Birmingham Crane Survey 2022

Claiming Gold
Birmingham Crane Survey 2022

The Report

Why?
A report that measures the amount of development taking place across Birmingham City Centre and its impact. Property types include residential, office, hotel, retail and leisure, student accommodation, education and research facilities.

Where?
Birmingham City Centre encompassing those areas largely within the outer ring road, including: Eastside, Westside, Southside, Digbeth, Jewellery Quarter and Gun Quarter.

What?
Developers building new schemes or undertaking significant refurbishments exceeding the following sizes: office – 10,000 sq ft; retail and leisure 10,000 sq ft; residential property – 25 units; education and research – 10,000 sq ft; hotel – 35 rooms.

When?
Data for the Crane Survey recorded development activity between 11 January 2021 and 04 January 2022.

How?
Research for this report was undertaken by the regional Deloitte Real Assets team based in Birmingham which has monitored construction activity and planning permissions granted over a number of years, supplemented by rigorous field research. This research has been verified by industry contacts and an additional in-house research team.

The findings

2022 will be a standout year for Birmingham. Landing the Commonwealth Games was always going to be a once in a lifetime opportunity, and now it’s just around the corner. This is the time for Birmingham to shine, to demonstrate on a worldwide stage how far it has progressed over the past decade and to showcase some of its incredible developments. Birmingham is being transformed and the pace of change is relentless.

This year’s Crane Survey shows that development in Birmingham city centre continues with certain major residential and office developments leading the way. But in so many ways, the story is about developments in Birmingham which are not covered by the Crane Survey.

For reasons of year-on-year accuracy and integrity of the Survey we have kept with a tightly defined geographical boundary. In previous Survey years we have highlighted how the city has matured and is extending its boundaries, with more developments occurring outside the ring road. This year we’ve observed more development just beyond our Crane Survey research area and across the wider conurbation.

As development opportunities are taken up in and around the city centre, particularly for residential use, pressure builds at the periphery and consequently our Survey will need to adapt next year to take in a larger search area.

History will ultimately be the judge of whether the city maximises the opportunities presented by the Commonwealth Games, but as the opening of HS2 draws ever closer and the Tram system reaches out further, Birmingham is beginning to shine again.

2021 saw the number of new residential schemes increase year-on-year by over 250%, as 14 new schemes broke ground compared to just four new starts in 2020.

Despite earlier predictions that 2021 would be another record-breaking year, surpassing the 2,072 units completed in 2020, the volume of units delivered in 2021 fell by 26% to 1,520 homes, albeit well above the 10-year annual average of 690.

The ongoing pandemic coupled with supply chain issues, restricted availability of materials and labour shortages have all contributed to delays in the completion of some residential schemes.

However, residential is the most active of the sectors, with 14 new schemes set to deliver an additional 2,330 units. 24 schemes are currently under construction, collectively developing 4,720 units. This could make for an exciting 2022 as the volume of units due to complete could potentially set new records.

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The number of new schemes more than trebled in 2021 over the previous year and there is a noticeable shift in the concentration of developments across the city centre. In 2020 there were just five active schemes in the Jewellery Quarter, and this almost doubled to nine during 2021, set to deliver 1,080 homes. Southside has five and Westside has four schemes underway (1,049 homes and 1,000 homes respectively). Digbeth has three schemes set to deliver 680 homes. There are two schemes currently in development in Eastside and just one in the Gun Quarter.

Moda Living’s £260 million, 39-storey building at the corner of Great Charles Street has the largest number of residential units under construction and will increase significantly the number of build-to-rent units within the city centre. The city’s skyline is set to change over the next few years. The One Eastside development will be 160 metres tall, rivalling the 155m Octagon being built at Paradise Circus.

Driven by demand for high quality luxury apartments with easy access to the region’s transport infrastructure, Moda Living’s tallest residential tower − The Mercian on Broad Street − will provide an additional 481 rented apartments. This is closely followed by the development of B5 Central in Southside, where much of the demand is for more affordable and family housing.

A significant number of new starts and current residential developments under construction are build-to-rent, and the largest new start in 2021 - Hockley Mills in the Jewellery Quarter - is set to deliver 395 apartments.

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The demand for build-to-rent and the private rental sector remain strong, with a sustained institutional demand for large, well-located schemes. The new business district at Paradise Circus and the forthcoming 2022 Commonwealth Games continue to drive investor confidence along with improvements to the Tram system and the forthcoming opening of HS2.

If the 61-storey, 100 Broad Street cuts ground over the next 12 months, it will become the city’s tallest building, surpassing the BT Tower and all other developments currently under construction. Consisting of around 500, one and two-bed luxury apartments, it will also have storage for 250 bikes and a sky lounge with a fine dining restaurant.

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Looking forward, the residential pipeline is strong both within and outside the boundaries of the Crane Survey. New residential developments linked to the 2022 Commonwealth Games are nearing completion and development opportunities in Birmingham city centre continue to attract strong interest with planning application levels remaining high for both small and large-scale developments.

The first affordable homes development at Perry Barr is set to complete earlier than predicted in the first part of 2023, and planning for the hugely anticipated Smithfield development is due to be submitted in the latter part of 2022. Once complete, this will add another 3,000 new homes.

With a growing city population, the demand for new homes continues. There is a need for low-carbon housing to help meet the region’s aspiration to become a carbon neutral economy by 2041.

Two new office schemes began in 2021, on a par with 2020 and pre-pandemic levels. The main shift saw the volume of new and refurbished office space completed increase almost four-fold, up from 200,000 sq ft in 2020 to just over 750,000 sq ft, as the pace of construction picked up following pandemic-related disruption.

The rise in new office completions is close to the levels seen in 2019, which was a landmark year witnessing over 775,000 sq ft of new and substantially refurbished office space delivered.

The low level of office space completed in 2020 has been attributed to a slowdown in construction as the sector adapted to a new normal. However, those delayed schemes from 2020 have contributed to the substantial uptick in the volume of completions in 2021.

Four schemes completed in 2021, including 3 Arena Central (240,000 sq ft) and 103 Colmore Row (223,000 sq ft). In those four schemes, 86% of space was pre-let.

One new build and one major refurbishment started in 2021 - Enterprise Wharf in the Gun Quarter (120,000 sq ft) and 10 Brindleyplace in Westside (210,000 sq ft).

The substantial increase in the volume of floor space delivered in 2021, coupled with just new two schemes starting on site during the year, has seen a significant fall in space under construction.

Following five years in excess of 1 million sq ft under construction, pipeline activity has dropped by around 40 per cent to just over 600,000 sq ft, below the annual average of 765,810 sq ft.

The fall in activity is inevitable given the boundaries of the Crane Survey area. Opportunities for new build or extensive office regeneration projects within the city centre are becoming scarce, however office development is strong just outside the Survey area.

New Square Garden in Edgbaston is set to become one of the larger, new mixed-use development schemes to include Grade A office space. Led by Calthorpe Estate, it will incorporate new offices, apartments, restaurants and bars, creating a new community just a stone’s throw from the city centre.

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The demand for office space continues its upward trajectory and performs well as the city maintains a resurgence during the pandemic. According to recent research, the quality of office space is a highlight for Birmingham, as it ranks first among cities outside London in demand for Grade A property – accounting for 85 per cent of activity.

The demand for flexible office space, to accommodate hybrid working patterns and fluctuating space requirements, continues to increase. Data from the Birmingham Office Market Forum indicates there were a total of 63 office lettings in central Birmingham during 2021, amounting to a total take up of 496,237 sq ft. This is lower than the previous year and continues to be at levels not seen since 2012. However, the number of deals increased by 13 compared to 2020.

The private sector took the lead in terms of take-up of office space during 2021 with the completion of the four largest deals - however none of these deals reached the heady heights of BT’s move to Three Snowhill in 2020.

Arup’s agreement to occupy 68,479 sq ft at One Centenary Square was the largest of these deals and will see the relocation of around 1,000 of its people from existing offices in Blythe Valley, Solihull to the new Paradise development during the summer of 2023, creating a new global hub.

IMG has taken 50,000 sq ft at the Mailbox in the city’s second largest deal, and flexible workspace provider x+why took 40,616 sq ft at 6 Brindleyplace. Atkins was the fourth-largest deal, taking 36,057 sq ft at Two Chamberlain Square.

Just outside the top four deals, x+why agreed to take 34,500 sq ft at 103 Colmore Row. 2021 is the first year in which x+why has invested in Birmingham and this signifies a shift in demand for flexible working space.

Goldman Sachs decision to choose Birmingham as its regional hub and take space through We Work at 55 Colmore Row, is a good example of how businesses are looking for flexible working space to suit changing working patterns.

One of Birmingham’s most iconic developments continues to gather pace. Phase 2 of Argent’s £700m Paradise development will see One Centenary Way on track to complete in late 2022.

The widely anticipated Smithfield Birmingham development reached another key milestone as Lendlease and the city council agreed a joint venture contract for the £1.9 billion scheme. Set to be built on the former home of Birmingham’s Wholesale Markets, it will create new office space along with sustainable city living and a new leisure and culture quarter.

Future of work

As more employees return to the office, hybrid working patterns have been widely adopted. However, confidence is returning in the office sector with more than a third (37%) of developers expecting homeworking to have no impact on leasing demand, three times more than in winter 2020 (12%). Furthermore, only 24% of UK businesses have expressed an intent to increase homeworking going forward.

It has become apparent there is no one-size-fits-all. We are in a transitional phase where many companies are trying to understand what the future of work looks like. Pertinent to office take up is that CFOs are placing greater emphasis on increasing capital expenditure now more than at any time in the history of the Deloitte CFO survey.

Flexibility in floorspace and leaseholds, such as short-term office letting options, is becoming increasingly popular, but it is not yet clear whether this shift in demand will be permanent. Uncertainty created by hybrid working means that flexibility has become a high priority for occupiers.

Additionally, in the past year there has been an accelerated shift in corporates as office occupiers have been seeking to improve the employee experience as a driver for attracting the best employee talent, with 61% of executives now focusing on re-imagining the workplace.

This emergence of hybrid working solutions will affect the uptake of long-lease office space, and developers need to decide how best to adapt designs to satisfy emerging demands for ‘greater collaboration space’, ‘healthy offices’ and ‘future pandemic-proof’ workspace.

Cost of construction

Although the commercial property sector is busy, construction prices have become a major issue. People working within the industry expect significant cost increases over the next 12 months − 8.3% higher for commercial office projects and 6.4% for fitout projects.

Inflation, supply chain issues, transportation, material availability and delivery times are just some of the issues driving costs higher. Brexit, the importation of materials, and shortages of labour have also contributed.

Economic growth has been slower than expected as businesses and consumers adjust to changes driven by the pandemic, but the Commonwealth Games in 2022 presents a real opportunity to showcase what the West Midlands has to offer as a world-class destination for trade, investment and tourism.

Following a record-breaking year for new student bed spaces in Birmingham in 2020, only 399 student bed spaces completed in 2021, a reduction of 72%.

All of the new bed spaces came from TruBirmingham’s Southside development on Upper Dean Street. Close to Birmingham New Street station, the apartments and studios are privately rented to university students attending any of Birmingham’s education institutions.

There are only two schemes currently in development – Hanley Street in the Gun Quarter which will provide 48-beds on completion, and Compass in Eastside which will provide an additional 290-beds. However, the sector is active outside of the survey’s research area.

There are currently no new developments on the horizon within the Crane Survey area, although this could be quick to change as Birmingham’s large student population continues to grow despite COVID-19 interruptions.

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Birmingham is well established as a major centre for education and continues to attract students, both from the UK and internationally. It is estimated by the Higher Education Statistical Agency that in the academic year 2019/20 there were over 85,500 students in the city, an uptick on 2019’s figure by 1,500. International students represent 21% of the total student population with 17% from outside the EU.

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Birmingham is a popular location and universities are continuing to invest in their educational facilities, with one education scheme completing construction in 2021. The University of Birmingham’s 55,000 sq ft refurbishment of 3 Centenary Square at Arena Central provides a new education hub, exhibition halls and space for community use.

Similarly, Birmingham City University’s 145,300 sq ft STEAMhouse development at Belmont Row Works is nearly complete, and is due to open fully in Q1 2022. This will provide new teaching and learning space alongside facilities and space for businesses and the local community.

For the second year running, one hotel was completed in 2021 delivering 195-beds, just below the 10-year average. For the third consecutive year, no new retail schemes cut ground in 2021 as developers concentrate on mixed-use schemes.

A loft inspired hotel in Eastside is the only hotel to complete in 2021. Marriott’s Aloft Birmingham sits within the Clean Air Zone and adjoins ‘The Eastside Rooms’ conference and events centre.

2021 saw one new hotel breaking ground, taking the number of hotels under construction to three.

A new 174-bed aparthotel in the Gun Quarter is being developed by SevenCapital and Colmore Tang, and will refurbish the former Thistle hotel to create standard rooms, studios and one-bed apartments with panoramic views across the city.

Work is still underway at Doubletree Hilton in Snow Hill, which will add another 93 rooms, a roof-top terrace and plant room.

Completing the trio of hotels currently underway, Exchange Square in Eastside is still on track to complete in 2023. The 15-storey, 235-room Premier Inn will include a bar and restaurant and will form part of a larger community development including retail and public spaces.

Despite a challenging time during the COVID pandemic, there are early signs of recovery and optimism in the hotel sector, although performance is not expected to return to pre-pandemic levels before the end of 2022.

The speed and consistency of recovery will be a major issue and the regions have seen an uneven recovery with Birmingham experiencing a combination of both reduced demand and increased supply, suppressing occupancy levels.

Occupancy rates are forecast to be between 54% and 78% in the UK regions by the end of 2022, depending on rate of recovery. That said, the Commonwealth Games will give Birmingham a terrific boost this summer with July and early August expected to be a high point for hotels, hospitality, leisure and retail.

Predictions are that there will be up to one million visitors to the city over the duration of the Games. The build-up, preparations and legacy will all have a positive impact way beyond the games period and should help stimulate development activity even further.

Whilst much of this building activity may fall outside our tightly defined Crane Survey area the positive impact on Birmingham city centre should be substantial.

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The retail sector continues to be hit hard. Although consumer confidence returned to pre-COVID-19 levels at the beginning of 2021, it subsequently fell towards the year end to levels not seen since the end of 2020.

The Bullring lost its anchor store, Debenhams, in 2021 and several other stores in both the Bullring and Grand Central (including John Lewis) have not re-opened. We may yet see more popular retail names struggle as the change in consumer spending habits continues.

Well-known brands such as Dorothy Perkins, TopShop, Oasis and Gap have all but disappeared from the high street. However, landlords in the region are responding and reducing rates to support retailers, with average rental rates lower by approximately 30-35% in some areas.

The retail sector’s performance continues to reflect changing spending habits with fewer consumers shopping on the high street. However, despite the rise of online purchasing, many consumers enjoy the retail and leisure experience, and we will doubtless see new business and hybrid models emerging within the retail sector as consumer confidence returns.

Although the pandemic has accelerated change within retail developments, there was already a shift pre-pandemic towards repurposing secondary retail property rather than adding to the supply, and this trend continues.

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There were no new starts within retail in 2021 and no standalone retail schemes are in the pipeline for the foreseeable future.

However, there is retail activity in mixed-use schemes in the city and mixed-use schemes provide the only evidence of new retail development − a trend which has been building over the past few years.

The regeneration of Paradise and Exchange Square will continue to bring forward new retail opportunities, as will the new Smithfield development when it comes to fruition.

City Centre
Jewellery Quarter
Southside
Eastside
Westside
Digbeth
Gun Quarter

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Contacts

Edwin Bray

Partner, Real Assets Advisory

Jane Whitlock

Midlands Practice Senior Partner

Ketan Kapoor

Senior Associate, Real Assets Advisory