Birmingham’s occupational market dynamics and £1.3bn of infrastructure improvements have created the perfect climate for commercial property investors, according to experts at CBRE.
Nick Woodward, a director in the capital markets team, says investor demand for office stock in the city’s core over recent months has been unprecedented.
He said: “Birmingham is the only major city in the UK where prime office rents have not yet reached the levels achieved at the peak of the last market cycle in 2007. This is largely due to the lack of new development over the last five years. This means that Birmingham has significant rental growth still to come, with rents forecast to reach £35.50 per sq ft by 2019. With a couple of high profile pre-lets on the horizon, we could see a jump in prime rents by the end of the year.”
“Also, the results of the city’s infrastructure investment will soon be visible: New Street Station and Grand Central, anchored by John Lewis, opens in September and the Metro extension soon afterwards, whilst HS2 is further along the track.”
A number of the city’s trophy office assets have changed hands since the start of the year:
7, 8 and 10 Brindleyplace (£131m); 27 Fleet Street and 65 Lionel Street (£69m); and, most recently, One Colmore Square (£87.3m).
At 5.25 per cent yields in the city still look attractive when compared to Central London, which are four per cent in the City and 3.5 in the West End.
However, Mr Woodward expects yields to move in. He said: “The rental growth story alone will justify further yield compression in the short term”.
Investment volumes could feasibly reach £1billion this year, a level never seen before in the city, thanks to a handful of large deals. Despite this, Mr Woodward says that overall stock levels are still a concern.
“We undoubtedly have a lack of stock in the £20-50million bracket, which is the typical sweet spot for most investors. If the right type of asset came to the market we could see yields dip below five per cent.” CBRE’s capital markets team in Birmingham has advised on more than £340m worth of deals in the city this year with the highest market share (47 per cent).