Availability of secondary office space in Birmingham has increased by 171 per cent since 2007, according to a new report by property adviser CBRE.
In five years, the amount of secondhand office space on the market has risen dramatically from 710,619 sq ft to 1,923,431 sq ft. Conversely, availability of Grade A office accommodation has fallen rapidly and is now in short supply, with less than 700,000 sq ft currently available for occupation.
As a result, there is less than two years’ supply of Grade A stock in Birmingham, compared to more than six years supply in the secondhand market.
The CBRE report, ‘Secondhand office space: What is the reality?’, examines the secondary office market in nine regional business centres – Aberdeen, Birmingham, Bristol, Edinburgh, Glasgow, Leeds, Liverpool, Manchester and Southampton. It found that total secondhand availability across the nine regional cities increased from 6.8m sq ft in 2007 to 13.3m sq ft by the end of 2011, an increase of 97 per cent during this period.
Glasgow witnessed the biggest increase in availability at 213 per cent, closely followed by Birmingham at 171 per cent. Southampton saw the lowest increase in secondhand office availability, at less than 50 per cent.
Theo Holmes, associate director in the office agency team at CBRE in Birmingham, said: “Looking at the research, it is evident that larger occupiers favour new space, which has the flexibility to accommodate big requirements on large, open plan and multiple floorplates. In contrast, secondhand space has historically accommodated smaller, medium sized businesses.
“SMEs, and even larger companies with satellite offices, have exercised caution when taking office space since the start of the economic downturn, and have aimed to minimise risk through delaying the expansion of their real estate portfolios.
“With these types of companies typically the biggest users of secondhand office space, their reluctance to commit to new premises has left a large quantity of vacant secondary stock on the market.”
Mr Holmes said that in order to retain and attract new tenants in the hope of achieving rental and capital value growth as a property ages investors need to look at repositioning strategies, such as refurbishment or redevelopment, or a complete change of use.
“Savvy investors are finding new ways to manage their assets, increasing the capital value of their secondary stock by converting office space into other property types, such as hotels,” he said.
“Elsewhere, by refurbishing or redeveloping well-located, tired stock, investors can take advantage of improving demand stemming from the lack of prime offices and achieve premium rents and capital growth, as well as attracting the most desirable corporate occupiers. We have seen this at Centre City Tower and the McLaren Building, where landlord Bruntwood has invested in the buildings to greatly improve the standard of accommodation. Likewise, Highcross has invested millions of pounds in Livery Place to upgrade the office space to Grade A specification.
“Often, these physical improvements go hand in hand with enhanced levels of on-site service and a much improved customer experience that will help to attract and retain tenants in the future.”
Ashley Hancox, head of UK regional office agency at CBRE, said: “It is clear that across the regional centres there is more secondhand stock currently available on the market but newly completed stock is in higher demand, further compounding the glut of secondhand office stock currently available and vacant.
“Occupiers have increasingly been demanding better quality, well-connected, sustainable offices, of a specification that is really only offered by the newer, prime office buildings. Occupiers are also able to afford these better specified offices more so now than ever before. As a result, older, secondhand offices are becoming functionally obsolete and increasingly economically redundant.
“Landlords and developers therefore have two options; to either reposition their assets from secondary towards prime or change the use of the accommodation. Put simply, obsolete office properties in our regional city centres must evolve or die.”
