Prime rents for commercial property in Birmingham fell by two per cent in 2010 but are expected to remain stable during 2011 as the supply of Grade A space erodes, new research has found.
According to property experts at Drivers Jonas Deloitte, at the year-end, rents for prime stock in Birmingham ranged from £22 to £27.50 per sq ft, but, on average, were £26 per sq ft.
Yields on prime Grade A city centre offices ended the year at around six per cent but are not expected to change significantly during 2011. Likewise, prime industrial yields, which currently stand at 6.75 per cent, should also remain stable throughout the year.
In the retail sector, despite a fall in rents, yields saw little or no compression during 2010, with yields on prime retail space in Birmingham remaining at 5.25 per cent.
Speaking at Drivers Jonas Deloitte’s annual investment seminar in Birmingham, Edwin Bray, regional head of valuation, said Birmingham is in a good position to attract investors away from London.
“In recent years, much of the cash pouring into the UK from overseas investors has centred on the capital, but with Birmingham presenting good opportunities for potential high yields and with funds and institutions beginning to refocus their attention on regional centres, during 2011 we expect to see more competition for prime investments.
“Stock selection is critical and identifying the areas where there will be rental growth is key. For example, prime logistics, retail warehousing and prime High Street retail are all expected to perform best in terms of rental growth this year.
“In 2010, international investors sought large, well let Grade A buildings in Birmingham city centre, as demonstrated by the sale of One Snowhill for £126 million and, in July, the sale of the Brindleyplace estate for £190 million.
“This year, however, whilst there are likely to be similar investment opportunities, property companies and cash rich private investors will be attracted to distressed assets by the relatively high yields and potential to add value.”
According to Drivers Jonas Deloitte, total returns from UK property exceeded 14 per cent and there was a healthy uplift in transaction volumes partly stimulated by the significant cash inflows into institutions during the early months of 2010.
Howard Richards, head of investment at Drivers Jonas Deloitte, who also spoke at the seminar, said he expected good property to still have a strong following among funds and overseas investors in 2011.
“We are optimistic that UK property will deliver a respectable performance in 2011 and believe returns of eight per cent are in prospect, providing the economic recovery is not derailed during the year,” he added.
However, Anthony Duggan, head of research at Drivers Jonas Deloitte, was more cautious. “We do not expect widespread rental growth but this year will create the platform for growth in 2012/13,” he said.