Crowing King's Norton

SEGRO’s King’s Norton Business Centre has proved that a well managed business park will pull in the tenants.

This year has seen a steady stream of new occupiers. Recent growth in business has prompted Sterling Technical Engineering to consolidate its three existing locations into one unit. Similarly, a growth of business has sent Mechatronic Solutions, a civil and structural engineering practice, into a larger unit at the park.

SEGRO’s Jane Leedham said: “We have invested in making the centre a pleasant and secure place to work and we’re confident that we provide the premium business space in south Birmingham.”

Barberry in Coventry

Another Royal Mail sorting office, this time in Coventry, is also to be redeveloped in a £50 million scheme by Barberry Developments.

The mixed use Bishop Gate scheme is being funded by the Co-operative Bank in Birmingham and has already been granted planning permission. It will have a supermarket of up to 12,077 sq.metres (130,000 sq.ft.), a gym/leisure facility including a swimming pool and 585 car parking places. Steve Pamely of the Co-operative Bank said: “Our lending to Barberry proves the benefits of the Bank’s strategy of developing long term relationships with customers that have clear and proven corporate strategies.”

Professionals like space

Although the regional office market was boosted by a number of large deals in the second quarter, such as the Ministry of Justice and Deutsche Bank in Birmingham, the lower end of the market is still the most active. That is the view of DTZ in a report that also highlighted the strengthening demand from smaller professional firms.

Apparently some of these were on flexible terms during the economic downturn, but are now seeking to take advantage of the current market to upgrade to better accommodation.

It could indicate an improved market for new developments in the Midlands in the main cities. Matthew Long of DTZ said: “Take up in Birmingham in the second half is forecast to reach 18,580 sq.metres (200,000 sq.ft.).” He reiterates the problem that Grade A stock will continue to fall so that rents will edge up in early 2012.

In fact the new lettings are an important indicator of the market situation with the Law Society likely to move its Midlands headquarters to the 5,110 sq.metres (55,000 sq.ft.) 2 Colmore Square developed by Nurton; accountants Grant Thornton expected to take half that amount in Colmore Plaza and another accountant, Boomer Heaven, moving to Rutland House. Note that they are all professional service organisations. International players such as Hines have experience of when to move into markets.

In the case of Birmingham its Pan-European Core Fund has bought the 3,998 sq.metres (43,040 sq.ft.) One Eleven Edmund Street from IVG for an undisclosed sum. It also owns Brindleyplace and Two Snowhill through other vehicles.
Derby has also improved with a number of new developments. Tesco plans a large store at Allanton while at Sandiacre it will go for a mixed use scheme including a store. But the largest development is on a 15 acre site of the Derby Royal Infirmary for a Morrisons supermarket, hotel, offices and 400 homes.

All gone

At a time when many cities, including Birmingham, are seeing a decline in Grade A offices, the last speculatively built big shed in the UK has been let to Amazon.

This is Gazeley/Met Life’s 65,030 sq.metres (700,000 sq.ft.) shed at G-Park, Rugeley, Staffordshire which was taken by the on line retailer on a 15 year lease. Known as Flair, it has been available since 2008.

Such has been the pace of Amazon’s expansion that it has leased a number of large sheds in the UK at Doncaster and Peterborough as well as a massive warehouse in Dunfermline, Fife.

It comes at a time when, said Colliers International, average prime and secondary rents in the Midlands have been static for 12 months. Colliers’ Simon Norton said: “I have a distinct feeling of dejavu reading the statistics. They are no different from 2010.”

But he believes they are likely to increase now that the take up of prime space has eaten into supply. “The lack of speculative development due to the scarcity of funding and the general lack of confidence due to the recession have exacerbated the situation.

For the first time in years, landlords are beginning to feel that they may have the upper hand and are holding out for better rental terms.” At the heart of the decline was the fall in land prices. For example, in the West Midlands lot sizes of 10 acres or more averaged £484 an acre this year compared with £221 in 2006.

Where land is available for expansion, developers are increasing the size of existing estates, such as Hortons at Hollymoor Point, Rubery where it will build a new unit for NVC (Manufacturing) China’s largest lighting manufacturer, who already occupy a unit there, making a total occupied of 8,454 sq.metres (91,000 sq.ft.) at Rubery.

Typical of many estates, Target Park, Redditch only has two units available after the sale of a 1,134 sq.metres (12,209 sq.ft.) warehouse to Heartbeat Manufacturing.

Highcross Invests

One development that has started is the second phase of Highcross’ 3,406 sq.metres (36,665 sq.ft.) refurbishment of Livery Place. It is the largest refurbishment, costing £1 million, in Birmingham in 2011 and will bring the property up to Grade A status. This follows the first phase which cost £3 million on the 5th and 7th floors and common parts.

Highcross is having real success with the property. The company’s Joe Curlett said: “Randstad, the human resources firm, has taken a floor of 836 sq.metres (9,000 sq.ft.), soon after Packt Publishing has taken further space. We will be offering a boutique suite soon.” CB Richard Ellis’ Theo Holmes said: “Tenants are turning their attention to good quality refurbished Grade A space, which generally can be acquired for up to £10 a sq.ft. cheaper than new space in the city centre.” CB Richard Ellis has been chosen as the sole letting agent by Ballymore and Hines for the 29,170 sq.metres (314,000 sq.ft.) in the second phase of Two Snowhill.

The law firm Wragge & Co, will occupy virtually half of the scheme. CBRE is now also marketing 4,180 sq.metres (45,000 sq.ft.) in the Mailbox, recently bought by Brockton Capital. Brockton’s David Zimmerman said: “We have a significant capital budget allocated to maximise the potential of the Mailbox as a key destination in Birmingham. We are continuing our strategic review of the asset, the results of which will be the basis fordeveloping our overall vision for its future.”

Look ahead

Now is the time to move away from the stifling worry about the economy and look ahead to a healthier situation of growth, That would seem to be the message from Birmingham where the council is going for a Big City Plan for future development in 2,000 acres of the city centre with one of the government’s new enterprise zones.

Of course, the city has been pursuing an enlightened urban renewal programme for years, including using funds from the European Union for some projects. It is now applying for £20 million from the European Development Funds (ERDF) to help the development of business accommodation, office and industrial projects.

There are a host of private sector developments in the pipeline, many of them stalled by the fragile economy. A new scheme is from Sahlia Investments of Kuwait for a mixed use scheme costing £150 million in the Beorma Quarter and is adjacent to the Selfridges store and the Bullring Shopping Centre. Sahlia is seeking funding for the scheme from Barclays Corporate for the 60,199 sq.metres (648,000 sq.ft.) which will have a 200 bedroom aparthotel and a 27 storey 31,603 sq.metres (340,183 sq.ft.) office block together with a refurbished cold store.

The improvement in the urban areas are also a priority, hence the work on Church Street public realm in Colmore Business District (CBD). This high quality designed area will bring wider and new pavements, landscaping, trees and other associated works.

CBD which is one of four business improvement districts in the city centre is contributing £250,000 towards the total cost of £750,000 for the project. Gary Cardin, Chair of CBD said: “The new square will add to the public realm improvements promoted by us across the commercial heart of Birmingham and be a showcase for high quality, pedestrian friendly open spaces.”

These improvement plans come at a time when the city centre office market is only in moderate health, although the second quarter take up was 14,678 sq.metres (158,000 sq.ft.) mainly due to several large lettings, such as the Ministry of Justice for 3,530 sq.metres (38,000 sq.ft.) at Axis, But the Grade A stock has now fallen again, continuing the three year long process. Craig Satchwell of Colliers International said: “Grade A stock is now at its lowest level for three years.

Worryingly, there is just one scheme with a speculative element currently on site, Hines and Ballymore’s Two Snowhill, which will not be completed until 2013.” He predicts that there will be an increase in refurbishment of existing properties together with pre lets for speculative schemes.

John Lewis leads

Rebuilding New Street is vital to the Whitby vision so it is encouraging that Network Rail, on behalf of the council, has submitted a planning application for a 23,225 sq.metres (250,000 sq.ft.) John Lewis store in a regenerated Pallasades Shopping Centre over the station.

As one of the retailer’s largest stores outside London, it is the anchor for the shopping centre, which is being designed by Foreign Office Architects and opening in 2014. This is, of course, part of the proposed EZ.

Government backing

The government would appear to recognise the importance of pushing for economic growth in Birmingham because it has given the city a Regional Growth Fund grant of £15.7 million. The money will be used as part of the funding of a £37 million scheme to improve the A45 road near Birmingham Airport. Apart from the government, the transport authority has contributed £10 million and the airport £7 million.

They have combined with Birmingham and Solihull City Councils to apply for the government money. Birmingham City Council leader, Mike Whitby, said: “The upgrading of the A45 will bring significant transportation and economic benefits to the region and will also remove the current constraints the road alignment has on the proposed runway extension.”

When he became council leader in 2004 he made rebuilding New Street Railway Station and extending the runway at the airport key elements in making Birmingham a globally relevant city.

Bring on the Big City

With its intense commitment to making Birmingham a world class city, the council is expecting a major boost to its plans from the creation of an Enterprise Zone, (EZ) in the city centre.

The logic of its Big City Plan is that the 304 acre centre covering five areas (Southern Gateway, New Street Station South, Westside, Snow Hill and Eastside) is the key to the economic future of Birmingham.

So it maintains its long term ambition which has already seen considerable change with the EZ offering the prospect of 1.49 million sq.metres (16.1 million sq.ft.) of new floorspace. The EZ also includes the site of a new railway station for the High Speed 2 rail link to London. That, combined with a rebuilt New Street Railway Station, will give the city exceptional transport links to boost economic growth.

Jones Lang LaSalle’s Peter Leaver commented: “The city core is the most effective location for an EZ because it will have the greatest ripple effect.” Like other property professionals, he believes an EZ will speed up regeneration.

Certainly the lessons of the 1980s are that EZs can play a significant role in boosting economic growth and changing cities, as witness London Docklands and Salford Quays. As far as the Midlands is concerned, Nottingham has already been granted an EZ for the Boots campus.

Meanwhile, Hines and Ballymore are to directly develop the key site of Two Snowhilll which Colliers International said would alleviate the looming office supply crisis. The firm’s Craig Satchwell, who advised Hines, said: “Two Snowhill will be the first significant office development outside London constructed post credit crunch with an element of speculative space. It will come to the market in 2013 when most of the existing Grade A space is likely to have been absorbed. This will not only help to boost supply it will also help attract inward investment.” Colliers International’s figures show that take up of office stock in Birmingham is the highest for five years with total occupancy up 20,608 sq.metres (221,825 sq.ft.) in 2010. Hines has already shown its commitment to Birmingham in joining with Moorfield to buy eight buildings at

Spirits are lifting in Birmingham as the developers, together with the city council, change the 213,670 sq.m. Arena Central scheme. The new plans by Miller Developments and Bridgehouse Capital mean an increased amount of offices in the project, which was halted in 2008 when the UK economy stalled. The developers will also rephase the Section 106 payments and Section 278 highway construction to help the development of the site. Given the scope of the £17 billion plans to transform the centre of Birmingham, which includes a new library facing the offices in Arena Central, then the council could be making a crucial move. The financial hiatus has led to further consideration by the council of other schemes, such as changes to the redevelopment of New Street Railway Station which could mean dropping the two towers in favour of a massive John Lewis store. The council remains committed to the grand plan to change the UK’s second city on the 2,000 acres it controls in the centre with new space of 1,486,400 sq.metres (16 million sq.ft.), the most ambitious plan of any UK provincial city.

Opportunity Knocks

Investment and development opportunities are arising from
the problems encountered in fulfilling the grand plans of Birmingham City Council for regeneration.

Apart from anything else, the sheer scale of the schemes means that determined operators can find opportunities. That surely applies to Sanguine Hospitality which has moved to a third deal in the city in a short period with plans to buy the former Kennedy Tower office block at Snow Hill Plaza from Bruntwood. The deal depends on planning permission for a change of use to a 224 bedroom budget hotel.
The point about Sanguine is that it has backing from Downing Corporate Finance and Rathbones but it is also using the government’s Business Premises Renovation Allowance to ease the deal. This provides a tax break to bring derelict buildings back into use.

Sanguine’s Chairman said: “We are delighted to be involved with a third hotel scheme in Birmingham. This will be a much larger project but will again involve an international brand.” This positive view of Birmingham is backed by Henderson who has paid £26.2 million for a 12.5% shareholding in the Fort Retail Park. As a result Henderson’s UK Retail Warehouse Fund’s stake has increased to 50%. The shareholding was bought from Invista Real Estate Management. Another significant purchase is Hansteen Holdings paying £23.3 million for the 984,770 sq.metres (1.06 million sq.ft.) 22 Unit Saltley Business Park from LPA Receivers acting for Lloyds Banking Group. At the moment eight of the units on the park are empty.

Perhaps the most important guide to the future of investment in Birmingham comes from Dr Karl-Joseph Hermanns-Engel of Union Investment who believes that the main regional cities in the UK provide the opportunity to diversify the fund managers’ UK portfolio “without compromising on building
quality, tenant strengths and lease lengths.”