Crystal-ball gazing is common practice in the commercial property world. In Birmingham, all agents’ eyes are fixed on what will happen to the city’s office market over the next five years.
The optimistic see millions of square feet of proposed prime office space springing out of the ground. These buildings will be snapped up at rents of £30-plus per sq ft, with minimal incentives, by government departments relocated to Birmingham by Sir Michael Lyons’ decentralisation programme.
The pessimistic see the promised developments not built and a lack of Lyons’ take-up, as the majority of government departments go elsewhere. In this instance, Birmingham’s reward would be much less take-up from the usual churn of financial and legal companies keeping the market ticking over.
Everyone in the city’s office market wants to be the optimist. But while not wanting to languish in pessimism, agents know they have to be realists. And one of the main factors forcing this realism is the shortage of prime office space in the pipeline.
Figures from Lambert Smith Hampton show 250,000 sq ft coming to the market this year, courtesy of No 1 Colmore Square, 134 Edmund Street and Temple Court in Bull Street.
There is even less coming up next year, with just 197,000 sq ft from the refurbishment of Baskerville House. Joint agents Lambert Smith Hampton and CB Richard Ellis say the scheme can be brought forward in 18 months. “They have done the strip-out already, and the building is deliverable in 2005, so work will be starting on it this year,” says LSH director Philippa Pickavance.
Other agents are sceptical, however. “LSH/ CBRE are being very bullish and talking it up,” says one agent. “But I would be very surprised if they push it forward as fast as they say they can.” Such remarks flow from examples of other schemes that have been planned in Birmingham over the past few years but are still on the drawing board, creating a shortage of prime schemes.
The 500,000 sq ft mixed-use development at Snow Hill is an example of a scheme that has been long in design but short on actual development. The project, first proposed in the late 1990s, has faced a series of delays. Now, however, Domaine Developments is in talks with the city council to bring it forward.
“Development is closer now than it’s ever been. The company has got outline planning permission and, if everything goes well, Domaine will start infrastructure works in nine to 12 months,” says Jonathan Carmalt, head of offices at King Sturge in Birmingham.
But despite complaints about a shortage of schemes, several agents believe it would be good for Birmingham if some of the developments now on the drawing board suffered a minor bout of Snow Hill-style delay. This is because, if estimates by LSH are correct, then up to 5.6m sq ft of space could be dumped on the market after 2006.
Again, many agents are sceptical. Referring to Snow Hill as an example, they say that not all the proposed developments such as Masshouse, Post & Mail House, Arena Central and Paradise Circus will be ready by their estimated completion dates. “None of them are even started and we are already in 2004,” says Pickavance.
CBRE’s Martin Guest also questions whether “the funds have an appetite to allow all the developments to happen at the same time” a sentiment backed by Nick Williams of FPDSavills.
Williams believes developers want to take their schemes forward sooner, rather than later. But, he says: “One of the big issues is whether the funds are brave enough to speculate. We have to get institutions back into the idea of speculating. We have to demonstrate that Birmingham can move beyond the local churn.”
He points out that the city relies on activity from the legal and financial sectors, with a little help from government offices, to continue to take space in whatever new building comes along. But this level will be boosted massively if Birmingham gets a favourable write-up in the Lyons report.
Agents believe recent development projects such as the Bullring, as well as Birmingham’s proximity to London, put the city in a good position to impress Sir Michael. He is due to give his findings this month.
What the report will recommend is still guesswork, but Birmingham has been ranked as suitable in three of the six relocation job categories in a preliminary report carried out by King Sturge.
These categories are back-office support jobs, policy making and science. However, some other cities rank much better. Leicester, for example, is suitable for all six job categories.
King Sturge’s agents in Birmingham hope they have impressed Sir Michael with what the city has to offer.
“Birmingham has so much to offer in terms of proximity to London and in terms of lifestyle, so we certainly would expect a fair share of the offices. But it’s impossible to say how many we’d get,” says Carmalt.
DTZ’s David Tonks is equally upbeat about the market. He says the lack of immediately available buildings in the city will not affect Lyons’ decision of where to relocate offices. “It’s going to be based on demographics, and the West Midlands has a fantastic catchment area,” he says.
Guest, like others in the city, thinks Birmingham will be viewed like any other UK town or city, despite a lack of immediate product to offer. “The general consensus is that offices are not going to be spread out across one region, so there will be a bit here and a bit there.”
Whoever takes potential new space in Birmingham is likely to set a new rental level. But opinions differ about when tenants will pay more than the top price of £27.50 per sq ft for prime space, and when levels will reach £30.
Simon Quantrill of Knight Frank says £30 per sq ft could be achieved by the end of 2004 or the start of 2005, but Pickavance believes it will not be hit until 2006. “That’s when we will be getting some of the bigger schemes coming forward,” she says.
The rental debate aside, all people really want to see are office schemes coming on to the market as soon as possible. Quantrill pleads: “All I want to say is ‘come on, let’s get something done and built’.”
