Corporate inertia presents the biggest challenge to Birmingham’s office leasing market over the next 12 months according to Jones Lang LaSalle’s latest Birmingham Offices Update – Quarter 2 2009 research.
The report said occupier demand for office space has continued to be subdued during Q2 and any requirements are taking longer to be satisfied as occupiers, seeking to avoid the capital expenditure associated with a move, defer property decisions.
While office viewings remained low, JLL recorded an increase in activity towards the end of the second quarter with viewings more than doubling in June, in comparison with April and May.
Jonathan Fear, head of the firm’s national office agency team in Birmingham, said: “Despite cuts in prime rents occupiers are looking towards cheaper space to fulfil their property requirements, with interest focused on grade B space as cost saving remains high on the corporate agenda.
“With the continued uncertainty in the economy occupiers remain slower to commit to office space and this will keep take-up volumes subdued and supply inflated.”
Take-up fell in Q2 in comparison to the previous quarter, down 22%, although the actual number of deals that transacted increased.
Market activity predominately sat in the sub-5,000 sq ft bracket, with 66% of deals below this threshold – only one transaction over 10,000 sq ft completed.
Over the year to date, 195,440 sq ft has been let reflecting a drop of 66% in comparison with the equivalent period last year.
The report showed that for the second consecutive quarter space being returned to the market outweighed take-up, resulting in a fall in the volume of occupied stock.
Over the last six months, the net absorption of space has been 132,720 sq ft.
Fear added: “The first half of the year has seen a significant fall in take-up and vacancy rates have increased to over 15%, well above the five-year average of 10.3% which will continue to put increasing pressure on landlords to cut rents and increase incentives.
“We anticipate a total take-up of less than 450,000 sq ft over the rest of the year, compared to the 10-year average of 610,000 sq ft.”
In terms of the city’s investment market, June saw an upturn in activity with schemes at Brindleyplace and 55 Colmore Row being offered for sale.
JLL’s head of national investment in
“Demand from overseas and equity purchasers has hardened as the value of sterling remains weakened with a low Bank of England base rate.
“We believe prime yields for well-located offices with 10 years-plus unexpired lease terms have moved in from 7.25% to 7.00%.”
