What’s in store for the West Midlands property market in 2019?

Scott Rutherford, Partner and Head of National Office agency at Cushman & Wakefield

Cushman & Wakefield gives its predictions for what’s in store for the Birmingham and Midlands property market in 2019:

OFFICES – Scott Rutherford, Partner and Head of National Office agency at Cushman & Wakefield comments:

“Given both record and generationally low levels of available Grade A supply and a strong and improving level of named enquiries in excess of 75,000 sq ft, the prospects for significant activity in the pre-let/pre-completion market are very promising in 2019 in both the CBD and M42 office markets.

This is particularly the case in the core CBD with 103 Colmore Row, 3 Snowhill and 2 Chamberlain Square all offering high quality accommodation.

There will be a continued march by the international managed office solution providers and we foresee a number of transactions of significance in this sector.

Generally though, given the paucity of supply of existing brand new or previously unoccupied space, a number of business service occupiers are looking to secure the best space well ahead of contracted lease events as they seek to establish ‘first mover advantage’ over existing supply.

Landlords and tenants will see opportunities to expand and contract through the availability of ‘grey space’ in the market as deals are put together ‘off market’ in a constrained supply environment.

Political and economic activity aside, we should see a strong performance with new milestones reached in headline rents and a reduction in incentives as the market becomes more favourable to those holding available accommodation.”

INDUSTRIAL – Simon Lloyd, Head of Industrial & Logistics at Cushman & Wakefield in Birmingham:

“2018 has been another active year in the industrial and logistics markets, although the dynamics have changed since 2017, when the manufacturing sector accounted for about 40% of take-up across the region, which halved in 2018 as companies deferred large investment decisions. Logistics, driven by the ever-increasing amount of e-tailing activity, increased market share to make up for the reduced manufacturing demand. Land transactions recorded ever increasing prices on the back of robust occupier demand, a shortage of good sites and the strength on the investment market.

Going into 2019, with continuing uncertainty over trading arrangements with the European Community, it’s likely that manufacturing requirements will remain slow given the long lead in times for such investments. However, when a deal is agreed, or if we have no deal, the arrangements will become more certain, which will unlock some investment decisions, so manufacturing demand is likely to return in the second half of the year. This is likely to be helped by businesses seeking to re-shore their manufacturing facilities to minimise risk.

Given that e-tailing is predicted to grow to over 20% of spending leading up to Christmas, this will fuel demand for additional capacity in the supply chain, on top of the increased demand for warehouses driven by the shortening delivery times. Whilst some more stock may come to the market by way of speculative construction and retail business failure or consolidation, there remains a shortage of available stock in many locations, and given steady occupier demand is likely to result in continued upwards pressure on rents.

Land in prime locations will continue to be a scarce commodity, and therefore land prices are likely to remain at or above current levels. This pricing is backed up by the continuing strong investment market, and also new market entrants seeking to establish a platform of scale.”

INVESTMENT – David Smeeton, Partner, Capital Markets at Cushman & Wakefield in Birmingham comments:

“Trying to predict what will happen in 2019 in the week that the Prime Minister’s vote on her Brexit deal was postponed and a vote of no confidence in her leadership was declared is extremely difficult. However, stripping the raw emotion out of the situation and looking at the market data we have at our finger tips perhaps provides a clearer picture as to the likely outcome.

The period between Christmas and March could be a very cautious period as the Withdrawal Agreement comes into effect and we leave the EU. In terms of both the office and the industrial/distribution market we have very limited existing supplies of immediately available accommodation, indeed Birmingham has less than 150,000 sq ft of Grade A office accommodation at a time when the five-year average take-up is around 700,000 sq ft per annum. This shortage of supply is likely to put upward pressure on rents, especially with build cost pressure rising too. Consequently, we anticipate yields remaining firm for Grade A, low asset management buildings that are let on medium to long term leases to good covenants. The distribution and industrial markets also remain very positive from an occupational perspective, with very low void rates in the multi-let industrial estates of the Midlands, which is driving rents forward and we anticipate investor demand remaining strong and yields to remain stable.

I am on safer ground, however, in being confident that my team, England, will win RWC 2019!”

RETAIL – Adam Lazenbury, Partner in Cushman & Wakefield’s Retail agency team in Birmingham comments:

“Continued uncertainty, the impact of e-tailing, consumer confidence, drive for convenience and customer experiences – will all remain key discussion topics for the future.

Innovation will again drive consumer trends, understanding of millennials will become clearer, cooperative socialising will continue to increase.

From retail perspective, focus on delivery of tertiary and secondary retail to other uses, residential, medical educations, encouragement of Local Authorities to step in on mixed ownerships to help achieve focus on the high street.

Prime city centres and super prime schemes will remain resilient to the wider economics having critical mass to generate demand from retailers. Destinational product will remain attractive including Drive thru’ and roadside.

Shopping centres’ life will depend on type – if dominant super prime city centre or regional – it satisfies customers’ requirements and will continue to develop. Prime schemes in secondary towns need to establish as the ‘go to’ location if they have the ability and space to adapt. Generally, most towns have excess retail floorspace and through combining private ownerships and local authority investment condensing floorspace will drive a busy centre

Occupational costs fundamentally remain key to occupiers and landlords focused on retaining income – the location of the retail space, configuration and experience drive demand.”