The End of the World is Not Nigh

Whilst the overall market conditions are tough and challenging, the confirmation of the much reported acquisition by Barclays of some 100,000 sq ft at Ballymore’s Snow Hill scheme, following on the success of Wragge & Co’s pre-let of just over 250,000 sq ft. Against this backdrop, Birmingham has seen perhaps one of its perceived areas of weakness i.e. lack of significant inward investment into the city – become very much a strength by demonstrating that there is ultimately some significant depth to local occupier demand.

With the city also being on the radar of other occupiers looking possibly at moves away from the relatively congested London and South East, it is not unreasonable to have expectations set that others may follow the example of Deutsche Bank with their move to One Brindleyplace, or it’s smaller subsidiary Tilney Investment Management which found a new home at Baskerville House.

Talk of inward investment projects brings one specific recent example to mind – being the visit of Mr Cameron and his fellow Conservative Party Members for their Conference held in Birmingham last year. With an influx of some ten thousand or so delegates, it is certain that the Conservatives taking centre stage in Birmingham will have provided welcome additional publicity for the city that will benefit from it’s exposure to a wider audience, and allow others from across the country to spread the very positive word about the city and what it has to offer.

Opportunities exist for occupiers considering the city as a relocation option with a wide range and choice of offices within the prime central core area and outlying districts. The concentration of new development activity has been perhaps in pervious years focussed entirely on the ‘historic’ central business district area around Colmore Row however this has seen the core expand and redefined – eastwards with the Colmore Business District (including Colmore Plaza and Snow Hill) and westwards with Argent’s most recent phase of development of Brindleyplace nearing completion.

Healthy activity in the industrial/production sector shows that the wider Midlands is also still experiencing a good level of demand for bigger buildings. The successful letting of sites such as the former IKEA building at Thrapstone (637,000 sq ft) and Titan at Bilston (267,000 sq ft) again highlights a commercial property market in and around Birmingham that still has plenty of life in it yet.

That said, the prospects for new speculative development (in this sector at least) will undoubtedly diminish and it is likely that the market will experience a situation where the supply of new production/ warehouse units will decrease until the banking sector releases its unusually tight group on funding. Still, this may not be a bad thing as a shortage in supply will be a good way to protect the levels of value in the market during that period.

With the global economic storms raging, there are other matters closer to home that are of concern to both owners and occupiers alike – I think it was Benjamin Franklin who said that there were two things certain in life – death and taxes. The latter is all to apparent given the removal of empty rates relief earlier this year, and therefore inescapable – adding to the overall costs of property to owners and occupiers as well as death and taxes a third addition to the list of ‘certain’ things is that of Energy Performance Certificates (EPCs). As of October 1st 2008 all buildings on the market (with few minor exceptions) are required to have and EPC.

So are the certificates bad news for landlords? In the short term, the answer may be yes. Owners of buildings with a low energy rating will perhaps have to invest in order to bring the property up-to-scratch. Spending a little now to improve the energy performance of a building will significantly enhance its saleability in the future. Furthermore, a more energy efficient building will, by implication, be more cost-effective in its use and operation and therefore lead to reduced lifecycle costings, saving both landlords and occupiers money in the long run. Although many continue to feel anxious about the arrival of the certificates, all in all EPCs and doing your bit for the environment can only be deemed a good thing – furthermore they shouldn’t be a cause for immediate concern as owners don’t need to think about them until they’re ready to sell. When that time does come, we are able to direct owners in the right direction of accredited assessors and provide sound advice to ensure the process is not an onerous one.

One other piece of legislation that is unarguable casting a gloomy shadow over the commercial property market at the moment is the empty rates business tax. The changes to the empty rates bill left the industry reeling in April 2008, hitting regeneration initiatives, speculative developments and crippling occupiers with massive tax increases.

Although confidence in the Birmingham market remains strong, landlords and developers sitting on unoccupied buildings are now feeling the pain of this tax more so now than ever before, as they struggle to survive in a market where occupiers are becoming increasingly hard to find. Traditionally, developers have built properties entirely on a speculative basis. However, as a result of the tax, it now appears that developers are becoming more reluctant to take risks due to the possibility that a development may sit unoccupied for too long.

Vacant building owners may perhaps find some comfort in the Secretary of State, Hazel Blears’ efforts to review the tax.. At an event hosted by the Urban Hub on issues facing cities, she said: “Circumstances do change and we have seen things that the economic outlook is different. When this legislation was brought in there were buildings that were being deliberately left empty.. We are keeping this legislation under review.” We wait with baited breath on her decision, as owners and occupiers across the country would no doubt meet a U-turn with unanimous accord.

So, what advice can be given to commercial property owners in Birmingham? True, the world’s financial markets are experiencing troublesome times, but this shouldn’t automatically raise massive alarm bells for the city. At times like these confidence is key and owners should take comfort in the fact that Birmingham has had a well above average take-up and businesses are still seeking space despite the challenging climate.

With Birmingham’s profile increased as a result of the Conservative Party Conference and more businesses looking to move away from the overcrowded and expensive South East, Birmingham will continue to grow in reputation and stature. So, although the front pages in coming weeks will undoubtedly continue to be covered with further stories on the world’s economic turmoil, and scare-mongering by the “gloom and doom merchants” that the end of the world is upon us, commercial property owners in Birmingham can rest assured that the end is not nigh, for them at least!