Birmingham office market ready for take-off

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Birmingham office market ready for take-off

News : Property Week

Big firms moving staff outside London are boosting development activity in the UK’s second city. Helen Crane reports

HSBC’s deal to set up a new head office for its consumer business in Birmingham is arguably the biggest the city has seen this decade. The contract for 210,000 sq ft at Miller Developments’ Arena Central was signed in 2015 and the 1,000 staff are set to move in this May.

HSBC is not the only big firm with its sights set on Birmingham. Deutsche Bank has increased its staff numbers in the city over the past decade, in both administrative and front-office roles, while professional services giant PwC – which is in the process of moving jobs out of London – recently upped the floorspace it will take at Paradise Birmingham from 90,000 sq ft to 172,000 sq ft. The Labour Party has even said that it would consider moving parts of the Bank of England to Birmingham, if it was in power.

So is Birmingham finally about to come of age as an office location? And how will other sectors such as residential and retail and leisure adapt? According to GVA’s latest Big Nine report, Birmingham was the best performer among regional cities in terms of take-up in Q4 2017 at 354,530 sq ft – significantly above the city’s five-year Q4 average of 193,694 sq ft. In the year as a whole, it reported a record 1m sq ft total take-up.

Inward investment deals such as HSBC have accounted for some of the office market’s success. “Five years ago, you could have counted all the major inward investment deals that had ever happened in the city on one hand,” says Ian Stringer, head of GVA’s Birmingham office. “But since then, we have had one major northshoring deal every year, of which HSBC was the big one.”

One of the major catalysts of change has been the prospect of HS2. While Bristol is marginally closer, Birmingham has the quickest connections to London of all the big nine regional office markets, which is a selling point for businesses wishing to relocate. With the arrival of HS2 in 2026, journey times will be reduced to less than an hour.

“Birmingham is becoming a much more accessible location on the national and European stage,” says David Tonks, head of the Birmingham office of Cushman & Wakefield. “Occupiers are starting to see the benefits of moving into a regional city, and that is happening at a time when Birmingham’s offer is better than it has been for 20 years or more.”

This has also proved attractive to residential developers. “HS2 was definitely part of the consideration and when it opens will no doubt have a transformative impact on Birmingham,” says Oscar Brooks, head of acquisitions at Moda Living. Last month it was granted planning permission for a 481-unit build-to-rent (BTR) block on Broad Street, which will be the tallest residential building in the city.

HS2 is not the only factor driving demand for office space. “It is the icing on the cake. Market conditions were pretty good anyway, but now we have this extra relocation activity,” says Stringer.

Last year’s take-up was boosted by a 238,988 sq ft letting at Miller Developments’ 3 Arena Central from the Government Property Unit, which will see civil servants from across the West Midlands move into the city centre.

The strength of the local occupier market has also been underscored by deals such as software company ACS and consultancy firm WSP’s pre-lets of 45,000 sq ft and 47,000 sq ft respectively at Brockton Capital’s Mailbox office scheme. Both are currently headquartered elsewhere in the West Midlands.

With space at existing schemes disappearing fast, the future phases of schemes like Arena Central, Paradise Birmingham and Ballymore’s Snowhill Estate are likely targets for the next round of high-profile requirements. “The trick will be to keep them rolling as quickly as Argent did at Brindleyplace and always having the next building under construction,” says Stringer.

One deal that could cement Birmingham’s reputation as the second city of choice for occupiers would be a deal securing Channel 4. The government wants the broadcaster to move fully or partially out of the capital, and Birmingham is one of 12 cities that have put in a bid.

Outside the office

With more office workers poised to move to Birmingham, attention is now turning to how to accommodate them.

The city’s selection as host of the Commonwealth Games in 2022 may provide a boost to its residential offering. In preparation for the games, the former Birmingham City University campus in Perry Barr could become an athlete’s village, which, much like the Olympic Park in London, could subsequently be converted into apartments.

“The focus now is on increasing the experiential and cultural offering and addressing the need for housing,” says Stringer, who estimates that around half the staff who will be working at the new HSBC have acquired property in the region, either for themselves or as a buy- to-let investment.

“There has been a huge increase in the number of residential schemes seeking consent – there must be between 50 and 70 seeking consent at the moment, which means there will be an influx of city centre apartments in the next few years,” he says. “City centre apartment living in Birmingham never quite took off in the same way it did in Manchester before the financial crash, so there is plenty of land and opportunity.”

Investment pouring in

Birmingham has been slower off the mark than rivals Leeds and Manchester when it comes to the burgeoning build-to-rent sector, but the recent office deals have spurred developers into action and now investment is pouring in from some of the industry’s biggest players.

As well as Moda’s £145m tower, Linkcity and Hallmark Investments are developing a 334- unit scheme that has been forward-sold to Rockspring and Atlas Residential and will be the first BTR scheme to complete in the city. Nikal is developing 603 units at Exchange Square, the long-leasehold interest in which was recently acquired by LaSalle for £100m. And Blackswan Property is developing a 156-unit scheme called Gilder’s Yard that Grainger has forward-funded for £28m.

“We were drawn by key fundamentals such as the demand/supply imbalance when it comes to quality rental housing and local economic benefits from trends such as northshoring,” says Moda’s Brooks. However, he says there is still a need for further development to accommodate the city’s young professionals.

“Graduate retention and attraction is crucial if the ‘Midlands engine’ is to take off and emerge as a serious counter-weight to London. Part of the problem they’ve previously faced is poor-quality housing stock, and that’s a common complaint we still hear today from many large employers.”

Demand for high-quality housing is strong and it isn’t only the BTR specialists that are clamouring to develop in Birmingham. Traditional housebuilders are beginning to get in on the action too.

Last year, Berkeley Homes gave the Birmingham residential market an important stamp of approval when it launched a new West Midlands arm, St Joseph. It subsequently acquired a site at Gun Quarter on a subject-to- planning basis where it wants to develop400 homes. The Gun Quarter has been identified as a key area for residential development, given its location close to the historic corporate office core around Snow Hill station.

Next phase

With traditional housebuilders now moving in, could family housing be on the agenda for the city centre?

“The gravitational pull of Birmingham is affecting all types of household,” says Tonks. There is definitely demand for BTR, and that will be satisfied by schemes currently being planned and starting on site that are aimed at staff from companies like HSBC but also postgraduate students.

“Family housing is the next phase of supply. While staff from companies like HSBC are buying and renting homes in Birmingham, there is not enough evidence that their families are coming with them just yet.”

Just how the city’s residential offering evolves remains to be seen. But what is clear is that improvements made in recent years have sparked a change in attitudes toward the city from the people who call it home.

Brummies were always quite embarrassed about their city but now things have changed,” says GVA’s Stringer.

He attributes this to developments such as the Grand Central shopping centre, which Hammerson created around the revamped New Street station, and the Midland Metro, which was extended to run across the city centre in 2016. “Now locals speak proudly about Birmingham in the same way Mancunians speak about Manchester,” he says.

Given this shift in perception and the wave of occupiers, residents and development coming into the city, Birmingham seems to be on an unstoppable upward trajectory.

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