Bilfinger GVA report shows Midlands’ prime investment potential

Barry Riley, Associate at Bilfinger GVA

Birmingham remains one of the most desirable investment destinations in the country according to a new report from Bilfinger GVA.

The information is taken from the property adviser’s latest Regional Investment Market Outlook report which highlights investment activity in the UK’s Big Six regional cities – Birmingham, Bristol, Edinburgh, Glasgow, Leeds and Manchester – across the offices, industrial and retail sectors.

Birmingham is dominating the retail sector, with prime rents creeping towards £300 per sq ft, but yields struggling to match other regional cities. The opening of Grand Central at New Street Station – home to the 250,000 sq ft John Lewis – and enhancement to the Mailbox have put Birmingham in the spotlight and are demonstrating the city’s continuing ability to attract big-name domestic brands, international retailers and high quality restaurant and leisure providers.

The Midlands industrial sector has seen an extremely active 18 months and is continuing to soak up a significant proportion of quality supply. Prime industrial rents in the Birmingham area have surpassed the £6 per sq ft mark, placing it slightly behind Edinburgh and Bristol and ahead of Manchester, Leeds and Glasgow.

Several large retailers including Amazon, Primark, Waitrose and Next have concluded significant deals at circa 1 million sq ft each, part of a trend that looks set to continue with particular emphasis on internet retailing delivery and supply-chain efficiency.

Barry Riley, Associate at Bilfinger GVA, said: “The core sectors are performing well, with strong returns and positive yield compression demonstrated across the board. Headline rents are rising and lease terms are becoming more landlord-friendly through falling rent-free periods and fewer break clauses.

“The opening of Grand Central, the relaunch of the Mailbox and the announcement of Apple’s flagship store on New Street have been mirrored by strong institutional interest in investment opportunities like the hotly contested sale of Grand Central and strong bidding for Aviva’s Exchange Buildings on New Street.

“There is a continuing trend for A3 occupiers to fill voids in secondary parts of the CBD, such as Temple Street and Bennett’s Hill, which are continuing to demonstrate significant requirement in the market and are enhancing the wider city centre.

“The Industrial market remains very strong for logistics and multi-let estates. We are seeing substantial institutional requirements being fulfilled through speculative development like the 500,000 sq ft at Middlemarch near Coventry. Yields are coming down to 5% on well located prime logistics, with sentiment suggesting demand for prime multi-let estates would be upwards of 6% if the right stock was available.”

In the offices sector, city centre take-up figures in the first half of 2015 reached the highest level since the downturn.  Birmingham in particular saw an exceptional Q2, with figures over three times the quarterly average, boosted by HSBC’s decision to take all 212,000 sq ft at 2 Arena Central.

Barry Riley continued: “Investor interest in Birmingham’s CBD remains very strong and in the last 12 months we’ve seen VGV’s acquisition of 7, 8 and 10 Brindleyplace for £130 million, Colmore Plaza acquired by Ashby Capital for £140 million, and 1 Colmore Square sold for over £87 million, which was well in excess of its initial asking price.

“With the Brindleyplace estate now on the market for £285 million, this is demonstrating an exceedingly strong confidence in the city.”

The Birmingham’s out of town market also fared well, with a significant increase in take-up in 2014, which has continued throughout 2015, with one of the highlights being the completion of a 100,000 sq ft letting to Interserve at International House, close to Birmingham Airport. This sustained occupier activity has dramatically improved investor confidence and this has been translated into strong compression over the last 12 months.

The report paints a bright picture for the UK investment market as a whole, with demand in the regional markets remaining consistently strong and a steady rise in interest from overseas buyers. However, the limited development pipeline and a lack of institutional sales mean that investment opportunities remain somewhat limited.

The report also forecasts that within the occupier market, rental values will rise strongly year-on-year in the regional office and industrial markets, showing uplifts of 2% and 3.3% respectively. Regional high street rental values are continuing to fall (at -0.5%), but appear close to bottoming-out.

The industrial/distribution sector will continue to lead the pack with average rental growth of 3.6% per annum. Offices should see growth of circa 2.7% per annum, whilst high street retail should see a return to positive growth next year, rising to circa 1.2% per annum by 2017.