DTZ Research’s Property Times report for Q2 2014 has revealed that pre-letting activity in the Birmingham Offices market is making a comeback.
Occupier sentiment has improved in 2014. Enquiry volumes have been fairly constant, but are now typically of a better quality, which more often lead to actual viewings.
· Improvements in output have not yet been associated with significant increases in office-based employment and actual deal volumes were down in H1 2014. A significant proportion of lettings were for grade B space, reflecting the lack of suitable grade A options and the more plentiful good quality refurbished grade B with more modest rents.
· The majority of transactions involved local companies, principally involving occupiers from the financial and professional sectors with imminent lease events. Notably, legal firm Weightmans took 15,000 sq ft of grade B space at St Philips Point, Temple Row in H1.
· Pre-letting activity is making a comeback and is set to push up headline rents towards the £30 per sq ft mark over the medium term.
· The development pipeline is empty this year and next, but it is widely anticipated that there will be grade A completions in 2016 and beyond in the prime central core.
· Five year leases are still commonplace, arguably in part because firms want to keep their options open with the better quality stock coming on line.
· Investor sentiment in the regional office markets continued to be strong in the first half of 2014. Some prime yields in the regions are expected to tighten in the second half of 2014, but the weight of money continues to push investors up the risk curve. Secondary yields are set to continue falling this year and next.
· Andrew Berry, Associate Director in DTZ’s Office agency team in Birmingham comments: “For the first half of the year take-up in Central Birmingham totalled 216,000 sq ft, leaving the market some way short of the long term annual average of 625,000 sq ft. The news of HS2 acquiring 100,000 sq ft at 2 Snowhill at the beginning of the second half of the year will improve the chances of reaching the long term average but, perhaps more significantly, will reduce Grade A supply to its lowest level since 2003. At current Grade A take-up levels there is just 18 months of Grade A accommodation remaining with approximately half of this located in Colmore Plaza. This supply and demand dynamic will see diminishing incentive levels and increasing rents that will enable speculative development to start again in Birmingham.”