Midlands Office Market Report 2019 Regional Insight

MIDLANDS OFFICE MARKET REPORT 2019 REGIONAL INSIGHT...... 5 OCCUPIER MARKET OVERVIEW...... 6 INVESTMENT MARKET REVIEW...... 10 TRIGGERS AND DRIVERS...... 14 BIRMINGHAM: GLOWING TRACK RECORD...... 16 FOCUS: SERVICED OFFICES...... 18 COVENTRY: SKY BLUE THINKING...... 20

MARKET INSIGHT...... 22 BIRMINGHAM CITY CENTRE...... 24 BIRMINGHAM OUT OF TOWN...... 26 COVENTRY / A46 CORRIDOR...... 27 DERBY...... 28 LEICESTER...... 29 NORTHAMPTON...... 30 NOTTINGHAM...... 31

2 LAMBERT SMITH HAMPTON MIDLANDS REPORT 2019

WELCOME

At the current time, it seems there is no escaping from the media attention on Brexit. Try as I might, it’s impossible to talk about the Midlands’ office market for 2019 without once again focusing on the “B” word. Adam Ramshaw Regional Director - “Birmingham”– the largest commercial centre in the region and still leading the way in terms of occupier Midlands and North demand, investment volumes and emerging trends. In truth, the region as a whole is prospering but whilst +44 (0)121 237 2395 it’s fantastic to see many of the region’s other towns and cities thrive, Birmingham has once again dominated [email protected] the headlines.

The city delivered the largest single office investment transaction outside London this year and the pace at which WeWork is taking space in Birmingham suggests that the landscape for the office market is about to go through a seismic shift.

I suspect it’s only a matter of time before the trends we’re seeing in Birmingham are repeated in cities such as Coventry, Nottingham, Leicester and the like. As such, there is an opportunity for developers and investors to grasp the nettle and make sure they’re well positioned to take advantage of these changes when they come.

But the success of the region is not simply down to the quality of the office stock or investors moving out of London and the South East in search of perceived value. We are seeing unprecedented levels of investment across the entire region in infrastructure, housing, education, innovation and culture. This is making our towns and cities a genuinely compelling proposition to domestic and overseas businesses and I’m delighted to see our region taking advantage of this level of inward investment.

I’m equally encouraged by the prospects for the region going forward. With Coventry named as the UK’s City of Culture for 2021 and Birmingham hosting the 2022 Commonwealth Games, the region has a rare opportunity to showcase everything it has to offer on a global stage; and this can only be good news for our ever evolving office sector.

REGIONALMARKET INSIGHTINSIGHT

Despite ongoing Brexit uncertainty frustrating potential activity, the Midlands markets have continued to demonstrate resilience. And, while Birmingham continues to dominate the region with regard to development and rental growth, there are encouraging signs that attention is finally turning to its other key markets.

THE MIDLANDS MEGA DEAL In contrast, the markets outside of Birmingham were relatively quiet in Q1, Occupier activity over the first half of 2019 with regard to both deal frequency and has been solid if unspectacular across the the number of larger headline-grabbing region’s seven key markets combined. transactions. Outside Birmingham, the While Q1 take-up of 542,000 sq ft fell short of region’s five other markets were home the quarterly average it was ahead of same to only three deals above 10,000 sq ft quarter in 2018, and arguably counts as a decent performance given the cloud of Brexit (compared with 11 in Q4 2018), the largest uncertainty that has hung over the market. of which was 15,000 sq ft and took place in Nottingham. A single major deal also largely explained the extreme contrast in take-up between Q4 2018 and Q1 2019. The emphatic finish BRIGHT PROSPECTS to last year was fuelled by HMRC’s major According to provisional figures, take- 276,000 sq ft pre-let at Unity Square, up improved significantly in Q2, while a Nottingham with Sladen Estates and number of very large deals are in the offing Peveril Securities, the largest deal in the in Birmingham, Nottingham and the wider Midlands for over a decade, and which Coventry market. Active demand is also alone accounted for almost a third of relatively resilient considering the uncertain region-wide take-up in Q4 2018. environment, boding well for levels of churn across the remainder of the year. BIRMINGHAM LEADS THE WAY The outlook for activity is complicated by Birmingham’s city centre and out of ongoing uncertainty around Brexit, and town markets have continued to perform some form of resolution will be needed strongly in 2019 to date. Underpinned by a to restore market confidence to its full flurry of larger deals, the city centre saw its potential. Reassuringly, perhaps, there is a second highest take-up for a first quarter substantial 2m sq ft of lease events across Artist’s impression of Unity Square, Nottingham, where HMRC pre-let 276,000 sq ft in November 2018 on record while, out of town, take-up was the markets in 2020, which does at least its highest in nearly four years. bode well for structurally induced demand.

6 LAMBERT SMITH HAMPTON Back to contents

MIDLANDS REPORT 2019

MIDLANDS TAKE-UP (000 SQ FT) Regardless of Brexit fears, prospects are steady contraction in the region’s supply nonetheless encouraging. Alongside major over recent years reflects a combination 900 infrastructure investment, Birmingham’s of factors, including healthy rates of hosting of the Commonwealth Games in absorption, pressure from alternative 800 2022 will put the city onto the global stage, uses and, most importantly, a general 700 boosting inward investment potential. reluctance towards speculative Meanwhile, Coventry’s status as UK City development outside of Birmingham city 600 of Culture in 2021 is helping to galvanise centre in this cycle. 500 regeneration in the city centre. As a major focus for recent regional office 400 development in the UK, Birmingham’s WEWORK PILES INTO BRUM supply differs significantly from the region’s 300 Following a brief hiatus at the end of 2018, other markets. At face value, the city centre 200 serviced office providers have returned market offers the most relative choice of any market, with current availability 100 as a key source of demand in Birmingham equivalent to 3.8 years of average annual this year. WeWork is the latest operator to 0 take-up, although a significant proportion make waves in the city, and emphatically Birmingham Nottingham Birmingham Coventry Derby Leicester Northampton of this is under construction and therefore so. The co-working provider has leased CC OOT not immediately available. 226,000 sq ft across three buildings this Last 12 months 10-year average year, including the Midlands’ largest deal

Source: LSH Research in 2019 to date, while other providers have IMPROVING SUPPLY PROSPECTS outstanding requirements. While a virtual absence of speculative MIDLANDS TAKE-UP BY SIZE (000 SQ FT) The surge in demand from serviced office development has seen supply levels ebb significantly in the region’s other 1,400 providers is testament to the rapid growth in Birmingham’s small business markets, there are some encouraging 1,200 community, and reflects increasing signs of improvement more recently. Birmingham continues to dominate 1,000 occupier demand for quality and flexibility. Having been exclusively focused on the overall office development in the 800 city centre, serviced office demand has region, accounting for 70% of the 1.3m sq ft currently underway, although, 600 rippled into the out of town market in 2019, with deals to MSO and Instant Group. It is encouragingly, speculative development has returned to other locations. 400 probably only a matter of time before the region’s other markets are targeted, with Over the past six months, Nottingham 200 the operators likely to be more regionally and Leicester have both seen speculative 0 focused in nature. development make a long-awaited return to their respective markets. Further development is set to come forward at

Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 SUPPLY STABILISES AT RECORD LOW Two Friargate in Coventry, albeit this is <5,000 sq ft 5,000-9,999 sq ft 10,000-19,999 sq ft Above 20,000 sq ft Having fallen consistently over the past reliant on public funds. Encouraging as five years, overall supply in the Midlands this is, these tentative steps will not by 10-yr quarterly average markets has stabilised at a record low themselves transform the office offer Source: LSH Research of 5.9m sq ft since the end of 2018. The meaningfully from their current positions.

Cork 45% 55% 1.6

Dublin CC 45% 74% 26% 1.6

Dublin OOT 48% 52% 3.0

Galway 69% 31% 2.3

Limerick 57% 43% 3.6

Grade A share of supply** Grade B/C share of supply Years of supply

Back to contents

MIDLANDS AVAILABILITY AS YEARS OF SUPPLY* MIDLANDS UNDER CONSTRUCTION (000 SQ FT)

Leicester Speculative (LHS) Pre-let (LHS) Northampton Share in Birmingham city centre % (RHS)

Birmingham OOT 2,500 100

Coventry

Nottingham

2,000 80 Derby

Birmingham CC

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0

Grade A share of supply** Grade B/C share of supply 1,500 60 Source: LSH Research

* Years of supply defined as current availability divided by 10-year average take-up. **Grade A includes speculative space completing in next 12 months

THE REFURBISHMENT OPPORTUNITY FRESH SUPPLY TO DRIVE RENTS 1,000 40 With caution around new speculative Birmingham city centre is the region’s development still in the air, there remains a only market to have seen clear and compelling case for investors to capitalise consistent rental growth over recent on very low levels of quality supply and years. However, the arrival of new consider value add opportunities. Such an schemes across the region is expected 500 20 approach has proven particularly successful to precipitate step changes in rental in Birmingham’s out of town market over levels over the next two years, with the past 12 months, with a further three Nottingham, Northampton and refurbishments currently progressing. Birmingham out of town forecast to Uncertainty in the market has not helped, see strong rates of growth. Crucially, however, with a mismatch between buyer evidence of rental growth secured by 0 0 these new schemes could prove pivotal in and vendor pricing aspirations on secondary 2012 2013 2014 2015 2016 2017 2018 Q1 2019 product currently standing in the way of attracting more developers into the wider many repositioning opportunities. Midlands region. Source: LSH Research

8 LAMBERT SMITH HAMPTON Back to contents D 20 EN 21 £ TH 2 W 5 O .0 MIDLANDS REPORT 2019 R 0 0 G ND 2 21 £ E 1 H 7 T . 5 W

0 O

R PRIME HEADLINE RENTS AND FORECASTS (£ PER SQ FT) G CLICK TO JUMP TO MARKET PROFILE M1

Birmingham CC PRIME HEADLINE RENTS (PER SQ FT)

FORECAST GROWTH END 2021

Birmingham OOT M6

2 END 021 £ TH 25 W Derby O .0 R 0 M6 TOLL G M54 M42 END 2021 £ TH 37 OW .0 R 0 Leicester G

M69

M6 Nottingham M1 D 202 EN 1 £2 TH 5 W . O 0 R 0 G M6

Northampton G R 0 O 5 W . T 6 M42 H £ 2 END 2021 M45 Coventry

D 2021 EN £2 H 4 T .0 0 5 10 15 20 25 30 35 40 W O 0 M40 R G Q1 2019 End 2019 End 2020 End 2021

Source: LSH Research

© LAMBERT SMITH HAMPTON 9 Back to contents INVESTMENT MARKET REVIEW ALL ABOUT BRUM Birmingham is hotly pursued by a host of domestic and PRIME overseas buyers, although current interest is largely YIELD confined to better quality office assets. However, for those investors seeking value and enhanced returns, acute

shortages of quality supply in the region’s other key markets ADAM RAMSHAW RICHARD DURKIN ANKUR CHADHA +44 (0)121 237 2395 +44 (0)121 237 2330 +44 (0)121 237 2367 make a compelling case for asset management plays. [email protected] [email protected] [email protected]

BREXIT INTERFERENCE MIDLANDS OFFICE VOLUME BY LOT SIZE (BN)

Echoing a familiar theme across the UK, 500 25 office investment was subdued in the Midlands during Q1, linked to the heightened level of Brexit uncertainty at the time. However, more recently, the extension of the 400 20 UK’s planned Brexit departure from March to October has given fresh impetus at the prime end of the market. 300

MAJOR DEALS RETURN IN Q2 15 At £100m, Q1 volume was amongst the 200 lowest seen over recent years, as many investors opted to sit on their hands in the lead-up to the planned Brexit departure 10 date. However, Brexit’s extension restored 100 sentiment towards prime secure product in Q2, with a flurry of big ticket deals pushing total volume to £320m, the highest since Q1 2017. 0 5 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2(P) That said, the market remains relatively 2014 2015 2016 2017 2018 2019 thin from a deals perspective. Provisionally, Birmingham Other Midlands 10 yr quarterly average No. of deals (RHS) the region saw only 12 deals in Q2 and approaching half the total volume was Source: LSH Research

10 LAMBERT SMITH HAMPTON Back to contents

MIDLANDS REPORT 2019

MIDLANDS OFFICE VOLUME BY VOLUME BY TYPE (£M, 12 MONTHS TO Q1 19)

SALES PURCHASES NET

Institutions +205

Local Authorities +20

Private Investors +2

Quoted Propcos -6

Overseas -59

Private Property Companies -121

-250 -200 -150 -100 -50 0 50 100 150 200 250 300

Source: LSH Research

accounted for by a single transaction in fund. Although not contributing to volume, Birmingham city centre. In June, Gulf the recent £80m financing deal with Apollo Islamic Investments purchased Priory brings forward the development of the city’s Court & The Lewis Building for £149m (NIY tallest office tower and signals a huge vote 5.75%), the largest office investment in 2019 of confidence in Birmingham. to date outside London. Q2’s other headline news was Tristan THE FLIPSIDE OF THE COIN Capital Partners’ acquisition of the While the big ticket deals returned in Q2, Gulf Islamic Investments’ £139m purchase of the Lewis Building in development interest in 103 Colmore on investment has been subdued across other June is the largest regional office transaction in 2019 to date behalf of its EPISO 4 opportunity real estate parts of the Midlands throughout 2019 to

PRIME OFFICE YIELDS (%)

10.00

8.00

6.00

4.00

2.00 CC OOT Derby London Coventry Leicester West End Nottingham Birmingham Birmingham Northampton All time low (2007) 2008 high Current Q2 2019

Source: LSH Research

15% date. Only two deals in excess of £5m took particularly at the scale demanded by place outside of Birmingham city centre in major institutional and overseas investors, the year to June, comprising BlackRock’s and signs of renewed buyer caution on 12% £8.7m, (6.95% NIY) purchase of 300 The pricing for value-add opportunities. While Crescent, Birmingham Business Park strong demand has maintained pressure and a private investor’s £8.9m (6.43% NIY) on pricing for prime product, the current acquisition of Witham Park, Lincoln. climate of uncertainty and a limited In June 2019, Blue Noble LLP purchased 11 Brindleyplace from Benson Elliot Capital for £37.7m The drop-off in activity outside distress have generated a mismatch Birmingham is due to a lack of prime stock, between buyer and vendor pricing

12 LAMBERT SMITH HAMPTON Back to contents

MIDLANDS REPORT 2019

expectations in the secondary market, political sensitivities to strengthen the weighing on activity in the process. emphasis on buying within or closer to their jurisdiction areas. LOCAL AUTHORITIES REMAIN ACTIVE While overseas and institutional investors NEED FOR CLARITY continue to dominate volume, as with other As and when greater certainty does arise regional office markets, local authorities around Brexit, the Midlands markets now make up a small but nonetheless important part of the demand profile in the are well positioned to benefit from wider region. Over the past 12 months, eight asset management plays. The likes of local authorities have purchased stock in Nottingham, Northampton and Leicester Nottingham, Coventry and Northampton have seen little if anything by way of with lot sizes ranging circa £5-£15m. speculative development during this cycle, Local authorities are expected to remain while supply levels have been tightened active as they seek to use strategies to through pressure from competing uses. address the funding gap in their budgets Positively, growing evidence of rental and generate income. While a number of growth for refurbished stock should in time local authorities appear to have satisfied translate into greater investment exposure their demands, others are entering the towards these sorts of opportunities, LSH advised Coventry City Council over their £5.8m purchase of Binley Court, Coventry fray. Moving forward, however, we expect particularly among yield driven buyers.

KEY MIDLANDS OFFICE TRANSACTIONS

Month Property Price (£m) Net Initial Yield Size (sq ft) Purchaser Vendor

Jun-18 Lewis Building, Bull Street, Birmingham 139.00 5.75% 230,000 Gulf Islamic Investments Legal & General

Feb-19 2 Brindleyplace, Birmingham 29.25 6.51% 78,000 NFU Mutual Insurance HansaInvest GmbH

Nov-18 54 Hagley Road, Birmingham 24.25 7.70% 141,000 Standard Life PIT Sedco Capital

Feb-19 Norfolk House, Birmingham 20.00 7.92% 117,000 Regional REIT Ltd Undisclosed

Dec-18 6000 Solihull Parkway, Solihull 18.45 6.78% 120,000 Brydell Partners Allianz Properties Ltd

Feb-19 Apex House, Calthorpe Rd, Edgbaston 8.95 8.13% 58,000 UKRO (Hong Kong) Kennedy Wilson Europe Blake House, Eagle Court Business Park, Nov-18 7.45 7.88% 38,000 Christs Hospital Wrenton Ltd Birmingham Stratford Court, Cranmore Boulevard, Sep-18 6.10 6.87% 30,000 Wyre Forest Council Eskmuir Properties Ltd Solihull Dec-18 Binley Court, Coventry 5.80 7.25% 31,000 Coventry City Council Ranier Developments

What has been motivating companies to acquire new PRIMARY TRIGGERS 2018/19 (%) office space in the Midlands and what influenced their choice of property? Despite uncertainty surrounding 3% Brexit, our analysis of transactional activity above 10% 5,000 sq ft reveals that expansion continues to play a key role in driving recent demand.

TRIGGERS – WHAT IS While consolidation was the primary trigger 16% PROMPTING RELOCATION? for only 10% of office moves, it was the reason behind the largest deal over the past 12 An impressive 49% of office relocations over months, namely the HMRC’s 276,000 sq ft 49% the last 12 months were triggered primarily by pre-let at Unity Square, Nottingham. a need to expand. However, this was slightly down from 53% in 2017/18, possibly reflecting businesses stalling expansion decisions in DRIVERS – WHAT DETERMINES light of the uncertainty surrounding Brexit. END CHOICE? Coventry, the UK City of Culture in 2021, had Beyond the trigger to move, location the highest proportion of deals triggered continued to be the main driver when it by expansion at 63%. This included the two came to determining occupier end choice lettings at New Century Park to Aptiv Services for deals above 5,000 sq ft. Growing in 22% and Orbit Group. Meanwhile, Birmingham importance, this increased from 43% in the was home to the largest deal triggered previous year’s analysis to 53% over the last by expansion, namely Birmingham City 12 months. This included serviced office University’s 118,240 sq ft lease at Belmont provider MSO’s expansion at Birmingham Works, Eastside. Business Park, which benefits from close proximity to the motorway network Corporate activity was the main trigger of and airport. 16% of deals, which typically comprised lettings arising from the result of mergers and Workspace improvement – essentially an Expansion Lease event Corporate activity acquisitions. However, the Commonwealth occupier’s desire to improve the quality of its Games sub-lease of 72,261 sq ft of office space working environment – was the main driver Consolidation Contraction at One Brindleyplace in Q1 is also included for 25% of deals, down from 34% in 2017/18. within this. This included two deals at Waterside Way Source: LSH Research

14 LAMBERT SMITH HAMPTON Back to contents

MIDLANDS REPORT 2019

PRIMARY TRIGGERS 2018/19 (%)

Expansion Corporate Activity Lease Event Consolidation Contraction

100

PRIMARY DRIVERS 2018/19 (%) 80

3% 60 9% 40

20 11% 0 Derby Coventry Leicester Nottingham Northampton

53% Birmingham CC Birmingham OOT Source: LSH Research

25% in Northampton, where financial advisers where not previously present - represent DWIFA and Car Shop took design and 15% of transactions seen over the past build space. 12 months. Furthermore, Birmingham Meanwhile, the lessening importance of work was not the sole beneficiary of inward space improvement can partly be attributed investment as might be expected, with to the rising significance of cost. Cost was deals to new incoming occupiers in Derby, the main driver of 9% of deals, up from 5% Leicester and Nottingham. in 2017/18, with some businesses becoming This could also prove to be the tip of the increasingly conscious of their bottom line in iceberg. The arrival of HS2 in years to the currently uncertain market. come and showpiece events such as the Location Work space improvement Efﬁciency Commonwealth Games and Coventry’s MIDLAND SEES HEALTHY City of Culture status will all add to INWARD INVESTMENT the allure of the wider region, while Cost Property attribute Impressively, inward investment moves Birmingham is likely to be first in the queue Source: LSH Research – whereby occupiers locate into markets for corporate relocations from London.

© LAMBERT SMITH HAMPTON 15 Back to contents COMMONWEALTH GAMES 2022 GLOWING TRACK RECORD In July 2022, the eyes of the world will be on Birmingham as it plays host to the Commonwealth Games, the largest sporting event ever hosted in the Midlands. While the media attention may only last a fortnight, it will elevate Birmingham onto the global ADAM RAMSHAW Regional Director - Midlands and North stage and help to shine a light on the tremendous progress being seen across the city. +44 (0)121 237 2395 [email protected]

Two years on from Birmingham’s engineering and construction companies successful bid to host the games in 2017, alongside the hotel and tourism, transport preparations are already in full swing, and sports sectors, all of which will provide providing an instant boost to employment a £750m boost to the local economy. and the construction industry. In April, the Commonwealth Games Organising Committee agreed to lease 73,000 sq ft at CREATING A LEGACY Brindleyplace as its new headquarters, As with all such events, the legacy of the and the organisation will employ circa games is rightly uppermost in the minds 1,000 staff when the event commences. of key stakeholders. These games will While Birmingham already boasts a certainly not leave the city with ‘white host of first class sporting arenas, the elephants’; the investment will ultimately games has spurred the construction benefit the people of Birmingham in the of several key facilities for the games. form of better sporting infrastructure and This includes a major upgrade to the new homes. Crucially, the construction Alexander Stadium, a new £60m state-of- of the athletes village kick-starts the the-art aquatics centre in Sandwell and regeneration of Perry Bar and is part of the development of The Athletes Village a wider development of 3,000 homes in in Perry Bar, which will be a home from the area, while the village itself will be home for 6,500 competitors. converted into 1,400 new homes. As for the games themselves, Birmingham will benefit from its location in the heart Yet, perhaps the most important legacy of the country and attract an estimated of all surrounds Birmingham’s enhanced one million additional visitors, providing reputation and renown through being thrust a massive boost to the hotels and tourism onto the global stage. Previous games, industries. Overall, Birmingham City including those of Manchester (2002) and Council forecasts circa 4,500 jobs will be Glasgow (2010), reportedly attracted a global created annually until 2022, supporting TV audience of over 1.5 billion viewers.

16 LAMBERT SMITH HAMPTON Back to contents

MIDLANDS REPORT 2019

A SPOTLIGHT ON PROGRESS shine on a city that is ripe for investment. in 2002 and the wider regeneration they report, Birmingham trumped both London Alongside the arrival of HS2 in 2026, Curzon precipitated. According to VisitBritain, since and Manchester as the top ranked UK city For a city that is already pushing a huge Street will be home to the UK’s first brand 2001 inbound tourism to Manchester has for investment prospects, an accolade amount of new development, regeneration new intercity station for over 100 years, which clearly reflects the transformation and transport infrastructure investment, more than doubled to reach over 1.2m visits while the local train and tram network is set underway across the city. the Commonwealth Games is the perfect a year. With any luck, Birmingham’s moment to be upgraded. platform to showcase all of the exciting in the spotlight will help to bestow similar Birmingham is a city on the up. The games changes that are happening across the long term benefits. will be its chance to shine. Birmingham landscape. INTERNATIONAL APPEAL But, above all, Birmingham’s ability to From the major mixed-use schemes of Manchester’s appeal to overseas visitors successfully host a major global event will Arena Central and Paradise to the HS2 has grown enormously over the past elevate the city’s standing as a destination rail-link and the redevelopment of Digbeth, decade. Perhaps some of its success can of choice to both UK, and, potentially, global the spotlight afforded by the Games will be attributed to its hosting the games businesses. According to a recent PwC

Artist’s impression of the revamped Alexander Stadium

© LAMBERT SMITH HAMPTON 17 Back to contents FOCUS ON SERVICED OFFICES SHAKING THE STATUS QUO WeWork’s emphatic debut into Birmingham is a major statement of intent and a clear vote of confidence in the city’s long term prospects as a business location. As structural change sweeps through the office market, landlords of more conventional offerings ALEX TROSS cannot afford to stand and watch. +44 (0)121 237 2307 [email protected]

BIRMINGHAM’S FLEX PHENOMENON This, alongside a stream of contract-led GROWTH IN SERVICE SECTOR BUSINESS COUNTS (2013 TO 2018, %) requirements in the city, is highly conducive to In Q2, WeWork’s leasing of 226,000 sq ft flexible office demand. across three separate buildings in Birmingham 70 city centre was alone equivalent to over 70% of total take-up in the quarter. As a proportion of AND IT’S STILL EARLY DAYS activity, Birmingham has also witnessed more Despite the scale of activity within 60 acquisitions from flex-space operators than Birmingham lately, the growth of flex-space any other UK market over the past 18 months, is off a relatively low base. LSH Research including Central London, amounting to well 50 reveals that while Birmingham is home to the over a quarter of take-up. highest proportion of flex-space among the region’s key markets, equivalent to 2.5% of 40 WHY NOW? WHY BIRMINGHAM? total stock, this is relatively low when viewed in context with the UK’s South East markets The recent spike of flex-space activity in ALL UK (3.8%). Indeed, when WeWork’s recent 30 Birmingham is linked to a perfect storm acquisitions become operational, it will merely of factors. In a rush to grab market share, take Birmingham into line with the South East. 15% structural changes to the nature of occupier There is clearly headroom for growth. 20 demand have preceded something of a ‘space race’ among operators and their respective investors. The initial clamour began in Central CONTRASTING OCCUPANCY RATES 10 12% London, in 2017, and has subsequently rippled While Birmingham’s scale and positive out to the UK’s other major centres. attributes merit the attention it has received, 0 Birmingham itself is a prime target for the region’s other key markets should not be expansive operators. The city boasts a higher dismissed out of hand. The variation in both Derby

rate of growth in service sector businesses current levels of flex-space provision and Solihull Coventry than any other major UK city over the past five prevailing levels of occupancy should be an Leicester Nottingham Birmingham years and was second only to London for the important consideration to both landlords Northampton number of new business start-ups in 2018. considering more flexible leasing offers and Source: ONS

18 LAMBERT SMITH HAMPTON Back to contents

MIDLANDS REPORT 2019

SERVICED OFFICES AS A SHARE OF OFFICE STOCK (%)

3.5

3.0

2.5

2.0

1.5 15%

1.0 12% 0.5

0 Derby Coventry Leicester South East Nottingham Northampton market average Birmingham CC Birmingham OOT

Occupied Available Headspace’s serviced office at Somerset House

Source: LSH Research

serviced office operators seeking to exploit count growth of anywhere in the UK, which The tides of structural change will see While traditional serviced offices typically gaps in the market. ought to bode well for the demand for more and more occupiers, particularly lack the wow factor, the new wave of flex flexible solutions. Occupancy levels vary widely between at the smaller end of the market, turn to space operations are raising the bar in locations; Nottingham and Coventry’s flexible offerings. Indeed, recent take- quality, in terms of design, appeal and total flexi-space offering currently enjoys A WAKE-UP CALL FOR LANDLORDS up in Birmingham revealed a thinning of amenity provision. Landlords of more a 90% occupancy rate, some way ahead of With plenty more serviced office traditional leasing activity in the sub 5,000 conventional offices have to adapt their own Birmingham city centre’s which currently requirements set to enter the markets, the sq ft category, not because of a downturn offerings to meet the growing appetite for an stands at only 69%. Meanwhile, with growth recent activity we have seen is no flash in the in demand per se but rather a transition of office to reflect a more holistic, aspirational of 60% in just five years, Leicester has pan. So, should landlords of conventional demand from conventional leased offices to lifestyle that extends beyond only the seen one of the strongest rates of business offerings be concerned? new high quality flex space offerings. functional need for space.

BirminghamBirmingham CC OOTCoventry Derby LeicesterNorthamptonNottingham South East market average Back to contents COVENTRY REGENERATION SKY BLUE THINKING Warwickshire has been home to one of the fastest growing economies in the

UK over the last decade. The region’s growth is now bringing increased inward MATTHEW COLBOURNE Associate Director - investment to Coventry, whose city centre is in the midst of significant regeneration. Research +44 (0)207 198 2268 [email protected]

CITY OF GROWTH Technology is another key growth area, highlighted by the presence of the ‘Silicon Spa’ Coventry’s status as a growth city was gaming cluster in nearby Leamington Spa. underlined earlier this year by LSH’s Vitality Knowledge-based sectors are supported by Index, which ranked it as one of the ten the region’s higher education institutions, fastest-growing locations in the UK. Its growth with the University of Warwick Science Park is built on a diverse economic base, with a and Coventry University Technology Park well-established manufacturing industry both providing space for growing companies. complemented by expanding sectors such as business services, technology and media. A CITY UNDER TRANSFORMATION DRIVING FORWARD In tandem with its evolving economy, Coventry’s city centre is undergoing a Coventry and Warwickshire have a strong transformation. The skyline is awash with tradition of automotive manufacturing. cranes, which are testament to the Jaguar Land Rover’s global headquarters significant investment being made to are in Coventry, while Aston Martin is based enhance the urban landscape. near Warwick. The region’s continued The largest and most important of the city’s importance as an automotive hub will be regeneration projects is the £700m Friargate supported by the opening of the UK Battery scheme, which will create a new business Industrialisation Centre in 2020, which will district with a mix of office, retail, residential and put Coventry at the forefront of the move leisure uses. The scheme’s first building, One towards electric vehicles. Friargate, was completed in 2017 and provides However, other sectors are making office accommodation for Coventry City Council increasingly important contributions to the and the Financial Ombudsman Service. local economy. Healthcare & life sciences Work is expected to start soon on Two Friargate, was recently ranked by BDO as the region’s which will provide over 136,000 sq ft of fastest growing sector, with companies such speculative grade A offices, alongside retail and as AAH Pharmaceuticals based in Coventry. leisure space. Ultimately, the vision for Friargate

20 LAMBERT SMITH HAMPTON Back to contents

MIDLANDS REPORT 2019

is that it will include 3.2m sq ft of mixed-use shopping area being redeveloped, and work space across 25 buildings, with development underway on the overhaul of the Upper likely to take place over the next 10-15 years. Precinct. The long-awaited City Centre South project also promises to revitalise A NEW GATEWAY Coventry’s retail and leisure offer, albeit Friargate is located next to the city’s railway plans are yet to be finalised. station, which itself is receiving an £82m Other projects transforming the city centre overhaul to cope with rising passenger include The Wave, a new £36.7m water park numbers and provide a significantly more attractive gateway for visitors to the city. opening in summer 2019; the redevelopment of the former Coventry Evening Telegraph Work on the station is expected to be building into a boutique hotel; and CODE, a completed by 2021, when Coventry will be student accommodation development that the UK’s City of Culture. An additional 2.5 million visitors are expected to Coventry in includes Coventry’s tallest tower. 2021, and the year will provide a significant opportunity to enhance perceptions of the SEND TO COVENTRY! city and attract inward investment. Coventry’s geographical location, at the heart of England and only a 20 minute train journey DEVELOPMENT HOTSPOTS from Birmingham, is a significant advantage. While Friargate is the biggest potential Major developments such as Friargate will city’s built environment and in the reinvention The combination of a diverse economy, game-changer, Coventry’s built environment help to make it an increasingly attractive of its economy. Nowhere is this more evident skilled workforce, advantageous location is being transformed by a multitude of other alternative office location to Birmingham, than in Coventry’s automotive industry, which and forward-looking business environment regeneration projects. offering a significant rental discount. embraces both its traditional manufacturing puts Coventry in a strong position to attract continued inward investment. The city’s retail provision is in the midst Coventry is undergoing a transformation, strengths, while also being at the cutting of a makeover, with the Cathedral Lanes which is evident both in the regeneration of the edge of autonomous vehicle technology.

£350 million 2nd in the UK 10% Population 360,000 Boost to the economy Coventry has the of the UK’s games Population of Coventry, 55,000 Students expected from second highest rate development talent making it the 11th Students at Coventry’s Coventry’s year as UK of patent applications is in the Silicon Spa largest city in the UK two universities City of Culture in UK gaming cluster

MARKET INSIGHT

Back to contents Back to map

BIRMINGHAM CITY CENTRE

WEWORK PILES IN Birmingham is thriving, a trait clearly reflected in rapid rates of business formation, strong inward investment and sustained demand among its corporate occupier base to expand and upgrade office space. Alongside major infrastructure improvements, Birmingham’s hosting of the Commonwealth Games in 2020 will only add to its growing reputation as a premier business destination. The question is, can development keep up?

OFF TO A FLYER sq ft) and, most recently, Six Brindleyplace (97,000 sq ft). With some very large lettings Birmingham office market’s strong run in the pipeline, take-up in 2019 as a over recent years has continued into 2019. whole is likely to be ahead of trend. Major Q1 take-up of 194,000 sq ft was the second requirements include BT (200,000 sq ft) highest for a first quarter on record, and Atkins (60,000 sq ft) while the HMRC is fuelled by two major deals comprising rumoured to be seeking circa 250,000 sq ft. the Commonwealth Games Organising Committee’s 72,261 sq ft sub-lease at Brindleyplace and Irwin Mitchell’s 46,750 SERVICED OFFICES ABSORB DEMAND sq ft lease at The Colmore Building. Strong as Q1 was, it comprised only 25 Notably, Irwin Mitchell’s lease saw the deals, the second lowest for a first quarter 321,000 sq ft Colmore Building occupied in since 2009. While a thinning in activity might its entirety for the first time since its delivery ordinarily be a concern, evidence suggests in 2004. Echoing profound change in the UK the roll-out of high quality serviced offices office markets, key to the building’s belated has attracted demand away from the success has been Ashby Capital’s recent conventionally leased space, where take-up refurbishment programme which included is recorded, particularly at the smaller end enhanced amenities, including a coffee of the market. shop, gym and cycle parking. Including the above WeWork deals, serviced Q2 is also set to deliver another impressive office providers accounted for over a quarter level of take-up. Co-working provider of take-up over the past 18 months, a higher WeWork has made a major splash in the percentage than any UK market outside In June 2019, WeWork leased 97,000 sq ft at 6 Brindleyplace, taking their total activity in Birmingham over H1 2019 to 229,000 sq ft city, leasing 229,000 sq ft at 55 Colmore Row Central London. The demand is more than (55,000 sq ft), Louisa Ryland House (74,000 justified; Birmingham is currently a UK hotspot

2424 LAMBERTLAMBERT SMITHSMITH HAMPTONHAMPTON

Back to contents Back to map

MIDLANDS REPORT 2019

ALEX TROSS CHARLOTTE FULLARD +44 (0)121 237 2307 +44 (0)121 237 2337 [email protected] [email protected]

TAKE-UP (000 SQ FT) PRIME HEADLINE RENT MARKET AT A GLANCE (£ PER SQ FT) 1,200 for new business formation while project- However, with completion scheduled in 2021 40 12 MONTH TAKE-UP VS driven employment through the likes of HS2 and only Smallbrook Queensway (150,000 1,000 35 10-YEAR AVERAGE and the Commonwealth Games and a dash of sq ft) deemed likely to commence during 800 10-YEAR 30 AVERAGE Brexit uncertainty are all lending themselves this year, a potential grade A supply crunch 25 well to serviced office solutions. looms in 12 months’ time, particularly if 600 +13% 20 strong rates of take-up are sustained. 400 15 YEARS OF

2021 GRADE A SUPPLY CRUNCH? 200 10 SUPPLY UPWARD MOMENTUM 5 On face value, the city centre is well 0 0 supplied, with availability of 2.7m sq ft at the Having initially lagged some of the UK’s Q1 2012 2013 2014 2015 2016 2017 2018 2019

2012 2013 2014 2015 2016 2017 2018 3.8

end of Q1 equivalent to 3.8 years of average other core regional markets, upward 2019 (f) 2020 (f) 2021 (f) Grade A Grade B/C Q2 Forecast 2019 Q1 annual take-up. Despite something of an momentum in prime rents has been gradual GRADE A SHARE 4,000 OF SUPPLY office development boom over the past but sustained over the past three years. AVAILABILITY (000 SQ FT) UNDER CONSTRUCTION few years, overall supply has been broadly Birmingham’s prime headline rent edged up 1,750(000 SQ FT) stable at this level throughout the period, to £34.00 per sq ft in late 2018 and this level 3,200 1,500 39% underlining the latent strength of corporate is widely understood to have been eclipsed occupier demand for quality space across a to circa £35.00 per sq ft on the back of 2,400 1,250 Q1 HEADLINE RENT (PER SQ FT) range of sectors. WeWork’s recent lease at 55 Colmore Row. 1,000 1,600 While available grade A space alone stands Headline rents are also expected to be 750 at over one million sq ft, almost 80% of confirmed at £35.00 per sq ft during the £34.00 500 this is currently under construction and remainder of 2019 as the newly delivered 800 a large proportion is either already pre- space is taken. By the end of 2020, rents 250 PRIME YIELD let or expected to satisfy a host of major could potentially hit £37.00 per sq ft, as the 0 0 Q1 Q1

requirements before the end of the year. Of newly delivered stock from 2019 becomes 2012 2013 2014 2015 2016 2017 2018 2019 2012 2013 2014 2015 2016 2017 2018 2019 the seven schemes underway, six complete increasingly scarce. Grade A Grade B/C Speculative Pre-let 4.75% in 2019, the largest by far being M&G and The absorption of the new build schemes Ballymore’s Three Snowhill (420,000 sq ft) KEY SELECTED TRANSACTIONS at a higher rental benchmark is also which completes in autumn. expected to put upward pressure on rents Quarter Property Size (sq ft) Occupier Rent (per sq ft) Following years of delays and several for good quality grade ‘B+’ stock. This type 2019 Q1 One Brindleyplace 72,261 Commonwealth Games c.£26.00 changes of ownership, Q2 saw construction of product commands a circa 25% rental 2019 Q2 55 Colmore Row 55,000 WeWork c.£35.00 finally commence at Tristan Capital and discount to prime space and growth in 2019 Q1 The Colmore Building, Colmore Plaza 46,750 Irwin Mitchell £33.00 Sterling Property Ventures’ 103 Colmore this segment of the market should further 2018 Q3 Norfolk House, Smallbrook Queensway 36,484 Secretary of State £18.25 Row (226,000 sq ft) which, at 26 storeys, incentivise would-be developers to consider 2018 Q4 The Colmore Building, Colmore Plaza 23,380 Zurich Insurance plc c.£35.00 will be Birmingham’s tallest office tower. value add refurbishment. Source: LSH Research

ALEX TROSS CHARLOTTE FULLARD +44 (0)121 237 2307 +44 (0)121 237 2337 OUT OF TOWN [email protected] [email protected]

TAKE-UP (000 SQ FT) PRIME HEADLINE RENT MARKET AT A GLANCE REFURB REVIVAL (£ PER SQ FT) 600 Birmingham’s out of town market has benefitted significantly from the expansion of 30 12 MONTH TAKE-UP VS science and technology businesses in the region. But, with supply now acute across 500 10-YEAR AVERAGE 25 the most established locations, further development is needed to secure its reputation 400 10-YEAR long into the future. AVERAGE 300 20 +33% 200 YEARS OF 15 LARGE DEALS DRIVE STRONG only one sizeable option available, namely 100 SUPPLY Building 2 (10,484 sq ft). FIRST QUARTER 0 10 Q1 2012 2013 2014 2015 2016 2017 2018 2019

Q1 take-up amounted to 119,000 sq ft, making FIRST, Blythe Valley Park (15,000 sq ft) was 2012 2013 2014 2015 2016 2017 2018 2.2 2019 (f) 2020 (f) 2021 (f) it the strongest quarter since Q2 2015. Grade A Grade B/C Q2 Forecast 2019 Q1 delivered in 2018 and was the first speculative GRADE A SHARE Among a flurry of sizeable deals, Q1’s largest development since FORE in 2010. Tellingly, OF SUPPLY transaction saw MSO Workspace acquire the building was let in its entirety to Jerroms AVAILABILITY (000 SQ FT) UNDER CONSTRUCTION (000 SQ FT) 27,764 sq ft at 2010 The Crescent, Birmingham Accountants prior to completion, underlining 1,500 Business Park. This marks the second the pent-up demand for newly delivered space. 300 36% sizeable deal to a serviced office provider in the 1,250 250 past 12 months, following Bizspace’s lease of Q1 HEADLINE RENT 1,000 (PER SQ FT) 27,764 sq ft at Zenith, Solihull in Q3 2018. GETTING THERE FIRST 200 750 Several refurbishments are presently 150 Q1’s other headline deal was UTC Aerospace’s underway that will provide a much needed 500 £23.00 25,820 sq ft pre-let at Building 3 FORE, 100 boost to quality supply. At Blythe Valley Park, Solihull, a proportion of which comprise 250 50 PRIME IM Properties has commenced an extensive laboratory space. The deal is just one of YIELD many to businesses in the science and tech refurbishment at 01 Blythe Gate (53,882 sq ft) 0 0 Q1 Q1 2012 2013 2014 2015 2016 2017 2018 2019 industry, with others in Q1 including EQ and recently submitted a planning application 2012 2013 2014 2015 2016 2017 2018 2019 Technologic (3,846 sq ft) and 4PS (4,335 sq ft) for an additional 15,500 sq ft building adjacent Grade A Grade B/C Speculative Pre-let 5.75% at Birmingham Business Park. to the FIRST site at the park. KEY SELECTED TRANSACTIONS

Prime headline rents have been stable at Quarter Property Size (sq ft) Occupier Rent (per sq ft) LITTLE ROOM FOR MANOEUVRE £23.00 per sq ft for the best part of three years. 2019 Q1 2010 The Crescent, Birmingham Business Park 27,764 MSO NA A sustained period of healthy demand has However, constrained levels of supply and 2019 Q1 Fore 3, Fore Business Park 25,820 UTC Aerospace Systems £23.75 left the market short of quality supply. the delivery of the above development are set 2018 Q3 31 Homer Road, Solihull 21,217 Instant Group £21.50 Birmingham Business Park is virtually full, to move rents on to a new high, with prime 2018 Q4 2650 Kings Court, Birmingham Business Park 17,633 Zhuzhou £19.50 with only two options in excess of 10,000 sq ft headline rents forecast to move to in excess of 2018 Q4 Ravens Court, Hedera Road, Redditch 17,452 Aequusland Limited FREEHOLD currently available while FORE, Solihull has £25.00 per sq ft during 2020. Source: LSH Research

26 LAMBERT SMITH HAMPTON Back to contents Back to map

MIDLANDS REPORT 2019 COVENTRY /

ALEX TROSS CHARLOTTE FULLARD +44 (0)121 237 2307 +44 (0)121 237 2337 A46 CORRIDOR [email protected] [email protected]

TAKE-UP (000 SQ FT) PRIME HEADLINE RENT MARKET AT A GLANCE CULTURED COVENTRY (£ PER SQ FT) The wider market has performed well although a lack of speculative development and, 400 25 350 12 MONTH TAKE-UP VS more recently, refurbishments could constrain its potential. As UK City of Culture in 10-YEAR 10-YEAR AVERAGE 2021, Coventry city centre’s reputation will be boosted considerably over the coming 300 AVERAGE years, backed by investment in infrastructure and regeneration at Friargate. 250 20 200 -4% 150 15 YEARS OF BIG DEALS IN THE OFFING been hindered by pressure from other 100 SUPPLY uses, in particular industrial and logistics. Following a commendable year in 2018, 50 Abbey Park is one of a few examples where activity in 2019 to date has been quiet with 0 10

capacity remains for offices, with 128,000 Q1 2.0 2012 2013 2014 2015 2016 2017 2018 no transactions above 10,000 sq ft. Key 2012 2013 2014 2015 2016 2017 2018 2019 2019 (f) 2020 (f) 2021 (f)

sq ft available across five plots, although 2019 Q1 deals in latter 2018 included Wolseley’s Grade A Grade B/C Q2 Forecast GRADE A SHARE on a design and build basis only. OF SUPPLY lease of a new headquarters at K2, Warwick AVAILABILITY (000 SQ FT) UNDER CONSTRUCTION Technology Park (33,000 sq ft) and two (000 SQ FT) deals of circa 16,000 sq ft at 2 Binley Court, SEND TO COVENTRY 1,000 600 0% New Century Park. 600 In addition to being UK City of Culture 800 500500 Q1 HEADLINE RENT 2019 take-up is expected to be bolstered in 2021, Coventry is set to reap inward 400 (PER SQ FT) by at least two substantial acquisitions, investment gains on the back of an £82m 600 400 which together amount to circa 130,000 transformation of the train station. 300300 Friargate, a major focus of regeneration 400 sq ft, although the details of these remain 200 £22.50 200 and future office development in the heart confidential at the current time. 200 100 of the city, recently attracted Homes 100 PRIME 0 YIELD England in a space sharing deal with 0 0 Q1 LACK OF DEVELOPMENT Q1 2012 2013 2014 2015 2016 2017 2018 2019 Coventry City Council, a move which sees 2012 2013 2014 2015 2016 2017 2018 2019 At circa 500,000 sq ft, availability is relatively up to 400 new jobs in the city. Grade A Grade B/C Speculative Pre-let 6.25% tight, while a lack of speculative development Prime headline rents remain stable at in this cycle is also reflected in new build KEY SELECTED TRANSACTIONS £22.50 per sq ft, albeit this relates options. Good quality refurbishments have exclusively to One Friargate with the Quarter Property Size (sq ft) Occupier Rent (per sq ft) played a key role in driving larger deals, general tone of top rents standing at 2018 Q4 K2, Warwick Technology Pk 32,912 Wolseley UK Ltd £17.90 albeit the only quality option currently circa £18.50 per sq ft. Further growth is 2018 Q3 Binley Court, New Century Park 15,916 Aptiv Services UK Ltd £15.00 available comprises Welland House, contingent on the development of Two 2018 Q3 Binley Court, New Century Park 15,915 Orbit Group £14.00 Westwood Business Park (34,400 sq ft). Friargate, which recently received circa 2019 Q1 Cel International, Herald Way 8,983 Creavo Medical Technologies £17.80 Despite healthy market conditions, £51.2m of grant funding to drive the 2018 Q4 Nicholls House, Homer Close 7,857 Wood PLC £18.50 development prospects out of town have scheme forward. Source: LSH Research

ROBBIE FARRELL +44 (0)115 976 6610 DERBY [email protected]

TAKE-UP (000 SQ FT) PRIME HEADLINE RENT MARKET AT A GLANCE BOLD ENOUGH TO DEVELOP? (£ PER SQ FT) 250 A lack of grade A space is weighing on take-up with limited quality options for 10-YEAR 25 12 MONTH TAKE-UP VS occupiers. However, responding to the acute shortage of quality supply, planning 200 AVERAGE 10-YEAR AVERAGE permission has been granted for a 34,000 sq ft office scheme in the city centre. 150 20 -4% 100 15 LARGE DEALS EMERGE Responding to the acute shortage of quality YEARS OF supply, Jensco Group is due to develop a 50 SUPPLY Take-up reached a respectable 173,000 34,000 sq ft office scheme at Bold Lane in sq ft in 2018, surpassing each of the previous 10 the city centre. Planning permission was 0 2012 2012 2013 2013 2014 2014 2015 2015 2016 2016 2017 2017 2018 2018 two years and boosted by the return of larger granted in March 2019 but construction is Q1 2.7 2019 (f) 2019 (f) 2020 (f) 2020 (f) 2021 (f) 2012 2013 2014 2015 2016 2017 2018 2019 deals. For the first time since 2015, the 2019 Q1 2019 Q1 yet to commence. Grade A Grade B/C Q2 Forecast In town Out-of-town GRADE A SHARE market saw transactions in excess of 10,000 OF SUPPLY sq ft, the largest being Smith Partnership’s Elsewhere, St. Modwen resubmitted plans AVAILABILITY (000 SQ FT) UNDER CONSTRUCTION 15,000 sq ft lease at Norman House in Q2 for the 70-acre Derby Triangle site, known (000 SQ FT) as St. Modwen Park Derby. The revised 900 followed more recently by Resourcing 800 2% plans focus on industrial & logistics, but still 250250 Solutions’ lease of 12,000 sq ft at Kelvin 700 include significant office opportunities. If Q1 HEADLINE RENT House, RTC Business Park. 200200 approved, work could commence towards 600 (PER SQ FT) 500 While the first quarter of 2019 saw take-up the end of the year. 150150 of only 16,000 sq ft, the market was relatively 400 300 100100 busy with ten deals. The absence of larger £17.50 RENTS STABLE UNTIL 200 deals in Q1 can partly be attributed to a lack 5050 QUALITY ARRIVES 100 PRIME of quality supply, with limited options for YIELD Rental growth has been held back by a lack 0 00

occupiers to upgrade or expand into. Q1 Q1 2012 2013 2014 2015 2016 2017 2018 2019 2019

of quality stock, with prime headline rents 2012 2013 2014 2015 2016 2017 2018 standing unchanged at £17.50 per sq ft for the Grade A Grade B/C Speculative Pre-let 6.50% NEW DEVELOPMENT NEEDED last four years. Until new stock is delivered to KEY SELECTED TRANSACTIONS Availability increased 6% over the past the market, this level will not be surpassed. 12 months to stand at 480,000 sq ft. The Positively, evidence suggests occupiers will Quarter Property Size (sq ft) Occupier Rent (per sq ft) uplift was driven by grade B space returning be prepared to pay for the privilege of high 2018 Q2 1-29 Brunel Parkway 13,269 Pattonair Derby Ltd £12.50 quality space, and, if successful, Bold Lane to the market, including 50,000 sq ft at 2018 Q4 3 Centro Place Pride Park 12,909 Webhelp £15.00 could prove to be the key to unlocking further Cardinal Square and 85,000 sq ft at Pride 2018 Q4 Kelvin House, RTC Business Park 12,000 Resourcing Solutions Ltd £12.50 development interest. Park. Meanwhile, grade A supply is scarce 2018 Q2 Ely House, Wyvern Business Park 7,956 Workchain £14.00 with less than 11,000 sq ft available and no 2018 Q4 Cardinal Square, Nottingham Road 6,893 Totally Plc £11.00 options in the city centre. Source: LSH Research

2828 LAMBERTLAMBERT SMITHSMITH HAMPTONHAMPTON Back to contents Back to map

MIDLANDS REPORT 2019

ROBBIE FARRELL +44 (0)115 976 6610 LEICESTER [email protected]

TAKE-UP (000 SQ FT) PRIME HEADLINE RENT MARKET AT A GLANCE REGENERATION PAVES THE WAY (£ PER SQ FT) 600 Concerted regeneration efforts at Waterside are supporting the much-needed delivery 25 12 MONTH TAKE-UP VS 500 of new office supply in the city centre. More generally, improvements to the public 10-YEAR AVERAGE realm, new hotels and large-scale residential development in the area will increase 400 20 the appeal of the city centre long into the future. 10-YEAR 300 AVERAGE -42%

200 15 YEARS OF SUPPLY A STEADY 12 MONTHS this cycle. The Waterside area is Leicester’s 100 most high profile mixed-use regeneration 10 Recent take-up has been solid if 0

project and will be key to a greatly enhanced 2012 2013 2014 2015 2016 2017 2018 Q1 1.7 2012 2013 2014 2015 2016 2017 2018 2019 unspectacular, reflecting the predominance 2019 (f) 2020 (f) 2021 (f) office offer over the coming years. 2019 Q1 of local churn and a lack of major Grade A Grade B/C Q2 Forecast In town Out-of-town GRADE A SHARE deals. Over the past 12 months, larger Out of town, new-build supply is likely to OF SUPPLY transactions have been in the 10,000 sq ft to continue to manifest itself through pre- AVAILABILITY (000 SQ FT) UNDER CONSTRUCTION (000 SQ FT) 15,000 sq ft bracket, several of which were let activity. At LE3, Brackley Property 900 200 7% pre-lets, including a confidential occupier Developments is currently marketing 800 at Waterside, in the city centre (15,000 sq ft) the last remaining plots, taking the 700 Q1 HEADLINE RENT and ERIKS at LE3 (10,000 sq ft), out of town. development to around circa 60,000 sq ft 600 150 (PER SQ FT) when built out. 500 While take-up in 2019 to date has been 400 100 relatively quiet, Q2 saw the largest deal RENTS ON THE RISE 300 £18.00 in almost three years. At Grove Park, 200 50 Sytner leased 16,700 sq ft at 3 Penman Way Prime rents have languished, reflecting 100 PRIME YIELD immediately after its refurbishment. The a long absence of new build speculative 0 0 Q1 deal underlines the strength of demand development in the city centre. Evidenced Q1 2012 2013 2014 2015 2016 2017 2018 2019 for high quality space in prime out of town by recent out of town pre-let deals, top 2012 2013 2014 2015 2016 2017 2018 2019 Grade A Grade B/C Speculative Pre-let 6.25% locations, as and when it becomes available. rents stand at circa £18.00 per sq ft, placing Leicester among the most economical office KEY SELECTED TRANSACTIONS SPEC RETURNS TO CITY CENTRE locations in the UK. Quarter Property Size (sq ft) Occupier Rent (per sq ft) At long last, the spotlight is turning back The imminent arrival of No.1 Great Central 2018 Q2 Waterside AFS 15,000 Confidential Confidential onto the city centre market. Charles Street Square is widely expected to lift Leicester’s 2018 Q4 MW House 12,600 Countryside Properties £16.50 Buildings is nearing completion of No.1 prime rent on from its current level. 2018 Q2 16 New Walk 12,431 Leicester Mercury £8.00 Great Central Square (32,750 sq ft), part However, given its non-prime location, it will 2018 Q3 Mercury Place, 11 George Street 8,180 Imperial Events Limited £15.00 of a £47m mixed-use scheme and the city be interesting to see what level of growth is 2018 Q3 Two Colton Square 7,218 Growth Partners Plc £17.50 centre’s first speculative office development ultimately seen over the next 12-18 months. Source: LSH Research

TOM HARKER +44 (0)1604 664 366 NORTHAMPTON [email protected]

TAKE-UP (000 SQ FT) PRIME HEADLINE RENT MARKET AT A GLANCE THE VALUE ADD OPPORTUNITY (£ PER SQ FT) 400 Despite its strategic location, Northampton is starved of quality office supply and is 25 350 12 MONTH TAKE-UP VS yet to see the return of speculative development in this cycle. However, evidence of 300 10-YEAR AVERAGE rising rents nonetheless presents landlords with significant opportunity to add value 20 250 through refurbishments. 15 200 10-YEAR AVERAGE -3% 150 10 YEARS OF Waterside Way, at The Lakes, currently 100 QUIET START TO 2019 5 SUPPLY offers the best outlet for new build 50 The market has been relatively subdued in development but is only available on a 0 0

2019 following a healthy year of activity in Q1

2012 2013 2014 2015 2016 2017 2018 2019 1.6 2018. Reflecting a lack of existing quality design and build basis. Following the above 2012 2012 2013 2013 2014 2014 2015 2015 2016 2016 2017 2017 2018 2018 2019 (f) 2019 (f) 2020 (f) 2020 (f) 2021 (f) 2021 (f) options, the final quarter of 2018 saw deals, several plots remain available across Grade A Grade B/C Q2 Forecast 2019 Q1 2019 Q1 GRADE A SHARE phases II and III offering a combined total of OF SUPPLY two design and build deals at Waterside AVAILABILITY (000 SQ FT) UNDER CONSTRUCTION Way; Unit A was forward sold to financial circa 130,000 sq ft. (000 SQ FT) advisers DWIFA (10,000 sq ft) and Unit C 700 200 0% was pre-let to Car Shop (9,412 sq ft). AN UNDERVALUED MARKET? 600 Q1 HEADLINE RENT More recently, Q1 take-up was 27,000 Recent activity at Waterside has seen 500 150 (PER SQ FT) sq ft and made up of only five deals. The Northampton’s prime headline rent move 400 headline news in Q2 was Reed’s 80,000 up to £22.00 per sq ft, a rise of 13% year-on- 300 100 sq ft freehold purchase of Electus, 900 year. Considering Northampton’s strategic £22.00 200 Pavilion Drive. Reed will occupy 17,000 sq ft location vis-à-vis the UK transport network, 50 100 PRIME on the 2nd floor and refurbish 34,200 sq ft prime rents continue to compare favourably 0 YIELD on the ground floor at quoting rent of £19.50 with competing nearby centres, such as 0 Q1 Q1 2012 2013 2014 2015 2016 2017 2018 2019 per sq ft. Milton Keynes and Luton. 2012 2013 2014 2015 2016 2017 2018 2019 Grade A Grade B/C Speculative Pre-let 6.25% ACUTE SUPPLY WEIGHS ON ACTIVITY Acute supply levels are expected to put KEY SELECTED TRANSACTIONS Supply has ebbed significantly, fuelled further upward pressure on rental levels by a flurry of office conversions to other uses over the next two years. The complete Quarter Property Size (sq ft) Occupier Rent (per sq ft) over the past few years. Availability stands absence of immediately available grade A 2018 Q4 Francis Crick House 18,000 NHS NA at an all-time low of 247,000 sq ft, equivalent options points to further rental growth for 2019 Q1 Wyvern House Colliers Way 11,600 E.ON NA to only 1.6 years of average annual take- good quality refurbishments, two current 2018 Q4 Waterside Way 10,000 DWIFA Forward purchase up, with no grade A options. Despite the examples of which are St Clair House 2018 Q4 Waterside Way 9,412 Car Shop £20.00 shortage, speculative development has thus (7,030 sq ft) and the aforementioned Electus, 2018 Q2 300 Pavillion Drive 5,533 ALD Automotive £14.00 far failed to materialise. 900 Pavilion Drive. Source: LSH Research

3030 LAMBERTLAMBERT SMITHSMITH HAMPTONHAMPTON Back to contents Back to map

MIDLANDS REPORT 2019

ROBBIE FARRELL +44 (0)115 976 6610 NOTTINGHAM [email protected]

TAKE-UP (000 SQ FT) PRIME HEADLINE RENT MARKET AT A GLANCE BACK IN THE BIG LEAGUE (£ PER SQ FT) 600 Alongside a stellar year for take-up in 2018, office development has at last returned to 30 12 MONTH TAKE-UP VS 500 the Nottingham skyline. No. 11 Station Street also marks an encouraging and much- 10-YEAR 10-YEAR AVERAGE AVERAGE needed return of speculative development in the city, and is likely to precipitate a 400 25 substantial increase in Nottingham’s prime headline rent. 300 20 +33% 200 YEARS OF

MARKET IS ON A ROLL refurbishment. Encouragingly, Q4 2018 100 15 SUPPLY heralded the first new-build speculative Take-up amounted to 545,000 sq ft in 2018, 0 development start in a decade with 10 the highest annual total since 2002 and Q1

Bildurn’s No. 11 Station Street set to provide 2012 2013 2014 2015 2016 2017 2018 2019 2.2 approaching double 2017’s level. This was 2012 2012 2013 2013 2014 2014 2015 2015 2016 2016 2017 2017 2018 2018 2019 (f) 2019 (f) 2020 (f) 2020 (f) 2021 (f) 2021 (f)

much needed prime space into the city when 2019 Q1 2019 Q1 underpinned by HMRC’s major 276,000 sq ft Grade A Grade B/C Q2 Forecast GRADE A SHARE it completes in 2020. pre-let at Unity Square, which is set to house OF SUPPLY AVAILABILITY (000 SQ FT) UNDER CONSTRUCTION circa 4,000 staff following its completion in The HMRC pre-let at Unity Square also (000 SQ FT) 2021. Further activity is anticipated from the marks an exciting new chapter in the 2,500 350 % public sector, with the council rumoured to development of the city centre. The site 13 2,000 300 be pre-letting 100,000 sq ft at Crocus Place also has outline planning permission for Q1 HEADLINE RENT once planning has been secured. a mixed-use scheme which includes up to 250 1,500 (PER SQ FT) 450,000 sq ft of offices. Elsewhere, Shoby 200 2019 has started in positive fashion, with 79,000 plans to develop the City Buildings on sq ft transacting in Q1. Notably, reflecting an 1,000 150 Carrington Street into 30,000 sq ft of offices. £20.00 acute shortage of quality options, Q1’s headline 100 500 deal saw the College of Law lease 28,814 sq ft 50 PRIME at 1 Royal Standard Place immediately after its CUE A STEP CHANGE IN RENTS 0 YIELD 0 Q1 refurbishment and prior to marketing. While Q1 The arrival of HMRC and improvements 2012 2013 2014 2015 2016 2017 2018 2019 the out of town market was relatively subdued 2012 2013 2014 2015 2016 2017 2018 2019 to the city’s public realm more generally Grade A Grade B/C Speculative Pre-let 5.75% in 2018, Q1 saw E.ON lease a further 11,600 sq ft will spur further activity and revive at Wyvern House at the Phoenix Business Park. Nottingham’s city centre office offering to a KEY SELECTED TRANSACTIONS level more befitting of its size. Quarter Property Size (sq ft) Occupier Rent (per sq ft) THE RETURN OF SPEC A lack of new-build development has seen 2018 Q4 Unity Square 276,000 HMRC Confidential Total supply stands at a record low of 897,000 Nottingham’s prime rent stagnate at circa 2019 Q1 1 Royal Standard Place 28,814 University of Law £19.50 sq ft. Supply is particularly tight in the city £20.00 per sq ft for the last eight years. The 2018 Q2 Equinox, City Link Road, Floors 1-2 15,138 NHS £17.50 centre and includes only three grade A arrival of new-build schemes in the pipeline 2019 Q1 Wyvern House Colliers Way 11,600 E.ON £15.50 options, the largest being Cumberland House will drive a significant increase, potentially 2019 Q1 The Albert Hall, Derby Road 9,730 Wren Sterling £20.00 (23,324 sq ft) which is currently undergoing to circa £24.00 per sq ft. Source: LSH Research

RyanNick CootDeane Head of OfficeThames Agency Valley [email protected]@lsh.co.uk +44 (0)20(0)118 7198 960 22696912

AdamCharlie Ramshaw Lake RegionalDirector, Director,Capital Mark ets [email protected] ando.uk North [email protected]+44 (0)20 7198 2227 +44 (0)121 237 2395 Oliver du Sautoy OliverHead ofdu Resear Sautoych [email protected] of Researcho.uk [email protected]+44 (0)20 7198 2193 +44 (0)20 7198 2193

© LaLambertmbert SmithSmith Hampton Hampton 2019. 2018. DetailsDetails of of Lambert Lambert Smith Smith Hampton Hampto cann c anbe bviewede viewe ond ouron owebsiteur website www.lsh.co.uk. www.lsh.co.uk Due to. Du spacee to constraintsspace cons withintraint sthe wi report,thin the it rhasepor nott, ibeent has possible not bee ton possibleinclude both to includ imperiale both and imetricmperial measurements. and metric measurements. ThisThis documentdocument is is for for general general informative informativ purposese purpose only.s only The. Th informatione information in it i nis ibelievedt is believe to dbe t ocorrect, be cor rebutct no, b utexpress no express or implied or impl representationied represen ortation warranty or wa isrr madeanty ibys m Lambertade by L Smithambe rtHampton Smith H asampton to its accuracy as to its aorccuracy or completeness,completeness ,and and the the opinions opinions in i nit iconstitutet constitut oure our judgement judgemen ast aofs thisof thi dates dat bute b areut a subjectre subjec to tchange. to change Reliance. Relianc shoulde should not be not placed be pla uponced uponthe information, the inform ationforecasts, forec andas opinionsts and opinion set outs sehereint out for herei then purpose for the puof rpanyose of any particularparticular transaction, transaction and, an dno n oresponsibility responsibil itory oliability,r liabil itwhethery, whethe in negligencer in negligenc or otherwise,e or otherwi is seaccepted, is accepte by Lambertd by Lamber Smitht SHamptonmith Ha mptoor by nany or ofby itsany directors, of its dire officers,ctors, o fﬁemployees,cers, employee agentss, or a gentrepresentativess or represen forta anytive direct,s for any direct, indirectindirect oror consequential consequential loss los sor o damager damag whiche whic mayh m aresulty resul fromt fro anym an suchy suc relianceh relianc ore other or other use uthereof.se thereof All rights. All ri reserved.ghts reser Noved. part N oof pa thisrt opublicationf this public mayation be ma transmittedy be transmit or reproducedted or reproduce in any materiald in any mformater byia lany form means, by any means, electronic,electronic ,recording, recording, mechanical, mechanical, photocopying photocopyin org otherwise,or otherwi orse ,stored or sto inre dany in informationany information storage sto raor gretrievale or retr systemieval syst of anyem nature,of any n withoutature, w theithou priort the written prior permissionwritten per ofmi thessio copyrightn of the c holder,opyright except holder in ,accordance except in a ccorwith dance with thethe provisionsprovisions of o fthe the Copyright Copyrigh Designst Designs and and Patents Patent Acts A ct1988. 198 Warning:8. Warning the: thdoinge doing of an of unauthorised an unauthor isedact in a ctrelation in relation to a copyright to a copy workright maywork result may rines bothult i na botcivilh claima civi lfor clai damagesm for da andmages criminal and c prosecution.riminal prosecution. Designed by Indent Design Designed by Quiddity Media

32 LAMBERTData source: SMITH LAMBERT HAMPTON SMITH HAMPTON