Uncertainty holding back Birmingham office demand
Office rents and yields in Birmingham remained stable during the second quarter in succession, according to new research.
CB Richard Ellis’ latest EMEA (Europe, Middle East and Africa) Rents and Yields Indices found that rents for prime office space in the city were £27 per sq ft in the second quarter, the same as for the first three months of the year, while prime yields remained at 5.75 per cent.
The City of London, where prime office rents were £50 per sq ft, was the only UK city to record positive rental growth, with a 6.38 per cent increase in the last three months. Office rents in London’s West End, Edinburgh, Glasgow and Manchester saw no increase during the same period.
Ashley Hancox, head of regional office agency at CBRE, said: “The uncertain short-term economic outlook is continuing to restrain occupier demand, resulting in limited rental movements, albeit with stronger signals coming from London (City) market. It will require clearer signs of economic recovery for rental increases to become more widespread. Partly because of this, investors remain strongly focused on core prime properties.
“Individual markets vary significantly but across the piece we have been encouraged by generally positive levels of take-up in H1, although this sentiment is delivered with caution. A sustained recovery will, in the light of heavy public sector cuts, be dependent upon private sector confidence.
“In Birmingham, on the positive side there are signs of indigenous businesses seeking to take advantage of the extraordinary deals available, before the market signals a more sustained recovery. Similarly, a number of larger national / international organisations are reviewing options in “the regions” as central London supply depletes and rents begin to escalate.
“With supply at its peak, demand is set to start absorbing existing stock and availability will start trending downwards. As there are no speculative starts expected, it is likely supply will tighten over the next 18 months; incentives will turn a corner towards compression and further reductions in the prime rent are unlikely.”
In the industrial sector, quoting rents stayed at around £5.50 per sq ft in the Birmingham and West Midlands area during the second quarter of the year. Yields also remained stable at 6.85 per cent. While this was 140 basis points down year on year, it was 150 basis points above the lowest recorded yield over the last three years.
According to the CBRE analysis, Birmingham remains the cheapest city in the UK for industrial property rents, along with Manchester, where rents are also £5.50 per sq ft. The most expensive is London Heathrow, where rents are more than double that of Birmingham, at £12.50 per sq ft.
Richard Meering, head of industrial agency at the Birmingham office of CBRE, said: “With one of the lowest rents in the UK and a good supply of stock, albeit slowly decreasing, Birmingham continues to be an attractive city for the industrial and logistics sector.
“With improvements in the take-up of industrial property and increased interest from institutional investors, the market in gaining positive momentum. As a result, there is a greatly reduced amount of new speculative units still available and cost driven design and build will be the only option for some occupiers needing new buildings.”
