Midlands Office Market Report 2019 Regional Insight

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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. © LAMBERT SMITH HAMPTON 3 4 LAMBERT SMITH HAMPTON MIDLANDS REPORT 2019 REGIONALMARKET INSIGHTINSIGHT © LAMBERT SMITH HAMPTON 5 Back to contents OCCUPIER MARKET OVERVIEW PRIMED FOR GROWTH 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
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