Read the full Birmingham Economic Review 2024.
David Martin looks at how the Birmingham office market remains resilient, with strong occupier demand focused on sustainable, well-connected buildings, and a shift towards flexible office spaces; however, post-pandemic inward investment has slowed, and the market continues to see growth in premium space and flex office demand, with expectations of further rent increases and a recovery in office investment sales by 2025.
Occupier demand continues to be resilient across the Birmingham office market, with average annual take up of space totalling a robust 670,000 sq ft. Return to office is continuing to trend upwards, with many occupiers mandating a 3 days a week minimum return. Average office occupancy now stands at 2.6 days a week, increasing from 2.3 days in 2023.
Demand for space is largely focused on the most sustainable buildings, that offer low carbon in construction and operation, with low energy and running costs. Sustainability is now in the top three search criteria for occupiers when searching for space, with evidence emerging of rental premiums being paid to secure the best quality accommodation. Well-connected buildings close to transport nodes and varied amenities, demonstrate the highest demand and the continuation of centralisation away from suburban office centres.
Occupier inward investor activity continues to be subdued post-pandemic. Apart from a handful of examples including Goldman Sachs, who recently committed to Birmingham ahead of Manchester for their software division, demand remains limited. Automation, particularly in the finance sector, coupled with remote working has also seen many of the larger banks downsize their regional footprints.
Active sectors have been typically represented by the public sector, business and professional services looking for best in class accommodation, and educational users. The flex office sector remains a significant driver of demand, through occupiers’ preference for more flexible leases. Smaller occupiers requiring typically less than 5,000 sq ft continue to be attracted to the lifestyle offer and on-site amenity provision, without the need to fund expensive office fit out. This trend towards flex and fully fitted space is forecast to continue, with many corporate occupiers predicted to have a third of their space in flex offices by 2030.
The emergence of a two-tier market with strong demand for best-in-class space is set to continue. Peak headline rents for central Birmingham have reached £46 per sq ft, having seen 5% growth over the last 12 months, with further growth anticipated over the course of the next three years, with Avison Young forecasting peak rents at £50 per sq ft by 2027.
In the property investment market, the global economy now appears firmly established in a new interest rates cycle, and one where the markets are at the beginning of the rate cutting phase. This is positive, as investors are considering this new trend alongside evidence real estate pricing is levelling out. For commercial property, the pattern of recovery will vary across geographies and sub-sectors, but there are prospects for a strong improvement in office investment sales during 2025.
This blog was written by David Martin, BSc Dip Const Man & Econ MRICS, Principal, Building and Project Consultancy, Avison Young.
Disclaimer:
The views expressed in this analysis post are those of the authors and not necessarily those of City-REDI or the University of Birmingham.