“Serious” pre-let talks expected for Birmingham offices – CBRE
In the final part of our look at CBRE’s research into regional office markets during H1, we turn to Birmingham, where take-up recovered slightly in the second quarter after “one of the most challenging quarters for take-up on record” in Q1. First-half take-up reached 147,654 sq ft compared with 410,445 sq ft in the first half of 2011.
CBRE says it is widely felt that take-up of Birmingham office space “is frustrated by the wider economic climate,” but adds that enquiry levels have picked up, partly as a result of restricted supply. With a number of lease events on the horizon the firm expects a stronger H2 and says some “serious” pre-let discussions may be in prospect, although the challenges of funding and timing remain key to these talks.
Total availability of offices in Birmingham is 2.56m sq ft, of which 23% is Grade A stock. A further 169,069 sq ft is under construction at Two Snowhill and due to complete in early 2013, but there are no other development schemes due to come to market in the next five years. Prime rents for Birmingham offices are £28.50 per sq ft with incentive packages of up to 36 months on a 10-year term possible, but CBRE thinks these will reduce as conditions improve and stock levels reduce.
The caution shown by many occupiers in the current economic climate is also evident in Bristol, where some large deals have taken much longer to complete as occupiers evaluate their options carefully. Take-up of office space in Bristol during H1 was 182,741 sq ft compared with 230,424 sq ft in the first half of last year. Occupiers are now, however, seen to be gearing up to come out of the recession, which CBRE expects to lead to a drive for better-quality space. Demand is therefore expected to pick up in the second half of 2012, with several large enquiries that will have to act as leases expire or corporate mergers take place.
Total availability of Bristol offices stood at 2.04m sq ft at the end of the first half-year, with Grade A stock accounting for just 19% of this. CBRE does not expect any significant developments to take place without a large pre-let first being secured. Prime rents remain stable at £27.50 per sq ft.
Meanwhile, the market for office space in Southampton has experienced one of the strongest starts for many years, with take-up in the first half reaching 119,878 sq ft. It should be noted, however, that 86,000 sq ft of this comes from one deal – the acquisition by Ageas Insurance of Portswood House. CBRE notes that occupiers in the Southampton area are taking the opportunity at lease expiry to upgrade their office space at little or no additional cost: “Where there is no real desire to move it has become relatively common for occupiers to renegotiate their leases on improved terms and to remain in their existing space,” the firm adds.
Availability of Southampton offices has edged up 6% since the end of 2011 to 672,945 sq ft but the amount of available Grade A stock has continued to decline. There are now just seven Grade A office buildings with availability, and only four of these offer opportunities of more than 20,000 sq ft, CBRE says. Prime rents for Grade A stock are stable at £18 per sq ft. For pre-lets leading to new construction, CBRE expects rents of around £23.50 per sq ft.
