by Bill Houle
In the midst of recession, Birmingham’s industrial property market is outstanding in its underlying strength and potential for continued growth. The reasons for this are complex and reflect numerous and varied initiatives affecting the entire business community, as well as general property factors that are apparent nationwide.
London and the South East are undergoing a major confidence crisis, with five years’ supply of unoccupied business space and real uncertainty in financial quarters about the merits of investing in property — be it in building companies or buildings themselves.
However, Birmingham has a minimal supply of built and unlet industrial accommodation. This has allowed rental growth to be maintained. Rents on small industrial schemes are now exceeding £6.50 per sq ft for 2,000-sq ft to 3,000-sq ft standard specification units with 10% office content. Accommodation of 5,000 sq ft and above is achieving around £5 per sq ft. After a brief dalliance with large-unit speculative schemes that proved difficult to let, local developers are now looking to serve requirements from 2,000 sq ft to 20,000 sq ft, for occupiers seeking a higher office content and better specification.
Active developers include British Gas, who with BHH Group have formed a joint-venture development company to undertake a major industrial scheme in Saltley. They have arranged interim finance, through locally based Business Loans and the National Mortgage Bank, of £3m to commence the first phase of 60,000 sq ft. Construction started on site this month, with completion scheduled for early 1992. Units will range from 2,000 sq ft to 15,000 sq ft, and the agents are Phoenix Beard and Chesterton.
Severn Trent Property are a major new force in the West Midlands and aim to develop well-located land which is no longer required for water treatment processes. At their 90-acre Minworth site, to be known as Midpoint, work on initial infrastructure is due to commence later this summer, with a first speculative phase following shortly through agents Bernard Thorpe.
IMI subsidiary Holford Developments have recently secured city grant aid of £6.3m for a further phase of their Witton scheme. This will allow the release of 37 acres of serviced land for design-and-build projects of 10,000 sq ft and upwards. The scheme incorporates 500,000 sq ft of additional space.
Slough Estates are continuing to develop Kings Norton Business Centre — their industrial scheme in south Birmingham. The company recently completed a speculative building and are now installing infrastructure to release a further 6 acres and to improve local access. Currently, 22,000 sq ft is being marketed and a further speculative phase of 45,000 sq ft is on the drawing board.
The city of Birmingham also includes in its portfolio specific industrial land initiatives. The success of schemes such as Small Heath Business Park and Woodgate Valley will be continued at Burberry Brickworks, Small Heath, where an 8-acre industrial site is being reclaimed and serviced. At the junction of Middle Ring Road and the A45 at Digbeth, three prominent serviced sites totalling 4 acres will also shortly be released.
Tarmac Richardson’s scheme for Fort Dunlop will shortly be announced and will contain a strong element of industrial development on the 25-acre test track site, serviced from the major new infrastructure proposals. Developer Don Richardson says that, as well as selling serviced sites, they are considering a speculative phase and are already progressing with a 200,000-sq ft requirement. The underlying factors of supply and demand which give rise to the confidence necessary to undertake these schemes reflect an identified shortage of quality sites for business development.
The West Midlands is well served by motorways and this is the key to land release in the future. In the meantime, areas such as Solihull have seen a lack of recent industrial development, because sites have generally been allocated for B1 and office development against a background of rising land values. This situation is set to change because, while there is no oversupply in the B1 market of completed developments, a number of more secondary locations may now be developed for industrial purposes or kept in industrial use.
This will satisfy demand from occupiers seeking to benefit from the completion of the M40 and future improvements to the motorway network. Sites in Solihull such as Standard Life’s Monkspath Business Park now seem likely to be developed in mixed-use schemes, with a proportion of B1 office and quality headquarters associated with distribution and light industrial operations. Standard Life are overseeing a speculative scheme and looking at design-and-build opportunities.
Much as the 1980s saw a surge in residential values caused in the main by a variation in demand on a small area of the market, followed by a long period of levelling out, we are now seeing the same effect in the B1 and industrial market, pushing up land values and creating an artificially high supply which, in turn, is now minimising any differences between B1, B2 and B8.
Thus, initial surges of land values have been compensated for by market conditions, and across the country there is an equalising of the B1 and industrial market. In Birmingham and Solihull the temptation to overdevelop during the surge was resisted thanks to a combination of local factors, including recession-induced caution and lack of quality land.
Industrial development in the West Midlands will be an interesting and active market over the next few years. There are a number of major initiatives which will ensure that demand continues to rise.
The motorway system is improving and will continue to do so. The M40 is now open and the effects on Solihull have been well documented.
The north orbital route, currently out to private construction tender, will link the M6 around the northeastern perimeter of the conurbation, relieving the congestion of the M5/M6 junction. Towards the end of the decade, the western orbital route will extend the M42 from the M5 to join the M54, completing the perimeter circumference of the western and north-western sectors.
Birmingham Heartlands epitomises the city of Birmingham at its business best. In its pragmatic approach to the potential redevelopment of over 2,000 acres of inner-city land, Birmingham City Council managed to avoid the imposition of central government influence. It then joined forces with local developers to implement a consultancy report on a broad front, including infrastructure improvement, land acquisition and redevelopment.
The council’s initial business investment in the inner city was intended to create its own central science park. Aston Science Park is continuing to expand and is a market leader for city-centre B1 space. The 22-acre scheme is now 50% developed, with construction having begun on the latest 35,000-sq ft phase. An amenity block with hotel and further business accommodation is to follow.
Meanwhile, the Heartlands Spine Road now has finance available and compulsory purchase is well advanced. This new road alone will release enough quality land to serve the increasing demands for new building.
A new terminal was built at Birmingham Airport some five years ago. The location, on the borders between Solihull and Birmingham, close to the National Exhibition Centre, immediately caused a spiral of increased demand for services. The new terminal was soon found to be too small, and this is being remedied by major extensions which are due to open shortly. In the meantime, new hotels and business space for associated users are also being completed. This thriving area east of the conurbation is a key communications hub, with air, rail and road links backed up by the largest conference hotel in Europe — the Metropole. The sprawling complex of the NEC is also still growing and attracting an increasing number of large and prestigious events.
New infrastructure, initiatives and enthusiasm will ensure Birmingham’s continued success. Its underlying industrial strength has been tempered to a steel by recession in the 1970s and 1980s — leading to underlying demand, growth and expansion, even under current recessionary influences. Investors are still seeing growth in rental values on existing stock, and the moves to release larger tranches of land for new distribution and manufacturing markets will enable supply to match demand.
The 1990s will be a busy decade for the conurbation and, initially, industrial property will be at the forefront of the action.
