Savills World Research UK Commercial Spotlight Birmingham Offices Autumn 2017 After recent successes, 55 Colmore Row, above provides 54,360 sq ft of available prime Grade A office space g With Q3 2017 take up exceeding g Top rents in the city are £33 per 400,000 sq ft and over 160,000 sq ft sq ft and we expect the delivery of of other known deals under offer, we new speculative space to achieve in expect take up to exceed 850,000 sq excess of £34 per sq ft by the end of "Flexibility of lease term has ft by the end of the year, 20% above 2019. grown to become a key the 10 year annual average. g Office investment volumes in requirement for many occupiers g There remains a limited supply of Birmingham reached £408m as at prime Grade A space, which currently end Q3 2017, 2% above the 10 year and landlords have adapted stands at 187,350 sq ft. With no new annual average of £400m. However, to embrace this." Ben Thacker, speculative developments scheduled the round-trip costs of buying and to complete until Three Snowhill and selling have discouraged landlords Director, Office Agency, Birmingham 1&2 Chamberlain Square in 2019, from disposing of assets in an income competition for the best quality space driven environment. will intensify. savills.co.uk/research 01 UK Commercial | Birmingham Offices Large scale urban regeneration, previous month. Any figure above 50 inward investment and key indicates positive growth. infrastructure projects are driving occupier interest in Birmingham city HS2 contracts, and the centre. financial sector will drive larger deals Top city centre office rent Unemployment has £33/sq ft continued to fall Birmingham’s office take up over 1,000 sq ft reached 639,000 sq ft as at Q3 and small businesses. Occupiers are Strong growth in the number of people 2017, 2% above the 10 year annual increasingly on the look out for flexible in work has seen the unemployment average of 627,000 sq ft. However, lease terms amid new Hs2 and other rate fall to 4.3%- the lowest level since with around 160,000 sq ft of space infrastructure related contracts, the May 1975. However, subdued annual currently under offer, we expect take up emerging tech sector and continued wage growth of 2.1% coupled with CPI to exceed 850,000 sq ft by the end of uncertainty around the ultimate inflation rising to 2.9% has meant that the year, 36% above the 10 year annual implications of Brexit. real wages are continuing to fall. average (Graph 1). There remains a limited volume of prime Lower real wage growth has continued The GPU (Government Property Unit) Grade A supply which currently stands to boost employer sentiment. Employer announced HMRC's long anticipated at 187,350 sq ft and without exception sentiment provides an indication of 240,000 sq ft move to 3 Arena Central is targeting in excess of £30 per sq future office demand, as we have seen during the third quarter, which is being ft (Graph 2). With no new speculative across the UK regions since the EU forward funded by L&G. Further GPU developments scheduled to complete referendum. Of the FTSE 100 CFOs requirements are also in the pipeline until Three Snowhill (420,000 sq ft) and surveyed by Deloitte at end Q2 2017, for the next five years as departments 1&2 Chamberlain Square (232,000 sq 9% expected to increase hiring over including Ministry of Justice and DWP ft) in 2019, competition for the best the next 12 months, a marked increase also seek to consolidate and upgrade quality space will intensify, creating on the 1% recorded immediately post their operational portfolios in line with a positive outlook for well located Brexit. government strategy. Grade A product. At current rates of Grade A take up, Savills anticipates a Whereas decision makers sat on their Birmingham remains well shielded significant proportion of the new space hands during the second half of 2016, to Brexit, with sustained office being delivered could be let before occupiers have realised that “Brexit” is a requirements arriving from direct Hs2 completion. process, not an event and occupational contracts and the associated supply decisions must continue to be made. chain. The serviced office sector took There remains strong demand for IM Nearly six months on from triggering 82,000 sq ft of space as at end Q3 Properties’ 55 Colmore Row, cover Article 50, the self imposed deadline of 2017, the most active business sector image, where just 54,360 sq ft of Prime March 2019 to leave the EU is rapidly in the city centre market. Co-working Grade A space remains. Savills have approaching. operator ihub signed for 18,000 sq ft at taken 17,000 sq ft there on the sixth Colmore Gate, whilst landlord CEG have floor and will relocate more than 150 According to the Lloyds Bank Regional taken the initiative to open their own co- staff in January 2018. PMI Index, the West Midlands showed working serviced office business Alpha the strongest output and employment Works at their landmark refurbished Savills estimate that in the region of growth of all UK regions in August 2017, Alpha tower scheme in a bid to support two million sq ft of office space has reaching 58.6, up from 56.7 during the the city’s growing number of start-ups been converted to alternative uses GRAPH 1 GRAPH 2 Take-up has exceeded the 10 year average by 2% Prime Grade A supply now stands at only 187,350 sq ft Q1 Q2 Q3 Q4 Forecast Annual Average 900,000 1,000,000 800,000 900,000 700,000 800,000 ) ft sq 600,000 700,000 ( 600,000 500,000 500,000 400,000 400,000 Take Up (sq ft) (sq Up Take 300,000 300,000 Prime Grade A Supply 200,000 200,000 100,000 100,000 0 - 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Graph source: Savills Research Graph source: Savills Research 02 Autumn 2017 since 2013. In light of this wave of Top rents in the city centre are £33 per Birmingham reached £408m as at end conversions to alternate use, there sq ft and we expect the delivery of new Q3 2017, 2% above the 10 year annual are increasingly fewer repositioning speculative space to achieve in excess average of £400m. This was largely opportunities available on dated existing of £34 per sq ft by the end of 2019 driven by the £265m Brindleyplace office buildings to achieve the kind (Graph 3). acquisition during the first quarter of of success enjoyed by Bruntwood at the year, the largest regional office Cornerblock, Cornwall Street where the London cost pressures transaction this year (Graph 4). building has been almost completely let could increase north prior to practical completion. shoring In line with the UK regions, Birmingham’s prime office yields have We are seeing Birmingham’s expansion Figures from Oxford Economics indicate moved in from 5.25% to 5% during the over the inner ring road and into that the finance and insurance sector course of 2017. This yield sharpening previously “fringe” areas. Great has seen a 3% fall in output per head has been partly driven by overseas Charles Street is now achieving rents over the past five years in the City of investors in search of attractive income in excess of £20 per sq ft, whilst London, more than any other sector. outside London for the first time. occupiers are now willing to pay in This has been partly down to banking The spread between prime assets in the high £20's per sq ft to be located regulatory reform which has increased Birmingham and City of London now at the Mailbox, attracted by the headcount, and ultimately, staff cost stands at 100 basis points. unique nature of the scheme, its rail pressures on the banks. Of the 54,000 connectivity and amenity offering. This net additional office based jobs forecast Despite UK institutions having funds to is further supported as the traditional in Birmingham over the next five years, spend, they have been unwilling to meet city boundaries to the west expand, 30,000 of these are expected to be landlords’ valuations. The round-trip helped by the redevelopment of New delivered in Administrative and Support costs of buying and selling have also Street and Argent's redevelopment of roles, representing growth of 8.6% in discouraged landlords from disposing of Paradise. this sector. assets. The evolution of Westside will also We have already seen both HSBC and Property companies have been active benefit Brindleyplace where the Deutsche Bank relocate over 1,000 during the third quarter of 2017. Kier redevelopment of Nine Brindleyplace roles from Central London and Savills Property acquired 19 Cornwall Street will provide an additional 30,000 sq ft expect more London based companies from Standard Life Investments for towards the end of 2018 with rents in from the financial and insurance sectors £35m, their first purchase in the West the mid to late £20s per sq ft, as the to be weighing up the benefits of north Midlands, whilst Longmead Capital area benefits from the Midland Metro shoring in order to reduce costs going acquired 145 Great Charles Street for tram extension. forward. Savills estimate the average £13m. savings per employee for businesses Savills What Workers Want survey relocating from Central London to the A shortage of on market stock will indicates the factor that workers most UK regions to be £10,000 in staff costs continue to limit buying opportunities wanted to change was the length of and £10,000 in property costs.