The absorption of office stock in Birmingham is the highest it has been for five years, fuelling fears of a looming supply crisis, according to Colliers International’s newly released Net Stock Absorption Survey.
The research states that total occupancy across central Birmingham rose by 221,825 sq ft during 2010, leaving vacancy rates for the city at 18.4% – the lowest for two years.
In total, grade A additions to overall stock over the past five years stand at 1.6m sq ft, representing 10% of total stock. The city saw significant growth over the past decade, with around 5.1m sq ft added between 2000-12, compared with 3.9m sq ft in the 1980s and 1990s combined. However, Birmingham is unlikely to see this pace of growth in space again for some time.
Craig Satchwell, director and head of the office agency team at Colliers’ Birmingham office, said the completion of the mixed-use Cube development signals the end of the current speculative development cycle, with no new offices being built.
If absorption of office space continues at the five-year average, Satchwell believes the city is at risk of having little new grade A stock to accommodate large requirements by 2013.
“For the short to medium term, with the exception of Two Snowhill, there are few, if any, deliverable new-build schemes in the central office core,” he said.
“Proposed schemes, such as Arena Development’s Arena Central, and British Land’s 103 Colmore Row, are predicated on prelets. However, with typical large grade A lettings in Birmingham being 20,000-40,000 sq ft, both developers are likely to need a handful of these to have any hope of getting funding in the current market.
“With Deutsche Bank looking to supplement its existing 15,000 sq ft of space at Baskerville House with a further 20,000 sq ft, KPMG planning to create a further 100 jobs for its Midlands operations, and Rare, the Microsoft subsidiary, seeking 50,000 sq ft in a prime location, there is expectation of further positive absorption in the first half of 2011.”
Referring to grade B stock, Satchwell said: “Grade B space, the majority of which is targeting rents of £16-£20 per sq ft, accounts for just 8% of available space. With availability around 223,000 sq ft, it won’t take much for this to start diminishing.”
Despite the strong absorption rate, rents remained stable during 2010, at around £27.50 per sq ft for grade A space. However, Colliers predicts that rental growth will return in 2012, with prime rents potentially reaching £30 per sq ft by 2013.
lisa.pilkington@estatesgazette.com
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