To use footballing parlance, the last 12 months have been something of a game of two halves in the property sector.
This time last year, the best part of a decade of unbroken growth in both the commercial and residential property markets ensured there were plenty of smiles around the pool during the summer holidays but as the winter set in, so did the effects of the credit crunch.
Since Christmas, confidence has been slowly ebbing away in both sectors and those mojitos won’t be tasting quite so good this summer.
Despite these uncertain economic times, the development sector in Birmingham has so far weathered the storm and, at 21, there is actually the same number of cranes looming large over the city skyline as there were this time last year.
Jill Astley, development partner at Drivers Jonas, believes the amount of development activity is encouraging, and rates Birmingham’s performance to date ahead of some other regional cities, but acknowledges that this is likely to change for the year ahead.
She said: “This year we have seen the continuation of a number of key development sites as well as the beginnings of activity on other well-documented major sites such as phase two of Masshouse and The Cube, but the question being asked is whether there will be the demand for these schemes when they are complete, and whether the pipeline developments will continue to come out of the ground as planned?”
In terms of occupier space, while trading conditions have been tough, Birmingham could actually enjoy a record year in terms of space let if the second half of the year is even half as successful as the first.
On average around 600,000 sq ft is annually let in Birmingham but two major lettings – Wragge & Co at Two Snowhill and Deutsche Bank to Brindleyplace – has seen that figure already rise above 500,000 sq ft.
Philippa Pickavance, head of agency at Drivers Jonas in Birmingham, said occupier demand was currently split between very large requirements or very small with very few mid-range requirements surfacing.
She said: “Birmingham has been suffering from a real lack of grade A space for many years so the fact that we are now seeing a number of key schemes come into the marketplace is extremely good news and the two big lets to Wragge and Deutsche Bank clearly show that these developments are meeting a demand from occupiers.
“The economic conditions are undoubtedly tougher than this time last year but it is absolutely crucial that key schemes continue to be delivered because occupiers are out there if the product is right.”
One factor picked up on in this year’s Crane Survey has been the redefinition of the city core to include Edgbaston.
The suburb has been included in the survey for the first time thanks to a new map of the city centre office market launched as part of a unique initiative by the Birmingham Office Market Forum (BOMF).
The map is designed to be used as a definitive reference document for those looking to invest in the city as well as the office agents themselves.
The boundaries essentially follow the route of the former middle ring road, taking in the Jewellery Quarter to the north-west of the city, Eastside and Digbeth to the east and extending south-west to take in Edgbaston and the Hagley Road.
There are eight new developments under way with cranes on site within the redefined city boundaries – The Cube at The Mailbox, Newhall Square and Brindley House on Newhall Street, Kenyon Gorge on Kenyon Street, Etna House off Curzon Street, phase two of Masshouse, Latitude on Bromsgrove Street, 113 Moseley Street and Calthorpe House at Five Ways.
Existing developments continuing in 2008 include Ansty Court on Kenyon Street, Eleven Brindleyplace, Sinope on Sherborne Street, Snowhill and 45 Church Street.
The residential market is widely accepted to be taking quite a hit this year after a period of strong growth, yet the 2008 survey has thrown up a surprising number of flats to be brought forward in spite of current market conditions.
Jill Astley said: “The sheer number of apartments under construction within the city this year is very high, delivered across fewer schemes but with larger numbers of plots.
“Last year’s survey highlighted a move away from these large scale residential developments towards, smaller, more individual developments that performed well, adding to the positive regeneration of the city as a whole. It was a welcome step away from the large volumes of apartments that could be detrimental if continued at the pace seen earlier in the decade – however the past 12 month’s activity signifies a shift back to this attitude.
“There is, however, a question of whether these residential developments meet demand, and whether their programmes can be adjusted, which will ultimately come down to a matter of phasing. Many of the schemes are not essentially new developments but have been in the pipeline for some time, and some of the residential offering is part of mixed-use schemes such as Snowhill, The Cube and Masshouse – allowing the developers to select which elements to concentrate on first.”
The city centre residential market continues to offer a limited apartment product with family accommodation still conspicuous by its absence and unlikely to be introduced.
Despite an overall fall in new-build housing sales the survey suggests it is unlikely the market will change its offering now to attempt to reach other types of occupier, simply due to the timelag between conception of schemes and homes actually being released for sale.
No major new developments across the retail sector have been identified in the past year other than small elements within residential or mixed-use schemes.
Though it is clear Birmingham’s development sector faces a more challenging immediate future than in previous years, the city is still faring better than some of its contemporaries across the UK.
Leeds for example is experiencing a difficult time in light of the current market conditions, especially in the residential market, highlighted by the decision in November by George Wimpey to pull out of its plans to build 800 city-centre apartments as part of a £100 million, mixed-use development called Green Bank.
The good news is confidence in Birmingham’s market has not totally disappeared and the big lettings seen already this year continue to boost activity and performance. The city’s continued renaissance is still attracting high profile blue chip occupiers – offering valuable encouragement to the development sector.
As detailed, the residential market is becoming increasingly difficult, and with mortgage lending falling, this will continue to be a concern for developers for the next 12 months or so.
Residential developers will need to display a unique selling point to differentiate themselves from the masses of product on offer, and look ahead to changing demand to stay ahead of the game.Those developers unable to rise to the challenge could well find themselves in the relegation zone.