INVESTMENTS in the West Midlands’ office sector soared ahead despite an overall reduction in commercial property investment in 2022, our new report reveals.
Commercial real estate investment in the region was just under £2.2 billion in 2022, a third of the previous year’s volumes - but broadly in line with the five-year rolling average, at just 7.5% down, according to our annual Market Insite review.
Offices bucked the trend by ending the year up 44% on the previous year, recording £415.1m of investment transactions, while the industrial and alternative sectors continued to take the lion’s share of activity at 71%.
The figures were revealed in Innes England’s 16th Market Insite report - presented virtually to an audience of hundreds of industry professionals - which monitors trends in the regional property market.
Traditionally focused on the East Midlands, this year was the first time the report included Birmingham-wide investment data, reflecting the company’s expansion to the city in 2022 under its head of office, director Adam Rock.
“Last year’s investment in Birmingham’s office sector surpassed 2021 volumes, with investors focusing on prime, well-let properties and purchasers targeting both prime properties along with repositioning opportunities,” said Adam.
“Overseas capital has been behind some of the larger transactions in recent years. There was a shortage of high-quality space and strong pre-leasing activity had encouraged development across the city, although in recent quarters occupier demand slowed due to growing uncertainty.”
In Birmingham and the West Midlands area, the report highlighted:
· The ‘alternatives’ sector - beyond the main offices, retail and industrial sector - proved resilient, with volumes only slightly down (23%) on last year at £702.1m. It provided the largest deal in the West Midlands with the £200m forward funding of the One Eastside build-to-rent development, by Pension Insurance Corporation
· Notable industrial deals included Bentall Green Oak’s £90.5m purchase of the multi-let industrial estate at Richardson Parkway, reflecting a 2.88% yield; Oxford Properties’ £27.7m purchase of Castle Bromwich Business Park, reflecting a 3.27% yield and Valor Real Estate’s £52m purchase of The Hub at Witton industrial park, reflecting a 2.87% yield
· The largest office deal was Blackstone’s purchase of the 310,000 sq ft The Colmore Building for £182m
· Other office deals included CBRE Global Investors’ £80m purchase of 125 Colmore Row; Oval’s £24.5m purchase of St Philips Point and Birmingham City Council’s £26.48m purchase of 9 Colmore Row
· Retail investments in 2022 were significantly down, recording less than half of last year’s volume at just under £233m. Deals included Birmingham City Council’s £15.6m purchase of Newhall Walk retail park and the purchase of the flagship retail store at 79-84 High Street for £14.7m by an overseas investor.
Adam said: “Industrial investment was mixed, with an initial buzz of activity seeing investors seeking prime well-let assets on very keen yields only to stall somewhat because of rising costs of debt and inflation.”
Adam said Innes England’s Birmingham office had seen a great deal of activity since launching, which included acting for 30 clients in nine months and dealing with 100 valuations, with a focus on professional services and undertaking valuations for the major banks.
“We’ve had a great start in what is a really dynamic and thriving city with incredible amounts of investment opportunities,” he added.
Ben Robinson, head of Innes England’s investment consultancy, said: “As the era of cheap money came to a rather abrupt end towards the latter part of the year many investors adopted a wait-and-see approach whilst commercial property yields re-rated across the sectors,” he said.
But he added: “As we begin 2023 we are cautiously optimistic that transaction activity will return as investors quickly become acclimatised to the new norm.”