Brexit, Densification, Relocations From London And HS2: Make Or Break Risks For Birmingham's Office Market

Everyone wants Birmingham's office market to thrive in 2019.

But according to a panel of experts assembled by Bisnow, the immediate prospects for Birmingham's office market future depend on Brexit and HS2, densification and the rebalancing of the U.K. economy, all of which present real opportunities and real risks.

Can Birmingham deliver the right floorspace to meet the four big challenges? The answers are yes, yes, yes and maybe.

Amidst the Brexit ballyhoo, few people noticed economic data published earlier this week. It showed what a weak position the U.K. is in at a time when it might hope to be stronger.

U.K. gross domestic product rose by just 0.1% in October and manufacturing contracted by 0.9%. The economy grew by 0.4% in the three months to October, slower than the 0.6% in the three months to September, and growth in the service sector stalled.

This is not the kind of data developers and investors want to see as they bring long-mulled Birmingham speculative office schemes to completion, particularly if schemes are based on hopes for a quantum change for the better in the regional economy.

Panelists at the Bisnow State of Birmingham Offices event, hosted by BE Offices at Somerset House, Temple Street, examined a series of risks and opportunies. These are their conclusions.

1. Brexit: A Big Headache, But Not Fatal

Panellists said a mild Brexit could be good for Birmingham, but a hard Brexit would be bad news. Today uncertainty is causing a "rigor mortis of decision-making".

"The immediate effect of uncertainty is putting pressure on live requirements in the city today, it feels like paralysis of decision-making," Argent Project Director Sunil Johal said. "We’re seeing contractors starting to take a step back. But we’ve got to be positive, there’s a hell a lot of good stuff going on in the city and the U.K. needs the West Midlands to do well. There will be turbulence, but we’ve got enough in Birmingham to see us through." 

Ballymore Project Director Richard Probert agreed there were Brexit risks but that Birmingham could ride out the storm.

"Don't forget that the fundamentals for the Birmingham office market have never been better," he said. "My guess is that the impact of Brexit is likely to put pressure on corporate costs and occupiers will seek to do things more cheaply. This plays to Birmingham because property has never been cheaper in real terms in Birmingham city centre for the best quality floorspace you can imagine."

Bruntwood Head of Birmingham Rob Valentine agreed, supporting Probert's contention that Brexit might increase the pressure to relocate from London. "Of course it depends what kind of Brexit we get. A fairly mild Brexit could be good for Birmingham, but if we crash out all bets are off. The fundamentals of this city have never been better, and we’ll motor on come what may."

2. Densification: A Big Opportunity, Can The City Grab It?

Panellists were agreed that a denser, taller Birmingham office core presented the city with a challenge, but one it must grasp.

Eric Parry Architects founder Eric Parry said a more urban landscape offered rewards.

"One of the challenges is delivering very big floorplates of the kind that are needed in Birmingham. So then the challenge is to create a civilised world around them, and the key is to design with flexibility in mind," Parry said.

"Flexibility inside the building is the key, whilst providing a denser environment outside so that buildings respond to being in a urban or less urban space.

"Paradise is a very good example of densification. If you are going to make a good city you have to recognise it is about renewal, and honouring and working with the past. That kind of work in the public realm, recognising Birmingham's great buildings, is incredibly important."

Ballymore's Probert agreed. "We need to mass-up the city office market, because there is a real lack of density in the city centre where most buildings stop at five storeys. We can deliver a lot more floorspace if we can get the right sized plots, although those plots tend to be on the fringe of the city's traditional office core."

A denser city centre means a taller city centre, said panellists, who wondered if Birmingham City Council's planning team was able to handle the work required.

"Without densification you cannot create activity around a building, and that is when business thrives. As for the city council, we can all agree there are frustrations, but the council are coming round to things eventually," he said.

Probert added: "There are frustrations about the council that can drive you nuts, but they are mostly about a lack of resources in the planning department, so it is understandable there are delays. But the council leadership is very alive to the need for new development, and supportive of densification."

3. Relocations From London: They Will Come

The latest phase of speculative Birmingham office development assumes that the U.K. economy will rebalance away from London and toward the regions. A safe assumption, or not?

According to Ballymore's Probert, you cannot fault the logic. "Since the referendum at least there has been a recognition that the need to rebalance the economy, and to spread economic activity more widely across the U.K. At Snowhill we have set out to appeal to larger occupiers and address the historic shortage of large floorplates in the city," he said.

"The big professional firms we are talking to tell me that they do not anticipate moving lots of jobs out of London but they do expect to move lots of growth outside London, because it is an effective way to deliver a national service."

Argent's Johal agreed. "The Birmingham office market has historically been very indigenous, and we used to develop in anticipation of known lease breaks," he said. "But investment in the city has rocketed in the last 24-36 months and that is creating an attraction to the city. Occupiers are seeing that Birmingham can bring to business, which is about quality of life, and it is a real driver for relocations."

4. HS2: A Huge Chance For Change

Panellists were divided on whether the HS2 project was in real peril, but agreed that whatever happened Birmingham's office market appealed far beyond its rail links with London.

"HS2 coming to Birmingham is a real boon for the city, and it has been a real driver for investment, but it is just one of the drivers and there are many others,"  Bruntwood's Valentine said. "HS2 is at risk and there is a political movement from the right of the Tory Party suggesting it is not a good thing. I would disagree with that view, and I think HS2 will come to Birmingham, and perhaps to Crewe, but whether the see the wider network I don't know. There are real risks around that."

"If the northern parts of the line did not happen for Birmingham and the regions of the U.K. that would be extremely bad news."

Eric Parry drew parallels with the Crossrail project in central London, where costs and timings are now being exceeded.

"Losing HS2 could do a great deal of harm, it would dent reputations badly, so it is important that the bravery and the investment continues. If you make a big infrastructure decision you have to stick with it, which takes clarity and focus and leadership, and we need to take a stronger, more supportive stance."

Ballymore's Richard Probert said he thought HS2 would weather the current storms.

"I don't think HS2 will be cancelled because the last time the government listened to its loony backbenches we got into the Brexit mess, and I think they have learned their lesson," he said. "The chancellor will have to loosen the purse strings and invest in infrastructure."