Review: Birmingham serviced office space market
Reflective of the continuing turbulent economy, and the unexpected length of the UK recession which is now the longest since records began, Birmingham’s serviced office space market has seen a series of peaks and troughs throughout the year, and has struggled to equal or surpass last yearΓÇÖs performance.
Throughout the first three quarters of 2009, enquiries for serviced offices in Birmingham (represented by the ‘B’ postcode area) were -6% down overall when compared to the same period in 2008.
In terms of office space take-up, the number of new occupiers was also down, this time by -14% in the first three quarters of 2009 when compared to 2008.
This greater decline in take-up when compared to a more marginal drop in demand suggests that the Birmingham office space market has – and continues to – experience a lack of commitment from businesses. This is most likely as a result of the economic decline, which is continuing to take its toll on companies large and small across the UK.
With companies becoming increasingly cost-focused, it’s possible that the cost of workstations in Birmingham could have contributed to this drop in new occupiers. However, to conflict with this, the average cost of a workstation in Birmingham throughout the first three quarters of 2009 actually remained well below that of 2008.
The average cost over the first three quarters of 2009 as a whole was ┬ú81 below that of the same period in 2008 (an average of ┬ú332 per desk in 2008 compared to ┬ú251 in 2009). This represents a considerable saving for businesses and would often be an incentive to take up space while the cost is low, but the -14% decline in take-up suggests this is not the case.
See below graph for an average cost per person of an office in Birmingham (represented by all ‘B’ postcodes).
These figures suggest that some businesses are not finding the agreement they are looking for at enquiry stage, and instead are choosing to take an alternative route.
One possible reason could be that they are considering a different location other than Birmingham. For example, when analyzing statistics for alternative locations in the West Midlands, Coventry has seen a steady increase in enquiries throughout the year to date, and locations such as Wolverhampton have seen some increase in take-up.
But overall, when comparing Birmingham with other locations in the West Midlands, statistics show that Birmingham’s lost take-up figures have generally not been absorbed by other towns nearby.
Therefore if business owners are not seeking alternative locations, it’s possible that they have decided to keep their current office for an extended period, perhaps until the economy has recovered. External research by BNP Paribas in September 2009 states that in the Birmingham office sector, banks, financial services and business service companies will continue to feel pressure for two or three years as restructures continue, which can also affect demand for space (source: Birmingham Post).
Other possible options could be that business owners have decided to remain working from home or a shared office environment for the foreseeable future, especially for new firms that are still in the early stages of trading.
Q3 focus – Birmingham city centre
Adding to a disappointing performance for Birmingham in 2009, with enquiries and take-up falling behind that of the same period in 2008, city centre enquiry levels (represented by all enquiries for serviced office space in the B1, B2, B3 and B4 postcode areas) were also down year-on-year by -4% for the third quarter of 2009 when compared with the same period in 2008.
However interestingly, out of the total number of enquiries received during Q3 for all ‘B’ postcodes, the percentage of these that were specifically for city centre locations (postcodes B1 – B4) in Q3 2009 was 40.3%. This is marginally ahead that of the city centre percentage in Q3 2008, which was 39.9%.
Despite an inconsistent year for the region so far, this suggests that popularity for the city centre has remained reliably strong in the third quarter. This stability could be linked to a number of factors, such as the continuing ‘tenants market’ which is taking partial control of the serviced office space market.
With landlords and office providers keen to fill their available space, many are choosing to offer incentives such as rent-free periods, low deposits, and more flexible terms. Despite a downturn in enquiries for Birmingham, city centre demand in 2009 has so far remained consistent with 2008. This suggests that for traditionally more expensive city centre offices, businesses are potentially attracted by the current incentives on offer and are making enquiries with a view to secure space while the option is available.
Commenting on a similar trend that is affecting the office lease market, David Tonks of DTZ in Birmingham says: “Tenants are focusing on the long-term – and the equality and efficiency of city centre stock, with its close proximity to transport links, is becoming very attractive at the current reduced rates.”
Q3 focus – Outside of city centre
In contrast with the closely matched year-on-year figures shown for the city centre, Q3 produced a much more variable set of results for ‘B’ postcode areas outside of the Birmingham city centre. This particular study focused on all ‘B’ postcode enquiries in Q3 2009, excluding B1, B2, B3 and B4.
In Q3 2009, the most popular location outside of the centre in terms of enquiries was the ‘B37’ postcode area, around Chelmsley Wood and Marston Green. Enquiries for this area in Q3 2009 were 57% up over the same criteria and period in 2008. A similar pattern emerged for the ‘B23’ post code area (Erdington and Short Heath), which was the third most popular out of town area in Q3 2009. This location saw an increase in enquiries of 160% when compared to the same period in 2008.
However, in Q3 2008 the most popular out of town location was the ‘B21’ postcode area (Handsworth), which produced a -87% decline in enquiries for the same area the following year, in Q3 2009.
Although this initially suggests an overall lack of loyalty for specific out of town locations, further investigation reveals that this is not necessarily the case.
For example, enquiries show that the second most popular location in Q3 2009 outside of the city centre was the ‘B77’ postcode area (Tamworth), which was just 5% ahead of enquiries for this location in Q3 2008. Other locations such as ‘B62’ (Halesowen), ‘B70’ (West Bromwich), and ‘B9’ (Bordesley Green) are also closely matched in the third quarter year-on-year.
Therefore it seems as though some city boundary areas such as Tamworth and West Bromwich are traditionally popular with businesses seeking a location outside of Birmingham. Other areas such as Chelmsley Wood and Erdington have been the focus of enquiries in Q3 2009 but less so in Q3 2008.
This suggests that businesses are open to considering new locations, possibly as a method of cost-cutting as the economy continues to trouble UK industries. Serviced office space in out of town areas are typically cheaper than the city centre, and many have the advantage of direct transport links to the centre, as well as less traffic congestion and benefits such as on site car parks and green spaces.
Out of town areas often benefit from being closer to home for small business owners. This cuts out the lengthy daily commute – especially if trying to reach the city centre – which in turn helps businesses to reduce their carbon footprint.
David Tonks of DTZ says that factors such as quality and efficiency of stock, transport links, and securing favourable terms are also having an effect on locations outside of the city centre:
“These factors are also absorbing some of the out of town market space, offering occupiers the best quality space with a powerful combination of profile and accessibility to the regional workforce on increasingly flexible terms.”
Despite a drop in both enquiries and take-up in the first three quarters of 2009 when compared to the same period in 2008, demand for Birmingham’s city centre has remained consistent compared to last year.
Combined with a significantly reduced cost per person of an office in Birmingham as well as a number of incentives, it’s possible that the city centre may experience and lead a more positive set of results for demand and take-up in Q4.
Reverting to David Tonks’ report from the Birmingham office of DTZ, this external research also suggests that enquiries and take-up in the city centre and “numerous regional centres” should improve in Q4, although for the medium-term, performance is expected to remain subdued.
To find out more about serviced office space to rent in Birmingham, search online at officebroker.com.