Office space take-up in Birmingham city centre last year - at 365,000 sq ft - was the lowest for eight years.
But the outlook for 2004 is more optimistic, according to the world?s largest property consultants, CB Richard Ellis, in its latest UK Regional Offices survey.
It shows that the major constraint on occupier activity growth will be the lack of available Grade A space with only one major scheme ? 82,000 sq ft at 134, Edmund Street ? due for imminent completion.
However, the balance is likely to be redressed in 2005 with the redevelopment of Baskerville House which will provide 206,000 sq ft of top grade space.
Richard Ellis said that last year was a retrenchment for the central Birmingham market, following a record year in 2002 when the total was more than 800,000 sq ft.
For some years the average take-up has been 550,000 sq ft, but 2003?s figures were affected by the limited supply of ready to occupy Grade A space and the reluctance of occupiers to make long- term financial commitments.
Only 70,000 sq ft ? just under half the first six months total ? was taken up in the second half of
2003. This year?s total is already almost guaranteed to be higher as the freehold sale of 247,000 sq ft to the Judiciary Services at the Post & Mail site on Colmore Circus is believed to be imminent.
John Batsford, CB Richard Ellis? director of office agency in Birmingham, said: ?Professional and public services sectors accounted for more than 50 per cent of the take-up.
?The Office of the Deputy Prime Minister took 65,000 sq ft at 5, St Philip?s Place and accountancy firms took more than 40,000 sq ft of the total space let.
?A number of large firms from the professional sector, especially legal services, are negotiating for new space.
?Wragge & Co are rumoured to have a requirement for more than 200,000 sq ft, Hammonds 70,000 sq ft, Cobbetts Lee Crowder 40,000 sq ft and Mills & Reeve between 20,000 to 25,000 sq ft.?
Availability of space in the city centre is 1 . 2 million sq ft, unchanged for a year ago. But the amount of secondhand space has increased over the past two years with occupiers releasing surplus accommodation on to the market.
The investment market, with #147 million of transactions last year, shows no signs of abating. It is being stimulated by the city?s prime pitch, Colmore Row, being defined as a disadvantaged area for Stamp Duty provision in last year?s Budget.
Major transactions in 2003 were #57 million by Standard Life for 130,000 sq ft in Cornwall Street and #24 million by a private Irish syndicate for 63,000 sq ft at Direct Line House, Livery Street. Currently, there are several large investments under negotiation and due to complete.
These include 30,000 sq ft at Edmund House, Newhall Street to Morley for #21 million.
Strong demand has reduced prime office yields, now standing at 6.65 per cent.
Prime rents are holding at #27.50 per sq ft in the city centre.
Occupiers who have been in the market for a while are obtaining very favourable lease terms with typical incentives of 12-18 months rent free in return for entering into a 15-year lease.
The shortage of Grade A space may encourage rental value growth over the next 12 months with #30 per sq ft anticipated by many to be achieved in the next two years.
Nationally, the survey reports developers remain reluctant to build speculatively, overseas investors are extending their reach into the regions and the regional office markets could attract a significant weight of institutional money this year.