train seen a huge improvement in the amenity offer. connectivity has recently been augmented, with project in a generation, is only set to further services across the UK including the Chiltern The gentrification of the traditional core with its a new direct metro link to New Street Station. enhance the desirability of this area. The Line service direct to London Marylebone. explosion in social dinning, drinking and coffee Once the Eastern Metro extension is complete demolition of the former library in the area WIn addition, the ease of access to the motorway NEW STREET STATION offers and the redevelopment of the Grand Hotel in 2026, there will also be a direct link to Curzon divided opinion, but the result has improved network, via the A38, means it is an enviable has given a vibrancy and buzz whilst keeping the Street station, the potential terminus for HS2 journeys for pedestrians through the Convention location in terms of connectivity. professional outlook. high-speed services from London. The 20 Quarter and beyond. With approximately 12 year ‘vision’ for this area of Birmingham also million people per year using this route as a includes a plan to it more pedestrian-friendly, thoroughfare, augmenting this infrastructure KEY further enhancing its attraction. The Jewellery will help underpin values in this area of the city. Quarter is within a 15-minute walk of Snow Hill The metro extension from Centenary Square, RESIDENTIAL train station. in Westside, to New Street Station is also under COMMERCIAL construction, opening in 2019. COLEMORE ROW 14 KNIGHT FRANK: THE BIRMINGHAM REPORT 2016/17 15

build, which indicates the strength of confidence CAPITAL FLOWS INTO in the leasing market. Perhaps most notable is BIRMINGHAM LAST 10 YEARS £M that 670,000 sq ft currently under construction OFFICE is refurbishment schemes. As such, the first example of brand new space will not be until late 2018. Other BIRMINGHAM DEVELOPMENT Nonetheless, with Birmingham currently 161.7 recording the highest level of occupier take-up across the major regional markets, speed to If you took a helicopter view of market is advantageous. INVESTMENT Switzerland WRITTEN BY Birmingham today, the most Of those started, Freshwater Groups major Ashley Hudson, 31.5 prominent feature would be one renovation of 10 Temple Street is closest to Q3 2016 Partner, Head of of cranes completion. The IM Properties redevelopment OFFICE Birmingham Commercial Hong Kong of 55 Colmore Row and Bruntwood’s renovation of Cornerblock (formally Two Cornwall street) 40 will quickly follow before year-end. Birmingham’s position as the UK’s second city investment & development opportunities in 2016, France makes it a natural destination of choice for both and fourth for expected increase in investment, These schemes combined will deliver 260,000 sq domestic and overseas investors. Traditionally higher than any other UK city. 55.7 ft of vacant space to the market. preoccupied with domestic investors, the trend A similar amount of speculative space is due Repositioning has helped Birmingham towards globalisation of capital brings new in 2017 headed by Legal & General Property’s outperform the regional UK office market since Ireland WRITTEN BY opportunities for Birmingham as it competes renovation of The Lewis Building. With LIM and 2014. IPD capital value growth of 5.4% in the year with a range of cities across Europe and beyond 56.1 Jamie Phillips, Evenacre’s 102 New street renovation expected to June 2016 is three percentage points above Partner, Birmingham for global capital. Over the last five years overseas to complete in Q1 2018, a total of 590,000 sq ft of the average for offices outside of London. Rental Commercial capital has accounted for 30% of all office speculative Grade A space will come to market investment in the city. growth has driven value increases, responsible for Canada between Q4 2016 and Q1 2018. Based on the take- a 3.4% rise, again outstripping the wider market. Fundamental to Birmingham’s competitiveness up levels of 2015, this equates to just over one As the UK property cycle enters a mature phase, 106.3 Firmly set on a journey of transformation, year’s supply of Grade A space. is its ability to regenerate, which has been so and buffeted by uncertainty following the EU the city is developing rapidly. The £600m evident over the past 10-15 years. Investment referendum investment volumes in Birmingham redevelopment of New Street Station and the The schedule for the new schemes therefore is in infrastructure and new commercial are down around 50% year-on-year. To put this £188m Library of Birmingham are perhaps the timely. Demolition work is underway to prepare real estate combines to create a first class in context however, this is in line with the UK most obvious changes to the city. However, for One and Two Chamberlain Square, which investment destination for overseas investors market and with 2014 volumes. alongside these is an on-going programme will form the first wave of new space. PWC have who understand the need for connectivity in of infrastructure and amenity improvement, already announced their intention to take 90,000 attracting a skilled & diverse workforce. The Over the last ten years, office assets in Germany revitalising the image of Birmingham and serving sq ft at Number One. With a £200m funding motorway network makes Birmingham easily Birmingham have attracted new capital from to attract new firms to the city. agreement in place, Ballymore and M&G’s Three accessible, at the heart of the UK. The rail the US, Canada, Germany, France, Ireland, Hong 534.8 Snowhill is going ahead. The 420,000 sq ft final network is key for both passengers and freight, Kong & Switzerland. The US & Germany have The development of office space however, phase of Snowhill will complete in 2019 along and the much discussed HS2 rail-link will slash been particularly active acquiring £1bn and has not kept pace with the wide-scale building with the unveiling of Rockspring and Sterling the travel time from London and therefore £0.5bn respectively. In the first nine months of programme. The last major office schemes Property’s 26 storey tower . from connecting destinations including Paris 2016 investors from the US & Canada have been brought to market were Ballymore’s Two The city clearly has a schedule of development & Brussels. Birmingham airport serves over 10 responsible for six acquisitions totalling £118m, Snowhill and the refurbished Five Brindley Place. Both schemes reached practical completion in which is aligned not only to modern day business million passengers per year, with flights to major including some of the world’s largest investors 2013 and since such time development of new but also modern day living. The years that follow global hubs including New York & Dubai in such as the Canada Pension Plan Investment or refurbished space has been limited. This has the current development cycle promise even addition to all major European cities. Board and GE Asset Management. Against a meant that availability of Grade A space has fallen greater changes underpinned by the proposed backdrop of higher asset prices in London, A huge amount of development in the city centre, to a historic low level. arrival of HS2. What we can be sure of now is that underpinned by the strong infrastructure, Birmingham is ideally placed to soak up capital. the skyline of Birmingham will look very different including the Bullring and New Street Station, In addition to the fundamental growth drivers, The current office development pipeline for the by 2020. has raised Birmingham up the list of European the continued weakness of sterling is likely to United States city looks more extensive. Over the next three cities for investors. The ULI’s annual Emerging heighten investment interest in Birmingham over 998.3 years, stock levels will be boosted through a Trends in Real Estate study ranked Birmingham coming months as currency movements improve mix of major refurbishment and ground up new as the sixth best location in Europe for entry prices for non-domestic capital. schemes. Around 90% of this total is speculative

IPD RENTAL GROWTH INDEX

2016 2017 2018 2019 10 Temple Street 10 Temple 35,250 Cornerblock 110,000 Row 55 Colmore 156,000 Street 1 Newhall 45,000 Mail Box 56,000 The Crossway 75,000 Building The Lewis 113,000 Street 102 New 85,000 1 Chamberlain Square 172,000 2 Chamberlain Square 183,000 Row 103 Colmore 225,000 3 Snowhill 400,000 16 KNIGHT FRANK: THE BIRMINGHAM REPORT 2016/17 17

development in the centre of the city, an area of Birmingham which saw very little activity in terms of residential development in the years after the financial crisis. Now, as the JEWELLERY 18 map shows, there are several key schemes 23 19 underway or with planning in the central areas. QUARTER GUN QUARTER A recent agreement between Birmingham Council and Chinese company Country 02 Garden, underlines the global attraction of the city. The Joint Statement of Investment Commitment signed by both parties means that WRITTEN BY WRITTEN BY 21 15 17 Country Garden will explore the potential for Gráinne Gilmore, Mark Evans, up to £2 billion of investment centred around Partner, Head of UK Partner, Head of Residential Research Birmingham Residential HS2 and regeneration, including residential opportunities in the City centre. EASTSIDE Another feature of the Birmingham 20 01 development market is the investment into the Build-to-Rent sector taking place. This market for large-scale investment into purpose-built rental accommodation is in its infancy across the DEVELOPMENT & INVESTMENT UK, but is gaining real momentum and the key CITY CORE regional hubs such as Birmingham are attracting The level of development in Birmingham has attention from global investors. Locality remains been rising in recent years, but not enough to a key consideration for the development meet the overall demand for housing in the UK’s 06 economics of such PRS schemes, and several second city. build-to-rent blocks are already underway in the city. Coming against a national backdrop of a continued decline in second-hand homes being CONVENTION QUARTER Nearly one in five homes in Birmingham is in put on the market, there is increasing pressure 11 the private rented sector, according to the latest on the delivery of new homes to help meet AND WESTSIDE data from the 2011 census, accounting for more housing needs. than 80,000 properties. This proportion rises 05 12 16 03 to 45% in Ladywood, a ward which includes The overall delivery of homes in the West 07 Brindleyplace and the International Convention Midlands started to rise notably from 2012, as 09 22 in figure 1 on page 22 reflecting a wider trend Centre. The ‘affordability gap’ for many young 08 in the UK. 10 13 people trying to climb onto the housing ladder, SOUTHSIDE coupled with the popularity of the flexibility Official figures vary on how many new units have offered by the private rented sector, means been supplied into the Birmingham market, that the demand for rented accommodation is but the net additions of homes (including growing. This trend, especially among young conversions) shows that some 1,800 homes were 14 professionals, was highlighted this year in created in 2014/15, compared to around 4,000 Knight Frank’s Tenant Survey. The survey of new households being created every year. 5,000 people living in the private rented sector Based on the current levels of population growth KEY across the UK asked tenants how and where they in Birmingham, official data suggests some wanted to live. 111,000 new households will be created in the city RAILWAYS The results for the West Midlands (figure 5, over the next 25 years as shown in the figure 3 on 04 RIVERS page 22) and for the UK, show that proximity to page 22. In the future, some 4,500 homes a year need to be created – far above the current average work or study is a key priority when choosing annual delivery. a property, underlining the attraction of city centre living. We have examined how housing delivery may change in the years to come by analysing every scheme with planning, and while the data DEVELOPMENT PIPELINE ABOVE 50 UNITS (NUMBER OF UNITS) suggests that housebuilding levels will continue to rise, the shortfall of housing is likely to remain. UNDER CONSTRUCTION NOT STARTED However, unlike some other areas of the UK, there is policy backing to augment housing Exchange Square 619 Fabric Square 313 Unity & Armouries 162 19 Honduras Wharf 99 supply in Birmingham. St George’s Urban Village 606 Windmill/Bow St 304 Madison House 141 20 Edward House 82 ’s ‘Big City Plan’ is delivering some striking infrastructure Holloway Head 487 Broadway Residences 214 The Printing House 115 21 The Jewel Court 77 improvements to help open up the centre of Park Central 335 Two Hagley Road 206 16 Granville Lofts 112 22 Ridley House 65 the city, allowing its vibrancy to spread to other areas which have traditionally struggled with The Forum 334 189 17 20-21 Legge Lane 103 23 The Foundry 61 being separated by a ‘concrete collar’ of roads. Arena Central Tower 322 St Anne's Court 170 18 Constitution Hill 109

RESIDENTIAL Within the plan, there is room for residential 18 KNIGHT FRANK: THE BIRMINGHAM REPORT 2016/17 19

CONNECTED TRAM In 2015, an extension to the Midland Metro route was completed with trams now BIRMINGHAM serving New Street Station.

Birmingham sits at the heart of connectivity improvement within the UK, with major infrastructure investment further acting as a catalyst for regeneration within the city

ROAD

Best known for Gravelly BUS Hill Interchange (Spaghetti NEW STREET Junction), Birmingham The rapid bus transfer ‘Sprint’ is at the heart of the UK STATION network is expected to go motorway network. Following a £750m live in 2018. redevelopment, New Street Station serves 140,000 passengers a day.

WRITTEN BY Darren Mansfield Associate, Commercial Research

Known as the home of the British car industry The arrival of HS2 will also enable a further and the city where Watt and Boulton developed extension to the Midland Metro. In operation the steam engine, Birmingham has a long kinship since 1999, an extension to the route opened in with innovation and transport. Today, the city 2015 enabling trams into the heart of the city continues to build on that proud heritage and arriving at New Street Station. A second route, arguably, is at the centre of one of the largest a loop between the airport interchange and Lea infrastructure projects ever proposed in the UK. Hall, is now proposed. Importantly the route incorporates both the existing rail station at Once built, the first phase of HS2 will connect AIRPORT London Euston to a new rail terminus at Curzon Moor Street and the proposed HS2 terminus at Street in the centre of the city. Importantly, Curzon Street. This will improve both mobility The 2014, 500m runway extension the new station will be a catalyst for major into and out of the city centre, and further has brought new long-haul regeneration of the surrounding area. The connect Greater Birmingham to areas of HS2 destinations within direct range at Curzon Masterplan spans a 30-year period and employment, leisure and education. Birmingham Airport. HS2 will reduce Birmingham includes plans for 4,000 new homes and 6.5m sq In tandem with the connectivity that the Metro ft of commercial space alongside improvement to London journey times to will bring, the Sprint network will further to the public realm. The economic boost to 49 minutes. enhance mobility across the city centre. Latest Birmingham will be around £3.1bn. estimates suggest that Sprint could go live in A second HS2 ‘interchange’ station is to be 2018. The proposed cross-city routes will offer built near Solihull. This will serve Birmingham rapid transfer across the city with a route to the International Airport, which in 2014 completed airport due by 2021. a £200 million extension to the runway. As a result, Birmingham has opened up to a wider It is clear that planning to improve the global audience with the capacity to serve connectivity of Birmingham are extensive. long haul flights greatly increased. Passenger The future looking schemes described are of numbers will rise to 15 million a year by course in addition to the well-established road, 2020, with the extra capacity also bolstering rail and air provision that is already in place. the position of Birmingham as a major UK The long term future planning acknowledges the logistics hub. In October 2016, plans for critical role that transport plays in sustainable further expansion plans have resurfaced with economic growth. Success in this aim will mean Birmingham considered as the part of the Birmingham will support the current and future Governments longer-term airports strategy. aspirations of residents and businesses alike. 20 KNIGHT FRANK: THE BIRMINGHAM REPORT 2016/17 21

Undeniably, the Birmingham of today is unrecognisable from the city of 30 years ago. This transformation, however, is work in progress. Large- scale regeneration and new development continues at pace, opening up PREDICTIONS new areas and changing the very fabric of the city

WRITTEN BY WRITTEN BY Mark Evans, Ashley Hudson, Partner, Head of Partner, Head of RESIDENTIAL Birmingham Residential COMMERCIAL Birmingham Commercial 01. DESIGN REQUIREMENTS RISE 04. RENTAL GROWTH

Buyers’ expectations have increased significantly in the last year or two. With more buyers Birmingham has undergone a seismic change over the last 5 years with high quality relocating to Birmingham from London, where design specifications are generally high, infrastructure and development planning unshackling the CBD and generating similar requirements are now moving into the Birmingham market. Buyers are looking for traction for the evolution of the core office market. The regeneration programme apartments and developments of a better quality than ever before, effectively shifting the is continuing supporting a current office development pipeline of 1.7m sq ft, the emphasis from price to quality and environment. We would expect this to move on again largest on record. This delivery of high quality, modern office stock to the city is with a number of the larger mixed-use schemes that are in the pipeline having a heavy already serving to attract new business to Birmingham. The offer of Birmingham residential mix, developers will need to meet the challenge of creating a built environment is changing quickly and for the better. With this in mind, we anticipate that prime that caters for both commercial and residential uses. rents in the city core will reach £35.00 per sq ft by the end of 2018.

02. THE SUPPLY OF HOMES IN THE EMERGING BUILD-TO-RENT SECTOR WILL AVERAGE 500 UNITS A YEAR IN THE CITY CENTRE BY 2020 05. OCCUPIER GROWTH

Birmingham is one of the key regional cities where rents and values are at a level The need to attract and retain talent has led to a rise in ‘footloose’ occupiers and we anticipate this which make Build-to-Rent an attractive option. The focus on Birmingham from trend will support demand growth in central Birmingham. Importantly, Birmingham is attracting institutions is set to intensify with the city being recognised as the youngest in the growth sectors such as Technology, Media and Telecoms with this group representing 20% Europe, home to approximately 1,900 international companies and the largest of deals completed so far in 2016. This percentage we expect to rise with FinTech, Media and Professional Services Sector outside of the capital offering a diverse tenant pool from Biomedical occupiers predicted to feature strongly as the city’s reputation grows both regionally which occupiers can be attracted. With continued pressure on housing supply in to and internationally. This rise will compliment demand from the Professional Services and Financial the Birmingham market the private rental sector will have a key role to play in the Occupiers, Birmingham’s mainstay, who continue to target prime areas. dynamics of the city’s residential offering over the next five years and beyond.

03. PRIME VALUES WILL HIT £500 PER FT BY 2020 06. INVESTMENT

The foundations of the city centre market will be underpinned by transport With market sentiment wavering in both the run up and following the result of the EU referendum, it is infrastructure projects, major mixed use schemes and continued demand for unsurprising that deal numbers in 2016 have suffered. We should remember that this dip in activity is from housing as the city continues to attract those relocating from London, the a very high base. Total office investment in 2015 was the highest on record for Birmingham. Importantly, South East and further afield via the city’s flourishing commercial property the principal driver that led to this record year has not changed; the strength of the occupier market. We market and education offering. As a result, pricing at some top-end schemes anticipate that the appetite for quality stock will remain robust and as such, pricing will stay keen. Yields for could reach £500 per sq/ft in prime locations driven by a balanced approach to prime products we expect to stay around 5.25%. A significant amount of equity, particularly overseas money, well-proportioned living space, specification and built environment. continues to target opportunities in Birmingham. The low value of sterling should serve to bolster this although the level of deliverable quality stock may restrict transaction numbers. 22 KNIGHT FRANK: THE BIRMINGHAM REPORT 2016/17 23 RESIDENTIAL AND COMMERCIAL STATS FIGURE 1: NET SUPPLY OF HOUSING AND NEW-BUILD FIGURE 2: NET ADDITIONS TO HOUSING, BIRMINGHAM FIGURE 3: HOUSEHOLD GROWTH IN BIRMINGHAM TAKE-UP (SQ FT) GRADE A SUPPLY RENTS COMPLETIONS, WEST MIDLANDS, ANNUAL YEAR WEST MIDLANDS, ALL DWELLINGS 713,500 505,100 657,300 970,500 655,500 596,500 959,300 659,800 480,000 669,800

2014 650,000

WEST MIDLANDS, NEW BUILD COMPLETIONS 3,320 3,170 422,000 2019 21,000 444,297 2,630 2,630 19,000 2024 466,292 2,010

17,000 1,180 NUMBER

1,600 OF HOUSE HOLDS 15,000 1,370 2029 489,561 1,190 1,160 1,110 2006 | 325,000 13,000 2007 | 350,000 2008 | 600,000 511,980 2009 | 1,100,000 11,000 2034 2010 | 850,000 2011 | 650,000

533,520 30 32.5 33.5 27 28.5 28.5 28.5 28.5 28.5 30 32.5 9,000 2012 | 475,000 2013 | 493,500 2011 2011 2011 2014 2014 2014 2012 2012 2012 2015 2015 2013 2013 2013 2010 2010 2010 2007 2007 2007 2004 2005 2008 2009 2008 2009 2008 2009 2006 2006 2006 2014 | 205,500 2011-12 2010-11 2012-13 2014-15 2013-14 2039 2009-10 2007-08 2006-07 2004-05 2005-06 2008-09 2015 | 127,500 at Q3 2016 at at Q3 2016 | 127,500 Q3 2016 at Source: Knight Frank Source: Knight Frank Source: Knight Frank/DCLG Source: Knight Frank Source: Knight Frank Source: Knight Frank

The number of net additional new homes being There is a similar rise in Birmingham, but Housing delivery is also not keeping up with the Total take-up in 2016 (Q1 - Q3) has reached Grade A supply dipped below 130,000 sq ft in Q3 Prime rents have increased by 8% in 2016 delivered in West Midlands is rising. delivery remains well below historical levels. projected growth of the number of households 596,500 sq ft, 18% above the long-term trend 2016, this is the lowest level on record for the city. reaching £32.50 per sq ft in Q3. in Birmingham. for the period.

FIGURE 4: PIPELINE SUPPLY FIGURE 5: KEY PRIORITIES FOR TENANTS IN PRIVATE RENTED SECTOR WHEN CHOOSING PROPERTY INVESTMENT VOLUMES YIELDS INVESTOR TYPE

WEST MIDLANDS WEST MIDLANDS, AGES 18-24 2006 | £708m PRIME OFFICE YIELD (%) 10-YR UK GILT YIELD(%) 8 Total units under 53% UK property 50% companies construction 2007 | £489m 7 (2016-2021) 44% 13% 41%

39% 6

37% 2008 | £217m

9,554 35% Overseas 33%

32% 2009 | £246m 31% 5 investors 28% 27% 2010 | £492m 37% 4 2015 to Q3 2016 2011 | £317m

14% 3

11% 2012 | £197m Total projected 10% 8% household growth 2013 | £264m 2 2% (2016-2021) 1% Private 1 2% 2014 | £556m 0 UK Institutions

26,000 Don’t know None of these None of Within budget budget Within

Q4 2011 48% Q4 2014 Q4 2012 Q4 2015 Q4 2013 Q4 2010 Q4 2007 Q4 2008 Q4 2009 Good local shops Q4 2006 at Q3 2016 at Good local schools Good local schools Close to work/study work/study to Close

Good transport links links Good transport 2015 | £796m Good local amenities £381m Close to friends & family friends & family to Close at Q3 2016 Source: Knight Frank Source: Knight Frank Tenant Survey 2016 Source: Knight Frank Source: Knight Frank Source: Knight Frank

This shows the discrepancy between the number of Living close to work or a place of study is a key priority for renters. With £796m of stock sold, Birmingham recorded Prime office yields in Birmingham are holding Since the beginning of 2015, overseas money homes currently under construction, and projected the highest level of office investment of any firm at 5.25%, around 425bps above 10 year UK has accounted for accounting for 37% of household growth over the next five years. major regional UK city in 2015. Gilt yields. investment turnover.

DISCLAIMER and local economic drivers of house price Metropolitan area was used as the underlying DISCLAIMER changes, and evaluated to account for unique series for forecasts as this represents the most House price forecasts were computed using time These numbers are correct as at Q3 2016. macro-economic factors. The recently launched robust measure of house price changes for the series analysis of historic house price movements LandRegistry/ONS index for the Birmingham area in question. Source: Knight Frank Research, Property Data CONTACTS IMPORTANT NOTICE

Important Notice © Knight Frank LLP 2016 – This BIRMINGHAM RESEARCH report is published for general information only and not to be relied upon in any way. Although ' high standards have been used in the preparation MARK EVANS GRAINNE GILMORE of the information, analysis, views and projections PARTNER, HEAD OF BIRMINGHAM RESIDENTIAL PARTNER, HEAD OF UK RESIDENTIAL RESEARCH presented in this report, no responsibility or +44 121 233 6410 +44 207 861 5102 liability whatsoever can be accepted by Knight [email protected] [email protected] Frank LLP for any loss or damage resultant from any use of, reliance on or reference to the contents ASHLEY HUDSON DR. LEE ELLIOTT of this document. As a general report, this material PARTNER, HEAD OF BIRMINGHAM COMMERCIAL PARTNER, HEAD OF COMMERCIAL RESEARCH does not necessarily represent the view of Knight +44 121 233 6443 +44 207 861 5008 Frank LLP in relation to particular properties or [email protected] [email protected] projects. Reproduction of this report in whole or in part is not allowed without prior written approval JAMIE PHILLIPS JAMES ROBERTS of Knight Frank LLP to the form and content within PARTNER, BIRMINGHAM COMMERCIAL PARTNER, CHIEF ECONOMIST which it appears. Knight Frank LLP is a limited +44 121 233 6403 +44 207 861 1239 liability partnership registered in England with [email protected] [email protected] registered number OC305934. Our registered office is 55 Baker Street, London, W1U 8AN, where you STUART EUSTACE DARREN MANSFIELD may look at a list of members’ names. ASSOCIATE, BIRMINGHAM RESIDENTIAL ASSOCIATE, COMMERCIAL RESEARCH +44 121 233 6437 +44 207 861 1246 [email protected] DARREN.MANSFIELD@ KNIGHTFRANK.COM