The secondhand office market was the clear winner during the first half 2011, with take-up of Grade B space in Birmingham outstripping Grade A by 138,281 sq ft, according to CB Richard Ellis’ UK Regional Office Market View.
Total take-up during the first six months of the year reached 254,969 sq ft. But with availability of Grade A office accommodation in the city still in short supply, the majority of deals took place in the secondhand market, which accounted for 77 per cent of floorspace transacted.
Overall, take-up was down 37 per cent compared to the same period in 2010, and was the lowest half-year figure since the first half of 2006. Of the deals that did take place, the Ministry of Justice’s 38,898 sq ft letting at Axis was the largest, followed by Deutsche Bank at Baskerville House (27,604 sq ft) and Network Rail’s 22,500 sq ft letting at Meridian House.
Will Ventham, associate director in the office agency team at CBRE in Birmingham, said: “Overall, office stock supply in Birmingham increased during the first half of the year, from 2.48 million sq ft at the end of 2010 to 2.79 million sq ft. However, this was solely due to the release of secondhand space onto the market. Availability of new Grade A offices fell by 13 per cent compared to the same period last year; a trend we see continuing in the short to medium term.
“The biggest news this year was the commitment by Hines to acquire and fund the development of Ballymore’s Two Snowhill building, which will deliver 305,00 sq ft of Grade A space to the market in 2013, minus the space pre-let by law firm Wragge & Co.
“Apart from Two Snowhill, it’s unlikely that any other new speculative space will come to the market in the foreseeable future, albeit Goodman may be reviewing options at Eastside. Having recently purchased The Mailbox, Brockton Capital will also be focusing on its biggest void at the scheme, a 45,000 sq ft shell and core suite located on the fifth floor.”
According to the CBRE report, Headline rents in Birmingham are expected to remain relatively stable at £28.50 per sq ft for prime Grade A stock, while rents for good quality Grade B will be in the upper teens.
Mr Ventham said: “We’re not expecting any major movement in terms of rents or incentive levels for Grade A office space over the coming months. However, with a number of larger transactions expected to commit during the second half of the year we should start to see terms hardening.
“Good quality, refurbished Grade A space may see landlords continue to show pragmatism until stock levels are depleted but poorer secondary stock will remain difficult to transact unless it has a prime location. Landlords will have to take an aggressive stance by keeping rents competitive and incentive levels relatively full to encourage moves within the city.”
In the investment market, there were four transactions during the first half of the year in Birmingham’s central business district, the most notable of which were Hines’ acquisition of Two Snowhill and Brockton Capital’s purchase of The Mailbox for £127.1 million.
While ‘on market’ deals have been lacking so far this year, there are a handful of high profile buildings rumoured to be under offer ‘off market’ that, if completed, will bring transaction levels for 2011 in line with the previous year.
Justin Marshall, a director in the investment team at CBRE in Birmingham, said: “Investor sentiment and interest levels are expected to remain broadly the same during the second half of the year, although we should see transaction volumes increase significantly as certain off market deals complete.
“Appetite for larger, prime assets in Birmingham’s central business district from UK and overseas funds should continue, while the stabilisation of rents and incentives should see the return of a number of funds and property companies to the market for more asset management intensive buildings.”
Ashley Hancox, head of regional office agency at CBRE, said: “Most cities had a quiet start to the year. However, activity started to pick up towards the back-end of the second quarter with a large number of deals to be closed in the third quarter. The clear winner was Aberdeen, which had an exceptionally strong first quarter, followed by Edinburgh, Manchester and Birmingham.
“On the whole, new supply decreased across the regional markets, while secondhand space edged up, or at the best remained unchanged. The only exceptions were Liverpool and Bristol, which both saw an increase in new space. However, Birmingham still tops the availability table, which puts the city in strong position when competing for inward investment.
“With London and the South East continuing to see increased property and employment costs, the UK Regions should be well placed to benefit from the ‘north-shoring’ opportunities being considered for back office functions by a swathe of financial and professional service companies.”