reorb

The Birmingham city centre office market enjoyed a successful 2005 in both occupational and investment terms. Take-up rebounded to the market’s long-term average and schemes in the city’s robust development pipeline look set to achieve a new headline rent of £30.00 per sq ft during the course of 2006. A lack of supply of both land and warehouse or industrial buildings in the West Midlands region has already produced rental growth and £6.00 per sq ft is expected to be surpassed in the short-term. Prime industrial yields are at 5.25% to 5.50% on buildings with longer leases and even lower on small well-let investments.

With six new construction starts entering this year’s survey, development is still happening although it is at a predictably reduced level than the nine new starts recorded last year. Our research indicates that activity is also more diversified this year with developments with a high residential content accounting for only 6 of the 12 projects under construction in 2009, compared with 14 of the 21 projects in 2008. Highlighting the difficulties in the residential sector, three projects have been put on hold since our last survey. The second phase of Masshouse stalled when David McLean went into administration, although selection of a new contractor is now underway. Work has not commenced on the second phase of Newhall Square after completion of the first phase (a Travelodge and 10,900 sq ft of offices) and the planned residential development is expected to be switched to an office scheme, dependent on a pre-let. Work on the residential and hotel elements of Snowhill has also been halted. On a more positive note for the development sector there are a number of large public sector development projects in the pipeline that are currently being worked up, with construction starts expected over the next 12–24 months.

The office market in Birmingham continues to strengthen with the highest prime rents outside of the South East and a healthy development pipeline in the city centre. The city is now well placed to attract major occupiers from both the private and public sector. Industrial activity has improved over the last 12 months and strong competition around Birmingham for industrial land should boost prime rents within the market moving forwards.

As the second largest city in the UK and the regional capital of the West Midlands, Birmingham has long been recognised as a major centre for finance and professional services. It is an ideal place to conduct business due to the varied occupier base and excellent transport network. In recent years, we have seen large-scale commercial development which has transformed Birmingham into an international city.

This report examines takeup, supply and pipeline space for the major Birmingham office markets. The conclusions are • Increased activity at the top end of the market with improved demand for Grade A. • Availability down by 13% to 12 month low. Grade A availability down by 10% year on year. • Average achieved rents on the rise with likely improvement in headline figures driven by future supply of quality product. • Over 10% of schemes currently under construction are pre-let. • Shortage of major deals likely to be corrected as development space comes online.

Bristol’s location at the axis of the M4/M5 interchange, combined with its reputation as the leading commercial centre in the South West ensures that there is plenty of activity in the industrial property market.

Bristol continues to dominate investment activity within the South West region and the city’s prime office yield has reached a new level of sub-5%. A lack of Grade A product has led to strong interest in opportunities located near regeneration projects such as Broadmead and Bridewell Island.

The report examines investment transactions, leasing activity and changes in pricing over the preceding three years in both the in town and out of town Bristol office markets. • Based on IPD figures, Colliers CRE predicts total returns for South West offices to outperform the rest of the UK over the next two years. • Whilst we have forecast marginally negative total returns for SouthWest offices in 2008 (-0.3%), there will be exceptions to this rule, with some good buying opportunities as opportunistic investors seek property investments at historically low prices with the ability to drive value through the implementation of carefully considered asset management plans.

The profile of city centre stock has significantly changed over the last five years, where new development has formed around Victoria Street and the Temple Back. The successful regeneration project at Temple Quay and large-scale commercial development around Harbourside, have significantly expanded the traditional office core to the east, west and north of the city. The outcome has been the creation of a new prime office location in central Bristol.

Take up in Bristol city centre in 2009 was 327,500 sq ft compared to the 10 year average of 671,500 sq ft. Availability in the city centre rose from 935,000 sq ft at the end of 2008 to 1.42m sq ft. Prime headline rents are £26.00 per sq ft compared with £27.50 per sq ft at the top of the market. Investment transactions in Bristol totalled £136m. Prime yields improved dramatically in the second half of the year to 6%.

Demand for business park space remains subdued across the country. While occupier demand continues to fall, this has been at a slower pace over Q2 2009 than the previous two quarters. However, available stock is increasing and landlords are looking to minimise their liabilities. Consequently, over the last six months rents have begun to move out along with generous incentives. This emerging supply / demand imbalance will be exacerbated as more existing stock becomes available and schemes started in brighter economic circumstances are completed; especially in those regions that rely more on professional and business services. This is likely to continue to drive rents downwards and push incentives out. The current economic conditions will also continue to impact on developer appetite to speculatively build out new office schemes.