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Office and retail sales hit £1 billion as city centre boom surges ahead

Office and retail sales hit £1 billion as city centre boom surges ahead

🕔08.Apr 2016

Booming Birmingham city centre registered a 54 per cent increase in office and retail transactions in 2015, with the overall value of deals reaching the £1 billion mark.

UK institutions were the most prominent investors, accounting for over 58 per cent of the value of transactions, according to the latest ‘Who Owns Central Birmingham’ report.

However, property experts have warned the city centre faces a shortage of ‘good quality’ space until better quality refurbishment schemes come onto the market over the next two years.

Now in its fifth year, the annual study, which is published by leading property adviser, Bilfinger GVA, provides an insight into the profile of Birmingham’s commercial property ownership across 15 million sq ft of office and retail property in the city’s central business district.

The survey was published as it was confirmed Network Rail has taken 85,000 sq ft of office space across three floors at Baskerville House, next to the Library of Birmingham in Centenary Square.

Birmingham witnessed a record-breaking level of activity during 2015, with some £992 million transacted across both the office and retail sectors, sharply up from £645 million in 2014.

While overall ownership from UK-based organisations fell by one per cent to 70 per cent, ownership from Birmingham-based occupiers saw a significant rise, up from one per cent in 2014 to nine per cent.

Investment activity remains strong with the amount of overall foreign ownership increasing from 29 per cent to 31 per cent. However, Middle Eastern and mixed UK and overseas investors increased holdings from two per cent to five per cent and eight per cent to 12 per cent respectively.

The majority of European investment came from German funds, who are now holding 935,000 sq ft of space. This includes the £130 million acquisition by German fund VGV of RBS’ Brindleyplace headquarters in central Birmingham and GLL Real Estate’s circa £37 million purchase of 1 Brindleyplace.

The city’s largest single commercial deal was Ashby Capital’s acquisition of the Colmore Plaza building from US private equity group, Carlyle for £138 million on behalf of a Middle Eastern buyer.

Ian Stringer, Regional Senior Director at Ashby Capital, said:

Birmingham remains an attractive proposition for both domestic and foreign investors, particularly with ongoing capital investment projects such as the extension to the Midland Metro and the recently completed redevelopment of New Street Station and the Grand Central shopping centre.

Looking ahead, 2016 has the capacity to provide a number of exciting opportunities within the city, underpinned by the recent acquisition of 50% of Hermes Investment Management’s stake in the Paradise redevelopment to CPPIB.

With ongoing demand, the market will likely face under-supply of good quality space until better quality refurbished schemes such as Bruntwood’s 110,000 sq ft 2 Cornwall Street, and IM Properties’ 160,000 sq ft 55 Colmore Row, bring new high quality stock to the market in late 2016 and early 2017 respectively.

Barry Riley, from the Investment team at Bilfinger GVA, said:

Birmingham is reflecting the national investment market, where overseas buyers accounted for 50 per cent of the value of UK purchases in 2015, with US and Far East buyers the most active, acquiring commercial stock worth £20 billion.

While the national market remains heavily influenced by activity in London, 2015 saw significant weight of money transacted in the regional markets, driven primarily through improved confidence in occupational markets and the ongoing pricing-out of investors from London and the south east.

Within the retail sector, 2015 saw the completion of the £150 million Grand Central, anchored by a 250,000 sq ft John Lewis department store, with Hammerson entering into a joint venture agreement with Canadian Pension Plan Investment Board (CPPIB) for ownership of Grand Central for £335 million.

There has also been significant investment in the wider Birmingham retail offer, with a £50 million redevelopment of the Mailbox, which has doubled the size of Harvey Nichols, and Selfridges receiving a £20 million refit to its premises at the Bullring. Birmingham is now the only city outside of London to have a Selfridges, Harvey Nichols and a John Lewis.

Transactional activity was underpinned by British Land’s sale of the 490,000 sq ft House of Fraser building in central Birmingham to Legal & General for £71 million, with other activity including the sale of Martineau Place to Colony Capital as part of the £311 million Gemini portfolio, and Orchard Street Investment’s acquisition of the Exchange Buildings on New Street for £40 million.

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