Commercial
EDGE
Take-up in the city centre totalled 117,599 sq ft, down 42% year-on-year, and 33% down quarter-on-quarter. Despite weaker leasing activity, deal frequency remained broadly in line with the previous quarter. Notably, the total number of deals completed in the first half of the year represents 29% above the five-year average and the most deals seen in an H1 period over the past five years, according to the Birmingham Office Forum.
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Birmingham
Birmingham’s out-of-town leasing grows strong in second quarter
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Partner
Will Rooke
CAMBRIDGE
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Partner
Caroline Penn-Smith
BIRMINGHAM
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Partner
Jon Silversides
OXFORD
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Partner
Andrew Hardwick
BRISTOL
EMAIL SCOTT
Partner
Scott Harkness
LONDON
EMAIL DANIEL
Daniel Francis
head of research
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Partner
Philip Marshall
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Associate Partner
Chris Hartnell
LEEDS
BATH
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Prime headlines rents remained stable in Q2, at £37.50 psf, while incentive packages have remained at 12 months rent-free for a five-year lease and 24 months on a 10-year term. However, we expect rents to fall and rent-free periods to increase during the second half of 2022 as the market adjusts to the impact of the current economic climate and cost of living.
Prime rents have remained stable but new highs are expected
Strong investor demand for good quality stock has been evident in the market. Sales volumes in Q2 2021 surged to above £280 million, which was up an impressive 460% quarter on quarter and the highest quarter for investment in the sector since Q1 2017. Unlike 2021, transactions have been focused on the city centre market with several notable deals completed in Q2 2022 and further buildings under offer.
Investor demand for prime offices surged in the second quarter
OFFICE TAKE UP
OFFICE RENTS
OFFICE INVESTMENT
Office Investment in Q2 2022
£280m+
Birmingham’s industrial leasing activity remained flat in Q2 2022 mainly due to lack of supply. Just over 1 million sq ft of industrial space was leased in the second quarter of the year, 5% up quarter on quarter, but 49% down year on year . Deal frequency was marginally up compared to the previous quarter.
Industrial leasing
activity remained flat
INdustrial TAKE UP
The second quarter saw activity focused on the smaller end of the market, with the majority of industrial space taken being sub-50,000 sq ft and only one box deal completed in that period. The 650,000 sq ft let at Peddimore was the largest deal in Q2. Other noteworthy deals include Korea Foods Company leasing 21,280 sq ft at Gravelly Industrial Estate and Seabourne Group signing for 17,463 sq ft at Minworth Trade Park.
Industrial rental growth has continued to move on an upward trajectory in Birmingham and it is among the highest in the Midlands region. The shift towards e-commerce has supported rental growth as companies are taking more space amid a shortage of available stock. Prime industrial rents sit at £9.00 psf, while average asking rents are now £7.65 psf in the Birmingham market, with light industrial trading at a premium to the average rents of around 20%.
The supply-demand imbalance continues to
push rents upwards
INdustrial RENTS
of industrial space leased in Q2 2022
1 million sq ft
Unlike leasing, Birmingham’s industrial investment rose in Q2 2022, after three weaker quarters prior. Volumes in the second quarter of the year totalled just above £215 million, which was 93% up quarter on quarter, 75% above the five-year quarterly average but 35% down from an exceptional Q2 2021.
Strong quarter for Birmingham’s industrial investment
INdustrial inVESTMENT
The largest single asset deal for the quarter was Valor Real Estate Partners’ acquisition of the Kitchen Craft’s distribution warehouse at the Hub for £50 million.
OUTLOOK
Looking ahead, strong demand for prime office space and shift of preferences among occupiers for a high-quality office and limited availability in that segment is likely to support steady rent growth.
Given the imbalance between supply and demand, industrial rents will continue to increase across all size ranges, and we don’t anticipate this will slow anytime soon due to the shortage of new stock coming through the development pipeline.
Strong occupier base and low vacancy rate will continue to attract UK and overseas investors. However, given the current economic climate, rising costs and uncertainty, we are not expecting yields in both office and industrial sectors to shift back to peak levels, while buyers are likely to return with a more cautious view of genuine rental growth prospects.
National Overview
Bath
Bristol
Cambridge
Birmingham
Leeds
OxfordSHIRE
National Overview
Bath
Birmingham
Bristol
Cambridge
Leeds
OxfordSHIRE
National Overview
National Overview
Bath
Bath
Birmingham
Birmingham
Bristol
Bristol
Cambridge
Cambridge
Leeds
Leeds
OxfordSHIRE
OxfordSHIRE
Partner, Birmingham
Caroline Penn-Smith
0121 306 0376 | EMAIL >
Daniel Francis
020 7518 3301 | EMAIL >
Head of Research
Associate Research Analyst
Rad Radev
020 7518 3270 | EMAIL >
Head of Commercial
Scott Harkness
020 7518 3236 | EMAIL >
Source: Birmingham Office Forum
Source: Carter Jonas
Source: Carter Jonas
Source: Carter Jonas
Source: Carter Jonas, Property Data, CoStar
Source: Carter Jonas
Source: Carter Jonas, Property Data, CoStar
(Q1)
Source: Birmingham Office Forum
Out-of-town leasing activity totalled 153,934 sq ft in Q2, up 165% quarter on quarter with an impressive 360% increase year on year. Notably, 11 deals above 5,000 sq ft were completed in Q2, and five over 10,000 sq ft were completed , which was in contrast with the previous quarter when no deals above 10,000 sq ft were recorded.
The largest deal across the Birmingham market was Amey's 22,928 sq ft letting to the Department for Transport of the 4th floor at The Colmore Building. There were also significant lettings at Tristan Capital and Sterling's 103 Colmore Row, where RSM and Arcadis each leased 12,132 sq ft, taking the 10th and 16th floors, respectively.
Meanwhile, the out-of-town market has remained resilient with prime rents stable at £26 psf.
Competition for the very best available space is likely to push rents further, however, we expect rent-free periods to increase further during 2022 as the market adjusts to the impact of the pandemic.
The standout deal for the quarter was Blackstone’s acquisition of The Colmore Building for £182 million, reflecting a 5% net initial yield. The property was previously traded in 2015 for £138.3 million and renovated by the vendor, achieving BREEAM Excellent rating.
Another notable deal was the West Midlands Pension Fund’s purchase of 125 Colmore Row for £80 million. The property was acquired for its development potential, with there being plans to bring forward a high-quality sustainable office space, to cater for occupiers' demands for quality and sustainable space that aligns with their ESG focus.
Several portfolio deals including properties in Birmingham were completed during the quarter. A joint venture between BentallGreenOak and Peloton Real Estate acquired nine industrial warehouse units at Parkway Industrial Estate for £90.5 million, reflecting a net initial yield of 2.88%.
"Volumes in the second quarter of the year totalled just above £215 million"
Our analysis on the office and industrial market in Birmingham dives into the latest take up levels, rental trends and investment deals.
Commercial
EDGE
National Overview
Bath
Birmingham
Bristol
Cambridge
Leeds
OxfordSHIRE
Head of Research
Daniel Francis
020 7518 3301 | EMAIL >
Associate Research Analyst
Rad Radev
020 7518 3270 | EMAIL >
Source: Carter Jonas, Property Data, CoStar
Q2 2022
"we expect rent-free periods to increase during the second half of 2022"
