Birmingham builds for HS2 bonanza

The launch of the Big City Plan in 2010 set the tone for the urban transformation that Birmingham would experience throughout the next two decades. Local authorities poured public funds into infrastructure upgrades, paving the way for the regeneration of the city centre and former industrial areas scattered across the city.

Colmore Row is today a vibrant central business district with a gradually growing offer of brand new and refurbished office space and as well as leisure amenities and transport infrastructure. But more is to come, as 93,000 square metres of grade-A office space is in the process of being developed in four new office buildings along the Colmore Row axis.

Just across the road, the so-called ‘Mailbox’, a refurbished former Royal Mail sorting office, forms the core of a major regeneration scheme that has attracted companies such as Deutsche Bank and Advanced, one of the country’s largest IT services providers, as well as HSBC, which is to relocate its UK commercial banking base to a new building just around the corner from the Mailbox, which is due to be ready later in 2017.

With growing demand stemming from an increasingly dynamic local economy, but also through companies wishing to relocate out of an increasingly expensive London, backed by the development of the Curzon rail station and its surrounding areas following the approval of the HS2 high-speed rail link, the city’s transformation still has some way to go.

Birmingham’s got talent

“The journey is just starting,” says David Tonks, international partner at the local office of real estate service company Cushman & Wakefield. “Occupational demand [for office space] is entirely driven by the fundamentals of the economy – great demographics, and significant cost advantages. That’s long been the case, but perhaps even more so now given the rent and wage inflation in London, where the ability to recruit is also becoming a challenge.”

Birmingham is one of the youngest cities in Europe, with under 25s accounting for about 40% of the city’s total population. That represents a deep pool of talent for companies to tap into, particularly as the labour market in London becomes increasingly saturated. Local authorities have obtained mixed results over the years in creating employment opportunities for the city’s young population and the broader level of participation in the job market remains extremely low – the employment rate in the city was only 60.9% at the end of June 2016, against a UK city region average (excluding the Greater Birmingham area) of 71.6%, according to figures from think tank Resolution Foundation. However, demand is gradually picking up as the city becomes a more attractive base for recruiters in the services sectors.

“Birmingham has got very large demographic pool and cost savings are substantial,” says Andrew Hicks, chief financial officer of Advanced. “For companies that are looking at their cost base in south-east England, they can replicate locally their ability to recruit and retain staff, offering people a good lifestyle and that’s becoming apparent in their decision making.”

London falling

Birmingham’s business proposition has received a boost in recent years by the increasingly saturated job and real estate market in London, pushing authorities and developers to lure companies into relocating out of London. The prospect of cost savings, but also of a better quality of life and improved productivity, have already prompted the likes of Deutsche Bank and HSBC to commit to shifting thousands of jobs to Birmingham from London. Property developers are now trying to further capitalise on these early successes.

“We are unashamedly trying to attract occupiers that are looking at moving services centres, administration, back-office and even front-office functions out of London because of the pressure on salaries, talent availability and the cost of office space,” says Ian Stringer, senior director for the Midlands for real estate advisory firm GVA, which is now in the process of marketing Three Snow Hill, a new grade-A office building in Birmingham’s centre.

The rent for grade-A office space in central Birmingham averages at about £32 ($40) per foot per year, about half the cost of that in the City of London. But cost savings for companies are not limited to rent.

From the ground up

The 93,000 square metres of grade-A space under development in Birmingham’s central district will shore up an otherwise weak provision of high-quality office space in the city. The developments are largely based around four major buildings: Three Snow Hill, a 16-storey, 40,000-square-metre, £200m development financed by property developer M&G Investment; Paradise Birmingham, a £500m regeneration scheme built on the grounds of an old public library, which will see 10 new buildings constructed, of which two will offer grade-A office buildings covering 33,000 square metres developed by UK property developer Argent; and 103 Colmore Row, a 26-storey, 20,000-square-metre grade-A office tower developed by Sterling Property Ventures.

However, Birmingham is not the only city in the West Midlands that is looking to upgrade its offering to would-be investors. A number of cities around the region are striving to capitalise on the growing momentum within the region and push through regeneration schemes, develop their services sectors and improve low employment rates.

“We are benefiting from the success of Birmingham,” says Tim Johnson, strategic director for place at City of Wolverhampton Council. “We see ourselves as complementary to Birmingham. For many years we undersold ourselves. That is not the place where we are today as we are directly taking an investment position in the city’s redevelopment schemes.”

City of Wolverhampton Council directly funded the development of i10, a 3300-square-metre grade-A office space development in the city that was completed in 2015 and now houses tenants such as Ovivo, Countryside and Tarmac, who pay rents of about £15 per square foot per year. That experience “has provided the model, it’s been a success that has underpinned a series of sites that will go forward on the back of that”, Mr Johnson adds.

City of Wolverhampton Council now estimates that the city could accommodate 90,000-square-metres of new office space, and i9, a new development just across the road from i10, is ready to go on the market.

With HS2 receiving final approval, Birmingham will find itself less than 50 minutes away from central London, increasing its appeal for services providers looking for alternatives to the busy market of the UK capital. The railway line will not be ready until 2026, but local councils are already gearing up to make the most of this long-awaited project by upgrading their offer of office space and building up momentum for more developments to come.