News & Updates

The Birmingham Report: Birmingham residential & commercial property predictions for 2018

Mark Evans, Partner and Head of Regional Residential Development and Ashley HudsonPartner and Head of Birmingham Commercial, review Birmingham’s residential & commercial property markets’ past performance and give predictions for 2018.

Birmingham residential property predictions for 2018 Design drives demand

Expectations from buyers continue to rise and this will prompt developers to consider the quality of schemes that are being delivered. The increased focus on design, from layout to finishes, is being seen across the board, from the more compact flat to larger apartments.

Buyers are also coming from further afield, with the expectations that accompany such moves – we are seeing significant numbers of buyers from the South East looking to purchase in the city.

The top quality schools and universities in and around Birmingham continue to be a draw for buyers from across England, and further afield.

Build-to-rent gains ground

The level of Build-to-Rent in Birmingham has been more modest than in other cities such as London and Manchester in recent years, in some part due to development economics and viability. However, this picture is now changing. There is a great focus from developers looking at the city with build-to-rent models and institutions looking for funding opportunities.

As examined in this report, more than 1,500 build-to-rent apartments are currently under construction in Birmingham, and over the next year, we forecast that more than 1,000 more will commence building.

With Birmingham being one of Europe’s youngest cities, and approximately 80% of city centre residents being tenants, there appears to be considerable room for growth in the sector – as the benefits of professionally managed Build-to-Rent over the private rented sector begin to be realised by the end user.

Prime values hit £500 psf by 2020

A year ago we suggested values for the highest quality bespoke residential schemes in central Birmingham would reach £500 psf by 2020. We now have evidence of some niche schemes hitting £425 to £450 psf, so we are sticking with this forecast.

Assessments for some prime schemes are now being looked at with an eye on £450 per sq ft in the future, and we expect this direction of travel for prime property to continue, especially with current and future infrastructure and amenity uplifts taking place in the city. 

Birmingham commercial property predictions for 2018

Rental growth

Last year we talked about the vast improvements in infrastructure and high-quality development unshackling the CBD and generating growth. A year on and schemes are underway and well advanced or completed. Moreover, developers are adapting their buildings in terms of amenity and design for management in the pursuit of high-quality occupiers.

We predicted that this would result in rental growth, and it has. Previously sub £30 per sq ft buildings have been improved to achieve £30 plus; examples include One Colmore Square, The Colmore Building and the Cornerblock. Meanwhile, new builds, including back to frame refurbs such as 55 Colmore Row and One Chamberlain Square, are now pushing towards the mid-thirties rents. We forecast that rents in the city core will continue to improve and the £35 per sq ft threshold will be achieved in this cycle.

Occupier growth

Last year we talked about the growth in fintech, media and telecoms with major professional services and financial occupiers targeting prime areas. During the past 12 months, the city has been successful in attracting many new occupiers including, Lombard Risk Management, Beasley Insurance, Air Liquide and Keyence. Others have expanded significantly including Hogan Lovell, Cundalls, Network Rail and Axa Insurance.

These successes, alongside other major occupiers such as RICS and HMRC confirmed our prediction that Birmingham would break the mould of the churn market and bring in new blood. The city continues to evolve and improve and we predict more new occupiers clamouring to take the new space created in the core.

Investment

In 2016, as a consequence of the stagnation in the run-up to the Brexit vote, deal volumes were down. This year, the politicians created yet more potential economic turmoil in the form of the general election which was closer than anticipated and resulted in a hung Parliament.

However, the markets didn’t react negatively. Although, once again core deal volumes have been hampered with £427m of office assets traded. Prime city centre yields have hardened to 5% although we believe this will be beaten if a prime asset is traded in the next 12 months.

The pool of buyers has never had so much depth with UK institutions vying with core plus private equity houses and overseas buyers. We, therefore, predict sub 4.75% yields to be achieved by the end of 2018.

*To discuss any of the issues raised in this article please contact Captec Estates on 020 7183 3892.

*The information provided in this section of our website is for information purposes only. The website and its content are not and should not be deemed to be an offer of or invitation to engage in any investment activity. The website should not be construed as advice or a personal recommendation by Captec Investments to any prospective investor.