BIRMINGHAM: THE FLEXIBLE WORKSPACE MARKET

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1 BIRMINGHAM: THE FLEXIBLE WORKSPACE MARKET 1 WELCOME FROM GKRE DIRECTOR, DOUGLAS GREEN Birmingham is the UK s second biggest city and the largest legal and financial centre outside London. Despite this, there is a perception among some that Birmingham has failed to regenerate itself to the same extent as regional rivals such as Manchester, Leeds and Bristol. In fact, nothing could be further from the truth. Birmingham has undergone an astounding reinvention in recent years with a vibrant central business district, outstanding restaurants and the best shopping outside London. Key to this has been its investment in an improved transport system, with the first phase of the Midland Metro extension, from Wolverhampton to the newly refurbished New Street Station (the busiest in the UK outside London), now open. Future phases will take the line out to Five Ways to the west and the creative hub of Digbeth to the east. Birmingham s central location places the UK s other key regional cities within a two-hour travel time, with London accessible in just under 90 minutes. The delivery of the first phase of HS2 in 2026 will cut this journey time to 49 minutes. The 700m Paradise development, the first phase of which is due to complete in Q4 2019, is the biggest in the city for a generation and is set to transform the city centre. With so much going for it, it is no surprise that Birmingham has a flourishing flexible workspace market and one that is destined to grow in both quality and quantity in the months and years to come. You can read about the state of market and its prospects on the following pages. We hope you find this report interesting. If you have any queries in relation to flexible workspace, please contact me at douglas@gkre.co.uk.

2 THE STATE OF THE BIRMINGHAM FLEXIBLE WORKSPACE MARKET Solihull BizSpace 2

3 LOCATION OF CENTRES Birmingham s flexible space market is spread out across the city, as can be seen from the schedule on pages 5 and 6. The main cluster of centres is in the city s traditional commercial area, Colmore Business District. This is where the city s major professional services firms can be found including accountants PwC and KPMG, and lawyers Pinsent Masons, Kennedys, and Slater and Gordon. Flexible workspace operators located here include Orega, in a newly refurbished 14-storey glass building, and Landmark, in the prestigious 2 Snow Hill building. BE Offices first move into the Birmingham market is in Temple Street, on the south side of the Colmore Business District in the Art Deco Somerset House. This 36,000 square feet space opening in January 2019 will be split between its three brands, BE Offices, Headspace and BESpoke, with each brand taking two floors each. Further to the north, close to Birmingham Snow Hill, are two new Spaces centres in Newhall Street and Great Charles Street, comprising in total over 100,000 sq ft. Spaces say these locations have been chosen because they provide an excellent balance between the residential and business community, making sure business people have a space to relax and unwind. Another centre away from the commercial hub is Landmark s Birmingham Mailbox operation. This is in an old drapers warehouse in the vibrant Mailbox district, renowned for its high-end shopping and dining. Landmark claims its refurbished reception is reminiscent of a New York warehouse. Digbeth is known as Birmingham s Creative Quarter, in part due to two flexible workspace hubs that are home to over 500 businesses, many of them creatives and digital start-ups. The beating heart of this district is the Custard Factory and its sister project, Fazeley Studios. The Custard Factory is set in 15 acres of renovated riverside factories and its occupants range from start-ups to the likes of ASOS and the Prince s Trust. Nearby Fazeley Studios, close to the famous Bullring, has boutique offices for between five and 150 people, as well as a café/bar and event space. Another interesting location is The Jewellery Quarter to the north west of the city centre. As well as an estimated 40% of British jewellery being made here, it is also home to a growing arts scene with plenty of bars and restaurants, many of which are housed in one of the area s over 200 listed buildings. Centres here include the aptly named Jewellery Business Centre and Grosvenor St Pauls in a Grade II listed Georgian building. Colmore Building Orega 3

4 PRICES Prices quoted for private offices in the central core and Colmore District are around 400 per workstation per month (pwpm) at the top end, with average specification space hitting 300/ 325pwpm. The value end of the market is circa 200/250pwpm and 150pwpm in more fringe areas. Co-working space in the Jewellery District is around 150pwpm. These prices are indicative only, as what is included in the cost (for example, IT/telephone packages, use of meeting rooms, etc) can vary from space to space. TYPES OF SPACE In terms of variety of space, Birmingham has caught up with central London and the other major UK cities and now offers the full range of products: traditional serviced offices in grade A stock, fixed desk co-working, hot-desking, design-led workshops, etc. Some of these are housed in modern, state-of-the-art office buildings, others in refurbished factories such as the Custard Factory in Digbeth and the Old Print Works to the south of the city centre. In London, the trend over recent months has been for the majority of requirements below 5,000 sq to go to flexible workspace and it is not improbable to assume that the same will happen in Birmingham. Birmingham agents we have spoken to suggest the success enjoyed by companies such as WeWork in London and the growth in popularity for flexible workspace within the city is clearly causing some landlords to review their options. In light of the demand for flexibility within the UK markets, (and Birmingham is unlikely to be the exception), they believe that more and more landlords will be willing to consider alternative leasing arrangements such as management agreements or profit share arrangements. It is no surprise against this backdrop that WeWork recently announced it has instructed JLL to find circa 60,000 sq ft of leasehold premises. It is understood that WeWork intends to follow the strategy it pursued in Manchester to build a sizeable presence in Birmingham. The company works on a cluster strategy whereby it builds several locations in one city before launching in another. WeWork has 42 open and announced locations in the UK, including 40 in London and two in Manchester. FLEXIBLE SPACE OCCUPIERS Flexible workspace in Birmingham attracts occupiers of every size and from every industry as it now does in London and across the UK. In recent months there has been an upsurge of lettings to businesses working on the first phase of HS2, the high-speed train line due to connect Birmingham and London by Occupants include several companies from the construction and rail sectors. Somerset House BE Offices 4

5 BIRMINGHAM FLEXIBLE SPACE MARKET NAME OF CENTRE LOCATION OPERATOR Birmingham Victoria Square One Victoria Square, Birmingham, B1 1BD Regus Birmingham Brindley Place 3 Brindley Place, Birmingham, B1 2JB Landmark MSO Brindley Place 11 Brindley Place, Birmingham, B1 2LP MSO Workspace Citibase Birmingham Mailbox Birmingham Broad Street Lonsdale House, 52 Blucher Street, Birmingham, B1 1QU 2nd Floor, Quayside Tower, Broad Street, Birmingham B1 2HF Citibase Regus Alpha Works Suffolk St Queensway, Birmingham B1 1TT Alpha Works Regent Place 22 Regent Place, Birmingham B1 Urban WorkSpace Temple Row 43 Temple Row, Birmingham, B2 5LS Regus Somerset House 37 Temple Street, Birmingham, B2 5DP BE Offices Somerset House 37 Temple Street, Birmingham, B2 5DP Headspace Somerset House 37 Temple Street, Birmingham, B2 5DP BESpoke Bennetts Hill Business Centre Bennetts Hill, Birmingham, B2 5QJ Airivo Cannon Street Cannon Street, Birmingham B2 Our-Space Serviced Offices Edmund House Newhall Street, Birmingham, B3 3AS Regus Cornwall Buildings 45 Newhall Street, Birmingham, B3 3QR Bruntwood Birmingham Crossway 156 Great Charles Street, Queensway, Birmingham B3 3HN Spaces B18 B16 B15 B19 B6 B3 B4 B1 B2 B5 B12 B7 B8 B9 B10 B11 There has been an upsurge of flexible workspace occupations from businesses working on the first phase of HS2 65 Church Street 65 Church Street, Birmingham, B3 2DP Our-Space Serviced Offices Grosvenor St Pauls Grosvenor House, 11 St Pauls Square, Birmingham, B3 1RB Grosvenor St Pauls ihub Birmingham Colmore Gate, 2-6 Colmore Row, Birmingham B3 2QD ihub Office Orega Birmingham Colmore Building, 20 Colmore Circus, Birmingham B4 6AT Orega Lewis Building 35 Bull Street, Birmingham, B4 6EQ Spaces Landmark Birmingham 2 Snow Hill, Birmingham, B4 6GA Landmark McLaren 46 The Priory Queensway, Birmingham, B4 7LR Bruntwood Fazeley Studios 191 Fazeley Street, Digbeth, B5 5SE Fazeley Studios Saturn Business Centre Bissel Street, Birmingham B5 Saturn Business Centre Vincent Court Serviced Offices Vincent Court, Hubert Street, Aston Lock B6 4BA Vincent Court Cuckoo Wharf Canalside Cuckoo Wharf, 427 Lichfield Rd, Birmingham B6 7SS Urban WorkSpace Innovation Birmingham Campus Bordesley Green Holt Street, Birmingham, West Midlands, B7 4BB. BizSpace Business Park, Bordesley Green Road, Birmingham, B9 4TR Bruntwood BizSpace Colmore Gate ihub Office 5

6 BIRMINGHAM FLEXIBLE SPACE MARKET NAME OF CENTRE LOCATION OPERATOR Custard Factory Gibb Street, Birmingham B9 4AA Custard Factory Birmingham Tyseley BizSpace Business Park, Kings Road, Birmingham B11 2AL BizSpace The Old Print Works Moseley Road Birmingham B12 9AH The Old Print Works Netw4rk 10 Harborne Road, Edgbaston, Birmingham, B15 3AA Netw4rk Apex House 5 Calthorpe Road, Edgbaston, Birmingham, B15 1TR Regus The Cloisters George Road, Birmingham B15 1NP Omni Offices ECC Birmingham 111 Hagley Road, Edgbaston, Birmingham, B16 8LB Executive Communication Centres Cobalt Square The Jewellery Business Centre Cobalt Square, Hagley Road, Birmingham, B16 8QG C/O Whittle Jones, 95 Spencer Street, Birmingham, B18 6DA Universal Business Centre Whittle Jones The Big Peg 120 Vyse Street, Jewellery Quarter, Birmingham B18 The Big Peg Branston Court Business Village Branston Court Business Centre Branston Street Birmingham B18 6BA Birmingham Fort Dunlop Fort Dunlop, Fort Parkway, Birmingham, B24 9FE Regus Birmingham Nec/Airport UBC Solihull Parkway ECC Birmingham Airport Birmingham, Rubery Trigate Business Centre MSO Cranmore Place Venture House Business Centre Birmingham North 4200 Waterside Centre, Solihull Parkway, Birmingham Business Park, B37 7YN 1310 Solihull Parkway, Birmingham Business Park, Birmingham, B37 7YB Vienna House, International Square, Solihull, West B37 7GN Park House, Bristol Road South, Rubery, Rednal, Birmingham, B45 9AH Hagley Road West, Oldbury, Birmingham, B68 0NP Cranmore Place, Cranmore Drive, Solihull, Birmingham, B90 4RZ Avenue Farm Industrial Estate, Birmingham Road, Stratford Upon Avon, Warwickshire, CV37 0HR Watling Court, Orbital Plaza, Watling Street, Bridgtown, Birmingham WS11 0EL Urban Workspace Regus UBCUK Executive Communication Centres Regus Flexibase MSO Workspace Venture House Regus Central Boulevard Blythe Valley Business Park, Solihull, B90 8AG Regus The main cluster of centres is in the city s traditional commercial area, Colmore Business District 6

7 RECENT OFFICE ACTIVITY Somerset House BE Offices 7

8 8 RECENT OFFICE ACTIVITY In Q3 2018, 158,935 sq ft of office space was transacted across 28 lettings, figures largely similar to those in Q2. Interestingly from our perspective, flexible workspace transactions dominated the market during Q2 with 93,927 sq ft let to flexible workspace operators. These lettings were: Somerset House to BE Offices 38,162 sq ft 2 Colmore Square to Instant Managed Offices 21,232 sq ft Colmore Gate to ihub 18,378 sq ft Apex House to Regus 11,560 sq ft GN House to Citibase Group 4,595 sq ft This compares to just one deal with a flexible workspace operator in Q ,343 sq ft at The Colmore Building to Orega. The largest letting of Q3 was 36,484 sq ft at Norfolk House to the Secretary of State. The letting to BE Offices in Q2 of Somerset House for a term of 15 years was the largest in the city so far this year. The letting at 2 Colmore Square to Instant Managed Offices followed it entering into four office lettings on traditional terms last year, all of which have been licensed to single occupiers on flexible terms. This marks an interesting trend where managed space is being provided to corporate tenants as a full service product on an all inclusive basis. Colmore Gate ihub Office We understand 2 Colmore Square will be occupied by an HS2-related occupier, continuing a trend started with its other occupiers last year that included Kier Property at Cornwall Street, Laing O Rourke and Fusion at Cornerblock and Capita at Gateway House. Another HS2-related operator, Jacobs Engineering, took a further 13,825 sq ft in Colmore Square in Q3, bringing its space in the building to 33,109 sq ft. Other large transactions in Q3 included 22,043 sq ft at 1 Colmore Square to the General Dental Council and 14,320 sq ft at Baskerville House to Network Rail. In contrast to Q2, there was only one letting to a flexible workspace operator in Q3, the letting of 10,088 sq ft at 65 Church Street to Chromex. This is the first space Chromex has taken in Birmingham. Savills believes there is currently a shortage of Prime Grade A supply in the city and expects rents to reach as high as 34 per sq ft within the next few months. They are currently at around per sq ft. Availability of Grade A stock in the city core is currently just under 400,000 sq ft, with a vacancy rate of 9%. Prime office rents in Birmingham are currently 33psf. Colliers expects prime rents to head towards 35psq over the next two years and reach per sq ft by This will be driven in part by the so-called HS2 halo effect and the increased inward investment in the city that will result. Somerset House BE Offices

9 9 Colmore Building Orega THE INVESTMENT MARKET The largest investment deal this year in the city was the acquisition of 55 Colmore Row by TH Real Estate for its European Cities Fund for 98m ( 621 per sq ft cap val). In the first half of this year, 244m was invested in Birmingham offices, 23% above the long-term average. In Q3 2018, RPMI Railpen bought 2 Colmore Square and Cannon House for 95m from Nurton Developments. Since 2016, overseas investors have now accounted for 44% of office investment in the city. Prime office yields are at 4.75%, which is in line with Manchester and 75 basis points above the City of London. Savills expects tightening occupational markets, rising overseas interest and a shortage of openly marketed stock to hold yields firm through UPCOMING ACTIVITY There are a number of new developments in the pipeline, notably: Ballymore s Three Snowhill 420,000 sq ft in the Colmore Business due to complete in Q Argent s Two Chamberlain Square 160,000 sq ft forming part of the 1.8m sq ft mixed use scheme in Birmingham B3 on the former Birmingham Library/Paradise Circus site. Completion is expected in Q For more about the Paradise development, see right. One Axis Square (close to The Mailbox) planning has been granted for five new buildings totally 1m sq ft, (completion date not yet set), 103 Colmore Row work has started on what will be Birmingham s tallest tower, which will comprise 223,631 sq ft of office space over 20 floors One Centenary Way this is a new 210,000 sq ft office building that has been forward purchased by HSBC Birmingham is expected to undergo continuing expansion as a result of HS2 with new developments anticipated including: Birmingham Smithfield a 42-acre site expected to deliver over 3m sq ft of commercial space over 15 years New Garden Square, Edgbaston a 300m mixed use development expected to provide around 600,000 sq ft of office space. THE PARADISE DEVELOPMENT The 700m Paradise Birmingham development is set to transform the heart of the city. Some of the city s best known buildings including the Central Library and the Conservatoire are being knocked down to make way for 10 new buildings, three new public squares, 1.74m of new office space, 120,000 sq ft of retail and leisure, and a 4-star hotel. The first two buildings are due in Q4 2019, with the whole scheme expected to be completed by The development and a new Midland Metro tram stop will attract more people into the vicinity of The Crossway, for work, leisure and recreation. PwC will be relocating to the first building, One Chamberlain Square in At the time of this report, the development is reported to have run out of money for its second phase due to spiralling costs.

10 BIRMINGHAM S ECONOMY AND ECONOMIC PROSPECTS Colmore Gate ihub Office 10

11 11 Tyseley BizSpace BIRMINGHAM S ECONOMY AND ECONOMIC PROSPECTS Much of Birmingham s economy and future prospects are bound up in HS2 and the Midlands Engine. HS2, which is due to open 2026, will cut journey times between London and Birmingham to 49 minutes from 1hr 21 minutes. The Midlands Engine Strategy was launched by the government in 2017 as part of its commitment to making the Midlands a powerful engine for economic growth. It was set up to enable the Midlands to compete with London and the Northern Powerhouse. As the UK s second city, Birmingham is at the heart of the Midlands Engine. The Midlands Engine prospectus focuses on five key themes: skills, innovation, transport, promoting the Engine, and finance for business. It is estimated that if the Midlands region matches the predicted growth rate for the UK over the next 15 years, it could create 300,000 jobs and boost the national economy by 34bn. The government says that the benefits of recent investment are already making an impact. There are now 427,610 more people in employment in the Midlands than there were in 2010 and the size of the Midlands economy has increased by 32.9bn. HS2 Minister Nusrat Ghani and West Midlands Mayor Andy Street wrote about the impact of HS2 and the Midlands Engine earlier this year and said: HS2 will unlock economic growth and regeneration, helping release the potential of our Midlands Engine. HS2 is already helping attract world-class businesses to base themselves and invest in cities outside London with companies like HSBC, Jaguar Land Rover and BBC Three already in Birmingham and others looking at a future in the West Midlands. KEY STATISTICS Birmingham is the most popular UK destination for year olds moving out of London 10 bn committed infrastructure investment 110bn regional economy 11,000 new jobs created in the past three years 10,000+ finance professionals based in the city 70,500 companies including over 1,500 international firms Europe s youngest city with 40% under 25 years old

12 ABOUT GKRE GKRE is the UK s leading specialist flexible workspace agency. Founded in 2013, the directors bring to GKRE more than 25 years experience in the flexible workspace industry between them. Our clients include operators and landlords across the UK, from major PLCs to independent companies. We have completed more than 35 joint venture/management agreements throughout the UK, totalling more than 500,000 square feet. We have recently been involved in the merger and acquisition of businesses worth over 40m, comprising more than 450,000 square feet in some 50+ buildings. On the agency side, we have acquired in excess of 450,000 square feet for the UK s leading operators. GKRE advises landlords and building owners throughout the UK on their flexible workspace options and opportunities to partner with flexible workspace providers. Please visit gkre.co.uk for more information on how we assist property owners, tenants and flexible workspace operators, and for details of our latest transactions. Douglas Green E: douglas@gkre.co.uk T: M: Will Kinnear, MRICS E: will@gkre.co.uk T: M: We have been nominated as both specialist and niche agent of the year by Estates Gazette and Property Week 11 Golden Square, London W1F 9JB