Available Grade A office stock in Birmingham city centre has shrunk to its lowest level since 2008, according to the latest data from Colliers International.
Across the city, just 891,000 sq ft of space of vacant prime stock is on the market following four consecutive years of attrition, at an average rate of nine per cent per annum.
Circa 600,000 sq ft of this is in the city centre, more than 100,000 sq ft lower than when the property market took a nosedive in 2008.
According to Alex Tross, associate director in the office agency team at Colliers International in Birmingham, 2013 will see much higher rates of absorption, resulting in a chronic shortage of Grade A stock.
He said: “It’s no secret that there are major outstanding enquiries in the financial services, insurance and legal sectors. We anticipate that these will be fulfilled inside six months, potentially wiping 200,000 sq ft off stock levels.
“Demand for Grade A space eclipses demand for all other grades of stock. This trend has continued in the recessionary years and the appetite for occupiers to improve their accommodation is unabated, despite pressure on overhead costs.”
Mr Tross believes that occupiers are now starting to wake up to the looming stock shortage.
He said: “Shoosmiths’ letting at Two Colmore Square at the back end of 2012 is significant for two reasons: at 40,000 sq ft it was Birmingham’s biggest office letting last year. Secondly, the law firm has two years before its existing lease expires. However, they have pounced on new space early because they are aware that stock levels are running low.
“It’s now dawning on occupiers that it won’t be long before their choice is truncated, and whatever’s out there will be prohibitively priced.”
Although 2012 proved disappointing in terms of overall take-up – circa 500,000 sq ft compared to an average of around 665,000 sq ft over the previous three years – the city’s failure to replenish stock means that accommodation across the board is depleting.
According to Colliers’ Birmingham Snapshot, available Grade A, B and C stock in the city core fell from a high of almost 2m sq ft at the end of 2011, to around 1.7m at the close of 2012.
For developers with existing stock, there are therefore opportunities to provide improved product.
A lively lettings programme at Highcross’ Livery Place, and Bruntwood’s Mclaren House demonstrate the market for well-priced, refurbished accommodation.
Although prime rents are unchanged at £27.50 psf, the space squeeze means that headline rental growth is likely to be witnessed this year.
Mr Tross said: “In the short-term we are likely to see incentives shrinking; rent rises won’t be far behind.”