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.
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.