Three years. Three big deals. You do the maths. He doesn’t say it in exactly those words, of course, but that is the message Birmingham city council’s director of planning and regeneration, Waheed Nazir, wants to deliver to corporate decision-makers who may be considering relocating part or all of their business in the next few years.
Birmingham’s recent track record is certainly impressive (see box, below) and the announcement in March that HSBC would move its retail banking operation from Canary Wharf was the latest in a trio that started when Deutsche Bank got the ball rolling in 2013.
As all three employers – HS2 being the third – will be moving a substantial number of the 3,700 jobs created from London, it is perhaps natural that Birmingham should have its eye on the capital as the source of further relocations.
But Nazir stresses: “We are not competing with London, we are complementing it. We recognise the importance, particularly for financial services businesses, of maintaining a relationship with London and wanting to go to and from there.” This is just as well, as no-one in London appears to be taking seriously any suggestion that a domino effect might see a run of big firms decamping from the capital (see panel, below).
Recognising the cluster effect seen in many parts of the UK, the city council is keen to promote Birmingham as a financial services destination. There is, after all, a historic precedent – the city was the birthplace of the Midland Bank, subsequently swallowed up by HSBC. But it was Deutsche Bank’s decision initially to move a few of its staff at the peak of the last boom that cemented the notion that the city could net fee-earners, rather than just back-office jobs.
“Deutsche Bank came here in 2007 with 50 staff. The market has been shocked to see that number grow to 2,000,” says Nazir, who is hopeful of tying up another large deal within the next 12 months.
At least two of three major requirements understood to be circling Birmingham (see below) are believed to be financial service sector firms, and there are at least two large schemes (Argent’s Paradise and Ballymore’s Three Snowhill) that could accommodate them. They will be competing, though, with existing occupiers, a good number of which have lease events in 2017 and 2018.
And other regional centres will be snapping at the West Midlands’ heels. London law firm Freshfields Bruckhaus Deringer earlier this year chose Manchester over Birmingham and is shortlisting sites for a 100,000 sq ft HQ there. JLL research shows that the North West brought in 10 inward investment transactions over the past three years totalling around 300,000 sq ft. That may be less than the 500,000 sq ft netted by Birmingham, but indicates Manchester’s ability to put the brakes on the ambitions of its more southerly counterpart.
“London may be the world capital in banking and finance, but our regional cities – especially those in the Midlands and the North – are increasingly attractive options for the major players,” says Carole Taylor, partner at Vail Williams.
The reasons why individual occupiers will move vary, but Simon Robinson, head of BNP Paribas Real Estate’s Birmingham office, points out that substantially lower property costs in the Midlands are likely to be an important factor: “When comparing the occupational costs for Birmingham and London’s main business locations, the economic argument for relocation is a strong one and it is easy to see why HSBC was attracted to the city.”
But lower occupational costs by themselves are not necessarily the main driver, says Gurjit Atwal, head of real estate at Eversheds. “Occupiers are also looking outside of London for long-term strategic reasons surrounding talent development and sustainable business growth,” he says. “The relocation is not just a bottom-line function but also a move to tap into and, where possible, shape the regional talent pools through working with local businesses and educational establishments.”
What is notable about Birmingham’s recent large arrivals is that they are no longer the back-office functions previously associated with regional relocations. In fact the so-called north-shoring of the past has been dubbed mid-shoring in its new Birmingham-orientated incarnation.
“The jobs coming to the city are sucking in a wide skill set,” confirms DTZ senior director David Tonks, who simultaneously sounds a note of caution. “I hope the market is not drumming its fingers waiting for a string of HQs to move to Birmingham, as I am not sure how many will come,” he says.
However, if those already bobbing around the city decide to drop anchor in the Midlands, then Nazir’s dream of five big deals in five years may yet come true.
Office market prospects: back to the future
DTZ senior director David Tonks is rattled. Just because it is no longer an occupiers’ market doesn’t mean the inverse is true. He asks: “Why does everyone assume it’s a landlords’ market? We now have the best-quality space I have ever seen in my career, so it is not just a landlords’ market, it is a strengthening office market that benefits both sides.” Despite a potential supply gap next year, when no major new-build space will complete, the prospects for 2017 onwards are looking very healthy.
Argent has already committed to building speculatively at Paradise and two other mammoth projects may also shortly kick off. Last month Ballymore won planning consent for the third and final block of its Snowhill development. M&G is likely to forward-fund 360,000 sq ft of offices at Three Snowhill. And hot on its heels is Sterling Property Ventures and Rockspring’s 103 Colmore Row, where a planning application for a 200,000 sq ft block was submitted earlier this month.
Does this mean that, as in previous cycles, there is a danger of oversupply? Property experts think not. CBRE executive director Ashley Hancox says: “Developers are mindful of what other people are doing and taking a measured view on timescales to pick a window where there is slack.” James Howarth, managing director of SPV, whose 103 Colmore Row could complete in the first half of 2018, subject to planning consent, agrees. “Last time round 1m sq ft was put up in three or four years. This time is similar, but there is a different trajectory for each building planned.”
A number of lease events around 2018 could bolster demand. However, Jonathan Wallis, development director of Miller Developments, which clinched HSBC for its Arena Central site, warns: “What we must not do is get complacent. If the city is going to grow it cannot rely purely on indigenous growth. It needs to have the platforms to expand. The public and private sectors should see this as an opportunity.” Several big-name outsiders are reportedly circling the city, including Barclays, Goldman Sachs and Samsung.
In the meantime, with the last tranche of present generation new-build space (around 50,000 sq ft) due to complete at the end of this year at Brockton Capital’s and Milligan’s Mailbox, all eyes are on how quickly prime rents will rise from the current level of £30 per sq ft. Savills’ director Nick Williams expects a steady increase: “Nobody is predicting anything crazy. That is what I like about it, we are going back to where we were before.”
Relocations: the London view
If the prospect of HSBC moving its retail operation to Birmingham is at all worrying, in that it may open the floodgates for other businesses to exit the capital, then London property people are not showing it. The banking scenario was exceptional to HSBC, they argue, and other London-based banks already have a strong regional presence. They do admit, however, that new entrants to the UK (from any business sector) may well consider Birmingham or other cities outside London.
“The HSBC relocation will not be the first of a dambusting raid on London,” says Chris Lewis, head of tenant representation at Deloitte Real Estate. “I don’t predict a plethora of further moves, even though the UK regions are better placed than for a long time to receive them. That is because there is a gravitational pull towards London rather than away from it.”
The occupier view
Two banks. Two different takes on why it made sense for them to expand their business in Birmingham. For both HSBC and Deutsche Bank, people were at the top of their lists, but for separate reasons. With around 1,000 people due to move away from London and the South East, HSBC wants to make the move as painless for them as possible. Although Leeds, where the bank’s First Direct subsidiary is located, was considered, Birmingham made the grade thanks to its proactive local authority. “They were willing to invest in providing a support network for the people relocating,” explains HSBC’s senior corporate real estate manager Alan MacRae.
In contrast, Deutsche Bank had its eye on local recruitment. The bank’s Birmingham head, Paul Anderson, says: “Birmingham was an easy choice when it came to picking a location outside London. The key factor is the labour market here. There is a highly qualified talent base – with skills that are highly transferable. We have been able to recruit the highest-calibre teams for compliance, technology and professional services.”
HSBC’s choice of location in the city was driven by the need to be operational before the 1 January 2019 deadline to ringfence its retail operation. Arena Central’s determination to fast-track the process for the bank won the day.
| Occupier | Scheme | Space taken | Jobs created | |
|---|---|---|---|---|
| (sq ft) | ||||
| 2013 | Deutsche Bank | Brindleyplace | 130,000 | 1,500 |
| 2014 | HS2 | Two Snowhill | 100,000 | 1,200 |
| 2015 | HSBC | Arena Central | 250,000 | 1,000 |
| 2016 | ? | Paradise? | prelet? | ? |
| 2017 | ? | Three Snowhill? | prelet? | ? |
