The latest Knight Frank Birmingham Office Insight report for the third quarter of 2020 shows the city’s office market achieved noticeable successes with strong underlying prospects, despite the ongoing impact of the pandemic on the way offices are now being used.

According to the quarterly report by global property consultancy Knight Frank, highlights for the quarter included the stand-out sale of One Colmore Square for £87m, the setting of a new headline rent at £37.00 per sq ft, and a healthy 742,000 sq ft of active requirements searching for office accommodation in Birmingham city centre.

Ashley Hudson, head of the Birmingham office of Knight Frank, said:

“The latter part of the quarter saw a noticeable uptick in activity, with businesses focusing on their route through the recovery phase of the crisis.”

In the office investment sector, One Colmore Square was the standout deal for Q3 – and the second largest in the UK in the period - with Legal & General exchanging contracts to sell to Oval Real Estate for £87m reflecting a Net Initial Yield (NIY) of 6.20%.

The BMO-owned 158 & 170 Edmund Street were marketed at £10.75m, reflecting a NIY of 6.00%, and placed under offer to Adapt Real estate at just off the asking price. 55 Colmore Row was close to exchange of contracts to Union.

Ashley Hudson added:

“Against the continued backdrop of sensitive nervousness as to the immediate future, the Birmingham and UK Cities markets are emerging, and not without a little gusto. Many investors have raised funds and are keen to gain access to these markets and whilst there is no distress currently, there is certainly an opportunity to compete in a less crowded field.

“Investors remain committed to the occupational market, with any pause in activity being just that; a pause for a defined period of time.”

And in the office lettings sector, where take up for the quarter reached 79,953 sq ft across 16 deals, Knight Frank reported a noticeable polarisation of occupiers.

Jamie Phillips, head of the office agency team in Birmingham, said:

“We are seeing those occupiers who face constraints and are having to transact now, against those that wish to scrutinise their space through reoccupation, whilst waiting for the full fallout of this crisis to become clear before making firm commitments.

“Business of all sizes have looked to review their real estate portfolios as part of cost cutting exercises to survive the oncoming recession and at present we are seeing occupiers typically reducing their requirements by 10–30 per cent as part of this process.”

In addition to the 79,953 sq ft take up in the quarter - with the most significant transactions occurring at Two Chamberlain Square, 1 Colmore Square and Two Snowhill – a further 100,000 sq ft is currently under offer in the city centre, of which ARUP is believed to be under offer on 80,000 sq ft at One Centenary Way.

On the supply side Grade A office supply decreased from the previous quarter to 437,337 sq ft. The next major building to be delivered will be the 230,000 sq ft 103 Colmore Row in Q3 2021, followed by 10 Brindley Place delivering 110,000 sq ft in Q4 2021, and One Centenary Way providing 280,000 sq ft in Q4 2022.

Jamie Phillips said:

“There are encouraging signs of increasing activity levels in Birmingham city centre, with many businesses now back at their desks, albeit at reduced capacity levels, and a significant number of occupiers who are starting to make progress with their requirements.”

Summarising the quarter, Ashley Hudson added:

“Whilst positive, we are not naively so. There remains great uncertainty, however there is an underlying confidence from investors and developers that the market will return and it will. Moving forward we will work dynamically and geographically where it is best to complete the task. We will still need the office, at the very least for the social and intellectual capital it provides.

“Occupational requirements change and working practises may differ, but as a place to do business, the office and therefore the city centre will be as important as it ever has been.”