A series of lettings on Birmingham Business Park means that new space could be needed sooner than anyone expected. Paul Strohm explains why.
In April, After more than four years and two “minded to grant consent” letters, the Department of the Environment finally gave the go-ahead to the development of Blythe Valley Park, at junction 4 of the M42. Destined to be the successor to Arlington’s Birmingham Business Park, the scheme should provide a safety valve for what some agents believe could soon become excess demand.
“It is a funny market,” says Simon Stanley of Phoenix Beard. “Good-quality units are few and far between. Four or five good deals will leave it looking very sparse. People who think that there are deals to be done will get a surprise quite soon.”
The evidence seems to confirm these comments. There have been 14 lettings at Birmingham Business Park since last summer, according to Carl Potter of Grimley, joint agent with Strutt & Parker. New tenants include London Life, Manulife, Bank of Wales, Weir Systems, Plotting Solutions and Alcatel. One of the latest lettings was to US firm Fore Systems. Other companies have expanded, including Apricot Computers and Oxford Computer Training.
Most lettings have been in the 3,000 to 6,000 sq ft (279 to 557m2) range, within which only two buildings remain and one of those is under offer. There are also four buildings available between 12,000 sq ft (1,115m2) and 27,000 sq ft (2,508m2), for which Potter says that he is now seeing signs of demand. AMP Asset Management is to fund the development of the remaining 40 acres (16.19ha) of the site which will provide 700,000 sq ft (65,030m2) including a speculative phase of 80,000 sq ft (7,432m2).
There have been lease disposals too, and computer company Tandem assigned the remaining 19 years of its lease on the 17,000 sq ft (1,579m2) Lakeview House to Beneficial Bank. The company paid a “not outrageous” reverse premium to do so, according to Nick Williams of DTZ Debenham Thorpe, joint agent with Nelson Bakewell. The passing rent was £13 per sq ft (£139.94 per m2). Now the remaining 20 years of Lucas’ lease on the 28,900 sq ft (2,685m2) Building 2100 is on the market through Phoenix Beard. The passing rent is £11.50 per sq ft (£123.79 per m2).
Rank Xerox wants to sublet 5,200 sq ft (483m2) of its 25,000 sq ft (2,323m2) at Birmingham Business Park and has put this on the market at £14 per sq ft (£150.70 per m2) through Knight Welch Bryce and Nelson Bakewell.
Blythe Valley was to have been Solihull’s business park land bank, lying in wait until Birmingham Business Park had achieved critical mass. However, the planning consent has been overtaken by events. The DOE’s decision was delayed and the sale of 39 acres (15.78ha) at Birmingham Business Park to British Gas for a new headquarters, a plan shelved more than two years ago when British Gas began its reorganisation, created a need for development sooner than expected. No plans have yet been announced and the land is regarded as off the market. According to Solihull’s director of technical services, John Wilson, “the trigger has now been sprung”.
Blythe Valley could eventually provide 1.2m sq ft (111,480m2) but, until new access can be provided following widening of the M42, the park’s size will be limited to 538,213 sq ft (50,000m2). The council is staging a beauty parade of agents to advise it on the choice of a new development partner following the demise of Speyhawk.
In the meantime, agents talk of space shortages in the south Birmingham area. Increased demand for smaller units is filtering up to larger space and, after an absence from the market, the number of requirements for units of 6,000 sq ft (557m2) to 10,000 sq ft (929m2) is growing, according to Simon Quantrill of Chesterton.
The M40 and M42 corridors “are the best market there is”, says Quantrill. “There are more deals happening, or going to happen there, than anywhere else. It is the same old story. There is a shortage of new good-quality space and, at the moment, people have not got much choice.”
John Bryce of Knight Welch Bryce is sceptical about talk of shortages. “I’d feel a lot happier if Arlington had managed to dispose of more space at Birmingham Business Park. Spencer House and Park Square have been on the market for about a year.”
He also points to the space still available at Princes Gate in Solihull: “What is still there is still there. We’ve got a little way to go yet.”
At the 70,000 sq ft (6,503m2) Princes Gate, British Gas occupies 18,000 sq ft (1,672m2) and is disposing of the surplus. The Inland Revenue recently took 13,000 sq ft (1,208m2) and a further 5,000 sq ft (465m2) is under offer to a computer company. Grimley is looking for rents of £17 per sq ft (£182.99 per m2) and is getting close to it, according to Potter.
Dominion Court is Wilson Bowden’s newly completed 27,000 sq ft (2,508m2) redevelopment of St Martin’s School and is available in three blocks from 7,500 (697m2) to 12,500 sq ft (1,161m2). The agents are DTZ Debenham Thorpe and Grenville Smith & Duncan.
At Stratford Court, Bryant Properties has let 26,000 sq ft (2,415m2) of the first phase, most of it two years ago, and still has 6,500 sq ft (604m2) available.
Bryce says that he is “having a number of conversations” on the remaining 3.8 acres (1.54ha) at Co-op Properties’ 10 acre (4.05ha) Cranmore Office Park. Interest has come from leisure operators as well as office developers.
Powergen’s 130,000 sq ft (12,077m2) The Quadrant, on Stratford Road, Shirley, is also on the market. The scheme comprises four buildings from 17,500 sq ft (1,626m2) to 50,000 sq ft (4,645m2) and Phoenix Beard is looking for £10 per sq ft (£107.64 per m2). Last year, the Highways Authority came close to taking the whole building before reorganisation changed its plans. However, Stanley says that he is again in detailed negotiations for the possible disposal of the whole scheme.
National Mutual plans to build a speculative scheme on the 6.8 acres (2.75ha) that it acquired next to Trinity Park. Hillier Parker and DTZ Debenham Thorpe have been instructed to advise on a 50,000 sq ft (4,645m2) building, although there is scope for 230,000 sq ft (21,375m2) in all. “The location is about as good as it gets,” says Williams.
Potential shortages do not appear to extend to secondhand space, and a number of occupiers are saddled with overrented property. John Griffiths of Richard Ellis explains that, until 1992, restricted supply meant that a number of blue-chip companies would sign long leases, pay premiums and agree rents in the low and mid-£20s (£215.29 per m2) on secondary space which is now worth £10 to £12 per sq ft (£107.64 to £129.17 per m2). When the magic disappeared in 1992, top rents achievable in Solihull fell to £16 per sq ft (£172.23 per m2).
“There are some potentially very attractive deals to be had,” says Griffiths. “Together with other agents, we have got to get around this problem of overrented accommodation.”
“Clients have to get to grips with how they account for it,” he adds. “If space is not used it is an expensive overhead and it is worth coming up with deals that reflect this.”
A general uplift among industrial companies and an automotive industry which is restructuring to adopt just-in-time work practices, has created a surge in demand along the M42 in south Birmingham.
Prominent among the deals spawned by this is Rover Group’s prelet of 170,000 sq ft (15,793m2) at Birmingham International Park. This 43 acre (17.4ha) site is being developed by BDS, a combination of Development Securities and Bryant. A further acre is under offer for a 10,000 sq ft (929m2) unit and joint agents Phoenix Beard and Chesterton are negotiating on another of the same size.
“The encouraging thing is that there is demand across the size range,” says Simon Lloyd of Chesterton. Eugene O’Brien of Phoenix Beard adds: “In terms of demand, the M42 corridor is benefiting from the increased importance of the West Midlands as a national and regional distribution centre.” He points out that, in an industry-led recovery, an area with the Midlands’ reliance on industry is going to experience a greater resurgence than elsewhere. There are several requirements in the market-place specifically for the M40 corridor, particularly in the 50,000 to 60,000 sq ft (4,645 to 5,574m2) range, “Which also coincides very neatly with a number of requirements from the warehousing sector,” says O’Brien.
At Monkspath Business Park, the number of deals in solicitors’ hands at rents of £5.40 to £5.60 per sq ft (£58.13 to £60.28 per m2) demonstrates considerable rental growth during the past 12 months, according to O’Brien. Landlord Standard Life is now developing a second phase of 18 acres (7.28ha), which will include up to 300,000 sq ft (27,870 m2) of new space. Several other companies are now considering space there for a variety of uses.
At Morrison Developments’ 90,000 sq ft (8,361m2) The Highlands on Cranmore Boulevard, three units totalling 40,000 sq ft (3,716m2) remain. Asking rents are £5.50 per sq ft (£59.20 per m2) and two units are under offer, says Carol Taylor of Chesterton. Occupiers include Mercury One 2 One, Magnet Trade Counters and Spanish tile company Porcelanosa. A short-term letting was recently achieved to Atahalf.
At Elmdon, also owned by Standard Life, rents of £4.50 per sq ft (£48.44 per m2) were achieved in January. The development is now virtually fully let, with units of 10,000 sq ft (929m2) and 12,000 sq ft (1,115m2) under offer.
Retail: developing onwards and upwards
Norwich Union’s Mell Square still dominates Solihull’s retail area and the fund is capitalising on its position with a series of improvements and expansions.
In a joint development with Beatties, NU has extended the retail group’s department store from 70,000 sq ft (6,503m2) to 100,000 sq ft (9,290m2). A new 45,000 sq ft (4,181m2) store has been levered into the scheme for BhS. The new unit, which has two levels and links directly into Mell Square, was handed over in April and BhS expects to be trading by Christmas. The new store is built on the site of old garages and a service yard and extends into four former unit shops.
Following the departure from Mell Square of newsagent John Menzies, Marks & Spencer has expanded to include that space. Meanwhile, W H Smith has built an extra floor to provide more sales space lower down the building.
If deals with two national fashion retailers go ahead, Norwich Union will build two new stores of 5,500 sq ft (511m2) and 1,500 sq ft (139m2). According to NU portfolio surveyor Julian Hill, these should open by Easter 1996.
Hill believes that zone A levels range between £90 and £95 (£968.78 and £1,022.60 per m2) in the centre’s prime positions. “There is good demand for prime space it has picked up in the past 12 months,” he says. He thinks that Solihull’s strength lies in the power and socio-economic groups of its catchment area.
Solihull is still considered undershopped, but it could have another 300,000 sq ft (2,7870m2) by Christmas 1998. Gracemount has signed an agreement with Solihull council for a scheme on the 6 acre (2.43ha) civic car park between High Street and Homer Road. Compulsory purchase procedures will be used to acquire a further acre of land as well as a Barclays Bank, former Gateway supermarket and unit shops on the High Street.
The U-shaped scheme will have 65 units, a 95,000 sq ft (8,826m2) department store and three variety stores, with 1,000 parking spaces. Gracemount director Paul Jillard says that he is talking to department store operators.
Key transactions
- Lakeview House, Birmingham Business Park: Offices. Tandem Computers has assigned the remaining 19 years of its lease on this 17,000 sq ft (1,579m2) building to Beneficial Bank. The passing rent was £13 per sq ft (£139.94 per m2) and a small reverse premium was paid. The joint letting agents were DTZ Debenham Thorpe and Nelson Bakewell.
- Princes Gate, Solihull: Offices. The Inland Revenue has acquired 13,000 sq ft (1,208m2) at Princes Gate for a rent based on £15.50 per sq ft (£166.85 per m2) including parking. A 15-year lease was taken and there was a rent-free period. A further 5,000 sq ft (465m2) is under offer to a computer company. Grimley is the letting agent.
