West Midlands’ agents had hardly returned to their desks last month before they were hit by an intriguing requirement from a client of JLL for up to 350,000 sq ft of institutional-grade offices. Codenamed Project Mercury, the would-be occupier wants to take 175,000 sq ft by the autumn, with a similar amount following by the end of 2016, possibly in new-build accommodation.
Whatever the identity of the mercurial tenant – JLL was predictably tight-lipped – Birmingham agents agree that it will struggle to find space in the designated Birmingham-Coventry-Banbury triangle in that time. Off-the-record, they snort at the proposed lease terms (10 years with a break at year five) and suggest that the end of 2017 is a more realistic date for the second part of the programme.
Nevertheless, Project Mercury highlights the lack of new, immediately available space across the region (see box). The issue is particularly pressing in central Birmingham, where Deutsche Bank, Jaguar Land Rover and Network Rail have recently been added to the list of Deloitte, Pinsent Masons and PwC, all believed to be potential takers of large chunks of space.
Although Argent and Birmingham city council intend to speculatively start on the first two blocks, totalling 310,000 sq ft, at the eagerly awaited Paradise redevelopment, these are unlikely to complete until 2018. “If we could take a year out of the build we would love to, but it is just not possible,” laments Argent senior project director Rob Groves.
In fact, the earliest that genuinely new space is likely to be ready for occupation is the end of 2017. At the moment, 103 Colmore Row is frontrunner to claim that trophy. Bought by Sterling Property Ventures and Rockspring from British Land last year, the former NatWest Tower is due to be demolished and replaced with a 200,000 sq ft scheme.
SPV managing director James Howarth reckons a planning application will be submitted this summer, replacing the current consent for a 35-storey tower. “Our scheme is more modest in quantum and height, recognising the supply chain coming forward,” he says.
That caution, despite the high level of demand, is perhaps a hangover from the recession, which hit Birmingham hard. At the end of 2014 it had less space under construction than any other major UK city bar Newcastle. But it could still catch up. Apart from refurbishments (see box) other new-builds might come forward, including 200,000 sq ft at Arena Central and more than 300,000 sq ft at Three Snowhill. With demand high, there is little consternation about a flood of new buildings. “I can’t see any risk of oversupply over the five-year horizon,” says Savills director Nick Williams.
The incentive for landlords to develop is rising rents, which GVA director Charlie Toogood reckons will rise to £34 per sq ft by the end of this year. He says: “The window to do a soft prelet has closed, if nothing else due to build-cost inflation and the gestation period until completion.”
Foreign investors have Brum in their sights
Birmingham is flavour of the year among investors. The highest-ranking UK city in PwC and ULI’s Emerging Trends in Real Estate report last month, it was several places ahead of London. A hefty £481m was invested in Birmingham commercial property in 2014, the highest level since 2007, according to BNP Paribas Real Estate, a large chunk of that accounted for by M&G Real Estate’s purchase of Two Snowhill for £140m – a yield of 5.8%.
M&G Real Estate head of business space Chris Perkins says: “Birmingham is very joined up in the way it works. We can safely assume that in 2015-16 we will continue to
invest in the likes of Birmingham, particularly in long-term opportunities where we can create high-value assets.”
Finding those opportunities may prove trickier this year, particularly for UK institutions, which face increasing competition from foreign buyers. Traditionally wary of stepping outside London, international investors have been extending their range as yields there have contracted acutely.
Recent deals may be a good indication of future activity. Just before Christmas, US private equity investment manager Angelo Gordon went halves with Dunedin on a £20m portfolio of central Birmingham properties. And as EG went to press, German fund VGV was under offer on Buildings 8, 9 and 10 at Brindleyplace for £131m – a yield of 6%.
The rest of the West Midlands
The expected uptick in development activity in central Birmingham is in stark contrast to elsewhere in the region, where cranes are few and far between.
The most likely location to see significant new-builds over the next two years, according to CBRE director Will Ventham, will be the M42 Corridor, where availability of new, grade-A space is down to just 10,000 sq ft.
New-build plots are available at Birmingham Business Park, Fore and Blythe Valley Park. The latter was purchased out of receivership last year by IM Properties, and investment director John Hammond expects to start work on one or more blocks of up to 40,000 sq ft within the next 12 months, assuming current enquiries crystallise into at least one prelet.
Top rents along the M42 have struggled to hit £20 per sq ft, but Hammond believes any new space will command in the region of £23 per sq ft.
Outside the Birmingham conurbation, Cannon Kirk’s £1.5bn Friargate development in Coventry has so far failed to net a major private sector occupier, although a 200,000 sq ft block, half of which is prelet to Coventry city council, is under way.
Developer Genr8 will be hoping for better luck with its third building at Smithfield, Stoke on Trent. The original two offices totalling 210,000 sq ft, which are due to complete this spring, are both let to Stoke council. Genr8 is considering a spec start on the 50,000 sq ft Smithfield 3 which could be delivered from mid-2017.
Letting agent James Devany, associate director at JLL’s Manchester office, says: “Stoke hasn’t got any modern business space in the city centre.” Rents are likely to be competitive with local business parks at up to £20 per sq ft.
Refurbs rev up
With the first new-build space in central Birmingham at least two-and-a-half years away, canny developers are considering the prospects of hoovering up some of the new-found occupier interest in the UK’s second city by speculatively providing top-notch refurbished offices.
Bruntwood is aiming to be ahead of the curve with 2 Cornwall Street, its fourth project in the city. Earlier this month it submitted a planning application to expand the existing 90,000 sq ft property to 110,000 sq ft by building additional floors. “This is more ambitious than anything we have done before in Birmingham,” says Bruntwood digital marketing director Jamie Boulger. If things go to plan, the new offices could be ready by next summer. “Our programme hits a sweet spot where there is a gap in the market,” adds Boulger.
But Bruntwood will not have it all its own way. Midlands-based IM Properties’ enlarged 55 Colmore Row will be hot on its heels, having started on site earlier this month with 160,000 sq ft due to complete by the autumn. “Our approach is very similar to what we have done with sheds,” says IM investment director John Hammond. “We saw a chance to get on with it and we did exactly that.”
Other refurbishments in the pipeline include Graftongate’s 75,000 sq ft Louisa Ryland House and ASE’s 200,000 sq ft Alpha Tower.
With supply limited, agents believe the current prime rental figure of £30 per sq ft will be achieved on the next generation of refurbished space. “I am looking forward to a slightly different, Shoreditch-TMT-style finish,” says CBRE senior director Ashley Hancox. “We are ready to see that in Birmingham, but whether anyone is brave enough to provide it is another question.”
West Midlands’ agents had hardly returned to their desks last month before they were hit by an intriguing requirement from a client of JLL for up to 350,000 sq ft of institutional-grade offices. Codenamed Project Mercury, the would-be occupier wants to take 175,000 sq ft by the autumn, with a similar amount following by the end of 2016, possibly in new-build accommodation.
Whatever the identity of the mercurial tenant – JLL was predictably tight-lipped – Birmingham agents agree that it will struggle to find space in the designated Birmingham-Coventry-Banbury triangle in that time. Off-the-record, they snort at the proposed lease terms (10 years with a break at year five) and suggest that the end of 2017 is a more realistic date for the second part of the programme.
Nevertheless, Project Mercury highlights the lack of new, immediately available space across the region (see box). The issue is particularly pressing in central Birmingham, where Deutsche Bank, Jaguar Land Rover and Network Rail have recently been added to the list of Deloitte, Pinsent Masons and PwC, all believed to be potential takers of large chunks of space.
Although Argent and Birmingham city council intend to speculatively start on the first two blocks, totalling 310,000 sq ft, at the eagerly awaited Paradise redevelopment, these are unlikely to complete until 2018. “If we could take a year out of the build we would love to, but it is just not possible,” laments Argent senior project director Rob Groves.
In fact, the earliest that genuinely new space is likely to be ready for occupation is the end of 2017. At the moment, 103 Colmore Row is frontrunner to claim that trophy. Bought by Sterling Property Ventures and Rockspring from British Land last year, the former NatWest Tower is due to be demolished and replaced with a 200,000 sq ft scheme.
SPV managing director James Howarth reckons a planning application will be submitted this summer, replacing the current consent for a 35-storey tower. “Our scheme is more modest in quantum and height, recognising the supply chain coming forward,” he says.
That caution, despite the high level of demand, is perhaps a hangover from the recession, which hit Birmingham hard. At the end of 2014 it had less space under construction than any other major UK city bar Newcastle. But it could still catch up. Apart from refurbishments (see box) other new-builds might come forward, including 200,000 sq ft at Arena Central and more than 300,000 sq ft at Three Snowhill. With demand high, there is little consternation about a flood of new buildings. “I can’t see any risk of oversupply over the five-year horizon,” says Savills director Nick Williams.
The incentive for landlords to develop is rising rents, which GVA director Charlie Toogood reckons will rise to £34 per sq ft by the end of this year. He says: “The window to do a soft prelet has closed, if nothing else due to build-cost inflation and the gestation period until completion.”
Foreign investors have Brum in their sights
Birmingham is flavour of the year among investors. The highest-ranking UK city in PwC and ULI’s Emerging Trends in Real Estate report last month, it was several places ahead of London. A hefty £481m was invested in Birmingham commercial property in 2014, the highest level since 2007, according to BNP Paribas Real Estate, a large chunk of that accounted for by M&G Real Estate’s purchase of Two Snowhill for £140m – a yield of 5.8%.
M&G Real Estate head of business space Chris Perkins says: “Birmingham is very joined up in the way it works. We can safely assume that in 2015-16 we will continue to
invest in the likes of Birmingham, particularly in long-term opportunities where we can create high-value assets.”
Finding those opportunities may prove trickier this year, particularly for UK institutions, which face increasing competition from foreign buyers. Traditionally wary of stepping outside London, international investors have been extending their range as yields there have contracted acutely.
Recent deals may be a good indication of future activity. Just before Christmas, US private equity investment manager Angelo Gordon went halves with Dunedin on a £20m portfolio of central Birmingham properties. And as EG went to press, German fund VGV was under offer on Buildings 8, 9 and 10 at Brindleyplace for £131m – a yield of 6%.
The rest of the West Midlands
The expected uptick in development activity in central Birmingham is in stark contrast to elsewhere in the region, where cranes are few and far between.
The most likely location to see significant new-builds over the next two years, according to CBRE director Will Ventham, will be the M42 Corridor, where availability of new, grade-A space is down to just 10,000 sq ft.
New-build plots are available at Birmingham Business Park, Fore and Blythe Valley Park. The latter was purchased out of receivership last year by IM Properties, and investment director John Hammond expects to start work on one or more blocks of up to 40,000 sq ft within the next 12 months, assuming current enquiries crystallise into at least one prelet.
Top rents along the M42 have struggled to hit £20 per sq ft, but Hammond believes any new space will command in the region of £23 per sq ft.
Outside the Birmingham conurbation, Cannon Kirk’s £1.5bn Friargate development in Coventry has so far failed to net a major private sector occupier, although a 200,000 sq ft block, half of which is prelet to Coventry city council, is under way.
Developer Genr8 will be hoping for better luck with its third building at Smithfield, Stoke on Trent. The original two offices totalling 210,000 sq ft, which are due to complete this spring, are both let to Stoke council. Genr8 is considering a spec start on the 50,000 sq ft Smithfield 3 which could be delivered from mid-2017.
Letting agent James Devany, associate director at JLL’s Manchester office, says: “Stoke hasn’t got any modern business space in the city centre.” Rents are likely to be competitive with local business parks at up to £20 per sq ft.
Refurbs rev up
With the first new-build space in central Birmingham at least two-and-a-half years away, canny developers are considering the prospects of hoovering up some of the new-found occupier interest in the UK’s second city by speculatively providing top-notch refurbished offices.
Bruntwood is aiming to be ahead of the curve with 2 Cornwall Street, its fourth project in the city. Earlier this month it submitted a planning application to expand the existing 90,000 sq ft property to 110,000 sq ft by building additional floors. “This is more ambitious than anything we have done before in Birmingham,” says Bruntwood digital marketing director Jamie Boulger. If things go to plan, the new offices could be ready by next summer. “Our programme hits a sweet spot where there is a gap in the market,” adds Boulger.
But Bruntwood will not have it all its own way. Midlands-based IM Properties’ enlarged 55 Colmore Row will be hot on its heels, having started on site earlier this month with 160,000 sq ft due to complete by the autumn. “Our approach is very similar to what we have done with sheds,” says IM investment director John Hammond. “We saw a chance to get on with it and we did exactly that.”
Other refurbishments in the pipeline include Graftongate’s 75,000 sq ft Louisa Ryland House and ASE’s 200,000 sq ft Alpha Tower.
With supply limited, agents believe the current prime rental figure of £30 per sq ft will be achieved on the next generation of refurbished space. “I am looking forward to a slightly different, Shoreditch-TMT-style finish,” says CBRE senior director Ashley Hancox. “We are ready to see that in Birmingham, but whether anyone is brave enough to provide it is another question.”
