Everywhere you go in Birmingham, there is a palpable sense that something exciting is happening in the city.
Much of the buzz is transport related. The construction of HS2, which will make Birmingham accessible in just 39 minutes from London Euston railway station, is due to start next year; Birmingham Airport recorded the busiest ever month in its 77-year history in August, with almost 1.3 million passengers; and the reconstruction of New Street station and addition of Grand Central have transformed the experience of arriving in the city.
The impact on the city’s property market has been huge. Buoyed by the city’s upwards trajectory, occupiers have been clamouring for space.
Following record office take-up in 2015 of 970,458 sq ft, the market went on to enjoy its busiest ever first quarter this year, with take-up reaching 283,697 sq ft.
Total take-up in the first half of 2016 hit 450,346 sq ft – 39% above its 10-year first-half average of 323,201 sq ft, according to Savills. At the half-year point, Birmingham had seen stronger take-up than any of the UK’s other regional cities.
But it isn’t just the number of occupiers coming here that is significant – it’s who they are. Deutsche Bank upsized its office presence to 134,000 sq ft in 2014, followed by HSBC, which last year decided to build its UK retail and commercial banking headquarters in the city.
Meanwhile, the national headquarters for HS2 opened in Snow Hill in February and in March PwC became the first company to sign up to the landmark city centre Paradise development, with a pre-let of 90,000 sq ft. High-profile lettings continued when Network Rail signed up to 85,000 sq ft at Baskerville House in April.
“People are hearing about all the companies doing well here in the media and more importantly, they are able to talk to Deutsche Bank and HSBC and hear how it has worked for them,” explains Martin Guest, managing director of CBRE’s Birmingham office, who says he is aware of conversations going on with a number of big-name new entrants.
Ashley Hancox, executive director of CBRE’s office agency team for the city, agrees that momentum is building and says he expects more national companies to make a commitment to Birmingham. The improved retail and leisure offer has made a real difference to the look and feel of the city, which has had a positive impact on recruitment and its attractiveness to corporations, he says.
“There’s been a large amount of redevelopment with Grand Central and the new New Street station and I think that makes a big difference in terms of the perception,” says Hancox.
“Our day has come in terms of being seen as an attractive city. We’ve been oversupplied with grade-A office space in the past and now I think there is more of a balance. We’ve got some that is available now and we’ve also got a good pipeline of supply.”
The arrival of a new type of occupier is also having an impact on office space in the city. Last August, Ashby Capital bought office building Colmore Plaza for around £140m and quickly set about an extensive refurbishment, modelled on its landmark London asset, 200 Aldersgate in Farringdon.
Now called the Colmore Building, the 14-floor building in the heart of the business district – whose occupiers include Vodafone and infrastructure support provider Amey – features Amazon lockers, bike racks, a fully equipped gym with changing rooms and showers and spa treatment rooms offering a 30% discount, all amenities that the modern tenant expects, according to Ashby Capital chief executive, Peter Ferrari.
“These are national companies and it’s what they want out of all of their offices,” he says. “I think companies are getting more into wellness, and staff retention is a huge issue. It’s all about good people and I think that’s what everyone’s now realising.”
The building was around two-thirds let at the time of Ashby’s purchase and Ferrari says he hopes it will be fully let within a year. It is one of the properties on the frontline in the battle to attract some of the UK’s national firms to set up their headquarters outside the capital.
“Birmingham has that accessibility over Manchester,” says Ferrari. “It is fast [to get to] from London and HS2 will make it even more so. I think it’s already a factor for companies. If you’re taking a 10-year lease, then that is when HS2 will be coming. We’ve got a number of deals on the go at the moment, both from companies in Birmingham and from outsiders – particularly from the South East – that are looking for head offices or regional hubs.”
The changing image of Birmingham is something referred to by many of the city’s agents, who are no longer having to work to sell the advantages of having a sizeable presence there.
“I think if you talk to people in the South East, there is a noticeable change in sentiment,” says Ben Thacker, a director in Savills’ Birmingham office agency team. “People are starting to listen now. Birmingham offers a really different lifestyle and career opportunity compared with what has been available before.”
Period of inactivity
However, Thacker adds a note of caution. While take-up in the first half was strong, there has been less activity in the wake of June’s Brexit vote.
“The first six months were stellar, but actually a lot of that activity started at the end of last year and it took the first six months of this year for all the deals to come through,” he explains. “The market has actually been quieter since the spring, with the build-up over the start of the summer to the Brexit vote. Then the result was such a shock to everybody and we had the period of reflection over the rest of the summer, so we have had a quiet few months and that will be evident in the Q3 data.
“Professional services have been quieter than usual, but that fits in with the Brexit picture because they have all been taking stock.”
Despite the uncertainty, Savills is predicting a strong Q4 and expects an average or above-average year for Birmingham overall – something Thacker describes as “very positive”.
On the plus side, the lack of activity from professional services occupiers has opened the door to other occupiers. Thacker reports a “higher than normal” level of activity from cost-conscious occupiers that would not normally seek space in the prime business district, including tech, media and engineering businesses. Many have had their heads turned by the buzz around Grand Central.
One landlord cashing in on this buzz is Circle Property, which is currently refurbishing the 16,300 sq ft Somerset House on Temple Street and is seeking two restaurant occupiers for the ground floor. The company also owns Cheltenham House on the same street, which it fully let to restaurant and bar chain The Botanist, after paying £1m for the property three years ago.
“That was a case of us standing on the corner and looking at where the new entrance of Grand Central would be and believing in the location,” says Circle’s chief operating officer Ed Olins.
“We have had strong leasing interest for the two units we have now with A3 planning permission. It just shows what’s happening in this part of Birmingham. There’s a triangle with where we are on Temple Row, Waterloo Street and Colmore Row.”
He claims the company will be unaffected by Brexit because it is not dealing with international firms wondering whether to invest in UK cities. “Rents are holding for us,” he adds. “We are offering [up to] 3,000 sq ft lettings and that’s where 70% of the deals are happening.”
Clearly, Birmingham has not been immune to the widespread uncertainty and subsequent inertia in the UK property market following the EU referendum, but so far a few quiet months don’t look set to inflict any lasting damage on the city’s new-found swagger.
And with £1bn investment earmarked to transform the area of the city surrounding the HS2 station at Curzon Street, the wave of positivity is not likely to subside any time soon. For the foreseeable future, Birmingham still looks like a pretty good bet.