Birmingham's retail domination
Thursday, 28 January 2016
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With Birmingham dominating the retail sector, Charles Toogood and Damian Lloyd of examine what lies in store for the region's commercial property outlook.
Birmingham is dominating the retail sector, with prime rents creeping towards £300 per sq ft. The opening of Grand Central at New Street Station – home to the 250,000 sq ft John Lewis – and enhancement to the Mailbox have put Birmingham in the spotlight and are demonstrating the city’s continuing ability to attract big-name domestic brands, international retailers and high quality restaurant and leisure providers.
Birmingham recorded its highest ever level of annual office take-up during 2015, at 970,000 sq ft, beating the previous high of 886,000 sq ft in 2008.
The most significant deal of the last quarter was to inward investor Advanced Computer Software Group, who took a 45,000 sq ft pre-let at the Mailbox, with the refurbishment due for completion in March. This is another significant inward investment into the city following the 212,000 sq ft HSBC deal earlier in the year.
The frequency of these inward investment deals has increased as Birmingham benefits from the capital investment of the last few years: the completion of Grand Central station, the opening of the metro and the expectation of HS2 in 2026.
Carrying on from the strong performance of 2015 there is a good depth to demand, with deals underway and Q1 figures already looking likely to achieve well above the quarterly average.
The development pipeline is responding to the increased level of activity with the major refurbishments at 55 Colmore Row, 2 Cornwall street and The Lewis Building underway. The enabling works have started at Paradise Circus and an imminent funding agreement at 3 Snowhill could soon kickstart the 360,000 sq ft office scheme.
Over the past year headline rents have remained at £30 psf, as the high profile deals have been pre-lets but rent free periods have come in resulting in a 10% increase in net effective rent. Secondary rents have also shown strong growth over the year.
We believe rental values will rise strongly year-on-year in the regional office and industrial markets, uplifts of 3 per cent are expected in 2016.