A significant leap in the value of office deals in the Midlands has masked an adverse reaction to an overheated market, according to a leading agency.
According to the Cushman & Wakefield’s latest investment market overview, in the first half of 2010 only the South-east office market was more active than the Midlands and the North-west, with transactions nationally totalling £1.6billion - 90 per cent up on the same period a year ago.
The South-east clocked up £585millio of transactions, but the Midlands enjoyed £265m of deals, thanks in part to the sale of One Snow Hill in Birmingham to overseas institution CommerzReal. This figure is close to the £309million total achieved for the whole of 2009.
However, the firm has warned that anyone coming to the obvious conclusion that the recession has melted away in the office market could be making the wrong assumption.
Scott Rutherford, head of the firm’s Birmingham office, said that despite the encouraging increase in activity in the first quarter of 2010, the third quarter had been quiet, and whilst prime offices were expected to hold their value due to a lack of stock, secondary pricing was under outward pressure.
“There was a lot of activity at the end of last year, and prices went up accordingly,” he said. “However, everything had in fact got too ‘hot’, and there has been a reaction from the market, which has seen prices coming down again to a more realistic level.”
Because of this, prime yields in Birmingham have worsened slightly, from 5.75 per cent during the last quarter of 2009, to 6.00 per cent at the end of the first half of 2010. It is a similar picture in most other locations in the UK.
Overall, C&W concluded that in the regions, investors in the offices property market have become more cautious in their approach during the first six months of the year, with only the best quality properties being traded.
Despite this, the firm has predicted that transactions for 2010 will probably total £2.2billion by the end of the year. However, that will still mean that transaction levels are some way off the peak of 2006, where £3.64billion of deals were completed in the second half of the year alone. With regard to prime rent levels, the figure per square foot for Birmingham is £27.50, which is slightly lower than some other cities, including Glasgow (£29.00), Manchester (£28.00) and even Reading (£28.50).
*Cushman & Wakefield will be holding a seminar on October 7 which will address the future challenges which Birmingham is facing, and what the city needs to do to ‘get ahead of the curve.’
The key speakers at the seminar will include Professor Julia King, of Aston University, and Philip Ross of Cordless Group. Prof King will look at the effects of climate change on transportation and the city infrastructure, and Mr Ross will examine the impact of technology on the workplace.