2022 FORECAST
Birmingham
- The Commonwealth Games will raise the profile of the city to an international audience
- 2021 was a record year for the industrial market across the Midlands – in 2022, supply won’t be able to match demand
- The Birmingham Business Pledge is an attempt for businesses to drive the social value agenda, but there will be greater focus from other stakeholders during the course of the year
- While 2021’s introduction of the Clean Air Zone was a step in the right direction for the city, over 93% of Birmingham’s office stock is lower than EPC Grade B – the decarbonisation agenda will have an increasingly significant impact on real estate decisions
- Build cost inflation issues are having an impact on development across the UK, but are particularly stark in Birmingham due to the demand for materials and timelines for HS2 and the Commonwealth Games
- Outside of Birmingham, the Department for Levelling Up is moving to Wolverhampton; Coventry is at the forefront of the net zero energy revolution
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Economy
Offices
Retail
Industrial
Residential
Economy
Birmingham’s economy grew at a stellar rate of 7.8% during 2021 making it one of the fastest growing economies in Europe. The city will continue to see very strong growth during 2022 - 5.8% - which is well above the pre-Covid ten-year average of 1.7% per annum. However, after such a steep fall in the economy during 2020, the city is very much making up lost ground.
The city is predicted to see strong economic growth from the Accommodation and Food Services sector (29.2%) and Arts and Entertainment sector (16.4%). Transport and Storage sector is forecast to see growth of 9.3% - its strongest increase since 2010. Around 12,500 jobs are expected to be created as a result, of which nearly a third will be office-based. The office workforce is forecast to exceed its pre-Covid headcount in 2022. The city's high exposure to the manufacturing sector and its relatively high unemployment rate (forecast to be 8.2% by the end of 2022, compared to West Midlands’ 5.5%) weigh on growth, but creates a significant opportunity for growth in the economy in the medium term.
2022 will see the Commonwealth Games come to Birmingham. The Games will bring an international focus on the city and the region that it has long craved, and while not all of the earmarked redevelopment has been delivered, the city will be rejuvenated by the Games.
The HS2 development continues apace, while Birmingham City Council has launched a plan to reinvent the city centre with new parks and green spaces. The City Council launched Our Future City Plan: Central Birmingham 2040, Shaping our City Together, with priority given to walking, cycling and tram routes – all prioritised to help generate footfall across the city centre. The Birmingham Business Pledge is step towards driving the Social Value agenda in the city.
BIRMINGHAM DASHBOARD – ECONOMY
Offices
There was a significant improvement in office activity in Birmingham city centre during 2021, with above average take-up during the middle quarters of the year. Activity slowed towards the end of 2021, with annual take-up c.10% down on the ten-year average.
The expected improvement in relevant employment sectors, should underpin office demand although that will be tempered by the extent to which businesses return to the office, once they’re allowed to do so. As of mid-December 2021, workplace mobility was still a third down in Birmingham city centre, and office occupancy lower – even before restrictions were introduced.
With tenant requirements focused on ‘less but better’ space, we will likely see more activity on new and refurbished units – with potential for upward pressure on rents for the best buildings – Tilney Smith Williamson were rumoured to have agreed a new headline rent of £37.50 per sq ft at 103 Colmore Row in Q3. We will likely see continued demand from professional and financial services firms – with Arup and Atkins committing to Paradise during 2021, and Shoosmiths joining Grant Thornton and Tilney Smith Williamson at 103 Colmore Row.
The city will see a return of demand from flexible workspace providers looking to capitalise on occupiers’ increased desire for flexibility. Following IWG’s 50,000 sq ft deal at Mailbox during early 2021, new entrant to Birmingham X+why arranged management agreements on 34,500 sq ft at 103 Colmore Row and 40,616 sq ft at 6 Brindleyplace, space which was vacated by WeWork. The increased supply of flexible workspace will likely eat into ‘traditional’ demand, although landlords are adapting – there are increasing examples of Cat A+ fit-outs, as landlords look to mitigate void periods and attract occupiers uncertain of their short-medium term requirements.
Overall availability remains historically relatively low and has been relatively stable this year at 1.8 million sq ft, having increased 15% since its cyclical low in Q3 2020. There is a healthy supply of new space coming to the market during the course of the year - at 1 Centenary Way (280,000 sq ft), 103 Colmore Row (228,000 sq ft) and CBREGi’s major refurbishment of 8/10 Brindleyplace (213,000 sq ft).
BIRMINGHAM DASHBOARD – OFFICES
Retail, Hotels and Leisure
The hotel offer remains mixed with an oversupply of older stock. While funding remains challenging on new build premium hotels due to land values and constrained market performance, the ongoing regeneration and economic growth of the city should present positive opportunities for new hotel developments to replace tired stock. Birmingham is one to watch in 2022.
During 2021, the city has seen a 24% reduction in its retail units – which compares unfavourably to other cities but may also mean that the city is further along in rightsizing. Vacancy continues to increase and is now as high as 23%, albeit for prime units that is much lower – at c.8%. There have been very few openings during 2021; Hollister and Gilly Hicks have moved into the former Burton unit on New Street.
In what is good news for the city, the former Debenhams in the Bullring has two new tenants – M&S will take over the bottom two floors and Toca Football will take c.40,000 sq ft on the top floor. The large-scale redevelopments of Martineau Galleries and Arena Central will both include significant retail and F&B elements. The former Primark on New Street is also under redevelopment and is due for completion early 2022. Frasers group will launch a 60,000 sq ft multi-brand, flagship store which will include a Sports Direct, Evans Cycles, USC and Game as well as a 24-seated Belong E-sports venue (the second Belong venue in the city).
BIRMINGHAM DASHBOARD – RETAIL
Industrial
Demand for industrial and logistics space across the Midlands continues to go from strength to strength, with take-up for 2021 at 25 million sq ft, over 75% above average. Demand continues from internet retailing and 3PLs, while the market is seeing a return of manufacturers and an increase in the number of dark kitchens. This is driving down supply, with very little available space and inability for the development market to deliver on D&B. Labour shortages and construction delays are acutely impacted, with a number of schemes being pushed back from 2022 to 2023, and relatively little development land particularly in the West Midlands.
The region is well on the way to establishing itself as core part of the shift towards net zero carbon energy. Polestar expanded its R&D team at MIRA Technology Park to 250 during 2021, with plans to double again in the near-term. Britishvolt’s new 50,000 sq ft HQ is due to be operational during 2022 in the same location, while there are plans for the UK’s largest Gigafactory at the site of Coventry Airport, with JLR understood to have a key role in the site – although this won’t open until 2025.
An alternative to EVs, Tyseley Energy Park in Birmingham already has the UK’s largest hydrogen refuelling station and is now home to the Birmingham Energy Innovation Centre which will focus on the advancement of this technology.
BIRMINGHAM DASHBOARD – INDUSTRIAL
Residential
Birmingham’s housing market had a very strong 2021, ahead of most urban authorities and just behind the wider UK. Across the wider West Midlands, activity and price growth has been strong, largely led by the reassessment of housing preferences following the pandemic and a ripple effect from Birmingham. This demand has been reflected in land values and semi-rural locations have performed particularly well. We expect these trends to continue in 2022 albeit more moderately. The city has a significant amount of supply coming through, particularly around the strategic regeneration areas and along with this we believe there will be significant change of use to residential, repurposing leisure and retail assets.
Birmingham’s BtR sector is probably the most established outside of London and demand for opportunities remains very strong. As with other cities, the majority of activity so far has been focussed on city centre locations but we expect this to broaden next year. Suburban opportunities are receiving a lot of investor attention and we think the wider Birmingham area will be one of the UK leaders in this market.
Much like BtR, opportunities in Birmingham’s PBSA sector are very sought after and we expect this to continue next year. Its status as a Tier 1 city with multiple institutions and the Russell Group University of Birmingham will continue to drive the demand fundamentals along with investor and developer appetite. Within the city the most lucrative opportunities and assets are in Selly Oak and Edgbaston which is distinct from the city centre market. While the planning environment can be tricky at the former, Watkin Jones received permission during late-2021 to build a 523 unit scheme at Elliot Road.
BIRMINGHAM DASHBOARD – RESIDENTIAL
2022 Forecast Birmingham Digital Event
Watch our recent live event, where we brought together a series of experts to explore the key drivers and predictions for Birmingham in the year ahead.
Broadcast Thursday 3rd February
