EC funding is helping to spur development activity in the British Midlands. Graham Parker reports
Birmingham – England’s second city – has long been the country’s industrial heartland but in recent years it has emerged as a vibrant office location. And now two massive new retail proposals are aiming to continue the transformation of the city centre.
Birmingham lies 115 miles north-west of London, roughly two hours from the capital by road and 90 minutes by rail. It has a population of just under one million, but it forms part of the much wider West Midlands conurbation, stretching from Coventry in the east to Wolverhampton in the West giving it access to a larger business and retail catchment.
£200m of EC funding is being channelled into the West Midlands region. The key objectives are to support research & development, urban regeneration, tourism and culture.
For inward investors, the first port of call is the West Midlands Development Agency. The agency’s long-term aim is to attract more high-tech employment to the region, to lessen the dependence on the motor industry. One possible deal in the pipeline could underline the success of this strategy: computer giant Oracle is reported to be considering a relocation to Blyth Valley, a 36ha site at Solihull, to the south of the city.
Oracle is considering building a 37,160m2 office in what would be its first move away from the Thames Valley, traditionally the heartland of the computer industry in the UK.
But manufacturing is still crucial to the local economy, and Birmingham is still the home of the UK motor industry: the BMW-owned Rover Group, automotive components supplier LucasVarity, Leyland Daf Vans and Jaguar Cars all manufacture in the area. But banking, finance and other services now make up almost 40% of the employment profile.
Reflecting this, the office market is arguably the most active sector at the moment, with steady if not spectacular take-up. In 1996, according to agent Knight Frank, Birmingham saw take-up of 40,000m2. Among the past year’s key lettings were telecommunications operator Ionica taking 6,373m2 at 1 Brindleyplace; American Express taking 650m2 at Bank House, Cherry Street; Lawyers Lee Crowder taking 2,449m2 at 35 Newhall Street and Anthony Collins taking 1,858m2 at St Philips Gate.
Top rents in the city centre are put by Jones Lang Wootton at £237 per m2 pa – implying that there has been no rental growth in the past five years. “The lack of appropriately specified prime space available means that there has been little recent rental evidence,” comments the agent. And fringe locations such as Brindleyplace command up to £215 per m2 pa.
Knight Frank puts the current supply of offices at 213,169m2, of which 18,952m2 is new space. Most of this is concentrated in just three development or refurbishment projects: Brixton Estates’s 12,681m2 at 120 Edmund Street; Richardson Barberry Properties’ 4,831m2 at Maple House, Priory Queensway and 5,574m2 at the same developer’s Imperial House, Temple Street.
Birmingham agents put prime office rents at about £215 per m2 pa, with quoting terms for exceptional new space as high as £237 per m2 pa.
While so far this year there have not been any huge lettings to dent this supply, John Griffiths at Richard Ellis is forecasting that 1997 will see an increase on the 1996 take-up level, with more than 46,500m2 a distinct possibility. Yet in the short term at least the development pipeline is limited: only two schemes are under construction and one of these is pre-let.
Law firm Eversheds has signed a preletting for 7,153m2 at 115 Colmore Row and the latest speculative phase of Argent’s Brindleyplace project will add 8,640m2 to the available stock.
Brindleyplace in some ways epitomises the renaissance of Birmingham as an office location in recent years: It is the largest city centre development under construction anywhere in the UK. Brindleyplace is located next to the award-winning Symphony Hall and International Convention Centre, and with them forms a key part of Birmingham’s drive to regenerate the Broad Street area, which lies between the established city centre and Edgbaston, which became a popular office location as long ago as the 1960s.
The Brindleyplace scheme was conceived by the ill-fated developer Rosehaugh, but it was bought out of receivership by Argent, the developer which was in turn recently taken over by Hermes Asset Management. In all, there is planning consent for 100,000m2 of offices of which 24,000m2 (in three buildings) is already completed and let. Local rumour has it that another 12,000m2 speculative phase could begin soon, although this could now be deferred while the new owners reassess their priorities.
But they may be advised to move quickly: several other large city centre sites have consent for office development which could provide competition in the medium-term. The largest is Number One Colmore Circus, where the locally-based Richardson Developments has consent for a single building of 15,850m2.
According to Jones Lang Wootton, investment activity in the office sector has been muted, as investors look to rebalance their portfolios in favour of other sectors. The most significant deal has been the purchase of 55 Colmore Row by the Abu Dhabi Investment Authority for £42m, reflecting a yield of 7.35%.
Everyone agrees that something needs to be done about the retail scene in Birmingham city centre: at 7.2m, the city has the largest catchment population in the UK after London yet too much of the existing stock is in ageing shopping malls, and the city has only one department store – Rackhams. And although (according to Jones Lang Wootton) there are more national retailers looking for premises in Birmingham than anywhere else in the UK, most of the units that do come to the market are too small for modern retailing.
But finding the right solution is a different matter. Birmingham city centre is tightly ensnared by a multi-lane ring road. Two massive proposals both want to break out of this noose and add much-needed new stock, but at the moment neither has even started construction.
The first is Hammerson’s proposal for the Bull Ring area, which would involved the demolition of an existing centre and its replacement with a new 116,100m2 complex. Debenhams has signed up for the 19,500m2 anchor store, with what would be its largest outlet in the UK, and the scheme will include a second department store, a 4,600m2 leisure element and 3,000 car parking spaces. Construction of the £300m project is due to start at the end of 1997.
But now the Bull Ring faces a rival in the form of a 92,900m2 proposal by Land Securities and AMP, called Martineau Galleries. The five-storey scheme will occupy a site to the east of the Bull Ring. Although a planning application has been made so far no anchor tenants have been announced.
Perhaps reflecting the paucity of prime city centre space, much of the most recent retail activity has been out of town. Tarmac Richardson’s Fort Retail Park has established itself as the UK’s hottest out-of-town site, attracting retailers like HMV, Boots, BhS and WH Smith who until now have been rooted in the city centre at rents as high as £430 per m2.
Late last year the 24,200m2 scheme was sold to a consortium of institutional investors made up of Clerical Medical, AMP and British Airways Pension Fund for £90m, reflecting an initial yield of 5.5%.
In all UK cities, leisure development has become the latest vogue. Richardson Developments has just won consent for a £15m development on a 1ha site at Five Ways, close to the Brindleyplace office site. THe site will include a multiplex cinema, bowling alley, night club and pubs and restaurants, served by 500 car parking spaces. Site clearance will begin later this year.
The same developer is behind leisure proposals for the Star Site on the opposite side of the city. This £50m scheme will have a 30-screen cinema (the largest in the world outside the USA) as its focal point.
Reflecting Birmingham’s strong industrial heritage, the industrial market continues to experience strong take-up. Jones Lang Wootton calculates that take-up reached 384,600m2 in 1996, with the newly-resurgent motor industry leading the way.
Jaguar (now part of the Ford corporation) is committed to a new manufacturing plant at Castle Bromwich, while Rover (now part of the BMW group) is building a new 92,900m2 engine plant at Hams Hall, to the north east of the city. Hams Hall, the redevelopment of a former power station site, is emerging as a key industrial location. It has a dedicated rail terminal providing services through the channel tunnel to mainland Europe, and this is understood to have been a key consideration for Rover. Other recent commitments at the site include drinks distributor Tradeteam taking a purpose-built 15,600m2 high-bay warehouse.
As well as its rail links, Hams Hall is ideally placed for the M42 motorway. The UK government has just confirmed plans for an extension to the motorway round the northern half of the Birmingham conurbation, to relieve pressure on the badly-congested M6 which runs through the city centre.
Occupier preference is for purpose-built units, which means that existing premises are in less demand. This has resulted in the paradox of falling rents despite an active market. JLW puts prime Birmingham industrial rents at £46 per m2 pa, down 20% on their level of two years ago.
Agents hope that by the end of 1997 rents will have stabilised and perhaps begun to rise again, and the best evidence to support this could come at the Merlin Centre, a 16,870m2 development by Tarmac Richardson in the Heartlands regeneration area which has just been completed. Agents DTZ Debenham Thorpe are quoting rents of £50 per m2 pa.
