New research by Jones Lang LaSalle's Birmingham office has exposed a large disparity between the value of Birmingham city centre office space and those available in the Solihull and South Warwickshire M42/M40 corridor.
Headline rents for Grade A offices in the city centre are £27.50 per sq ft and have the potential to rise to £30 per sq ft, due to the lack of supply.
There is only 14,000 sq ft of new Grade A space available, with a further 13,500 sq ft coming on stream before the year end. Next year, a further 200,000 sq ft is to be completed at Baskerville House, but all of this space is contained in one building.
By contrast, new Grade A space in Solihull and South Warwickshire is available at rents of only £17.00 to £21.50 per sq ft.
The area can provide immediate availability of 440,000 sq in ten selfcontained buildings and a further 104,000 sq ft of speculative space in three buildings under construction for completion this year.
In the last eight years, city centre rents have grown by some 22 per cent, while Solihull rents have remained flat.
Jones Lang LaSalle believes that this imbalance, coupled with abundant regional supply and improvements to traffic flows on the M42, will result in much healthier market conditions, rental growth and improved demand in the M42/M40 corridor over the next two to three years.
Evidence suggests that investors and developers have already recognised this opportunity.
Prudential purchased 57 acres at the former Lucas HQ in Solihull last May for more than £40 million for a 350,000 sq ft office park.
Two miles away, British Land is now on site at Blythe Valley Park at Junction 4 of the M42, constructing two new speculative office buildings of 32,000 sq ft and 42,000 sq ft quoting £21.50 per sq ft.
The attractiveness of investing outside of Birmingham city centre has been given a further boost as a result of Budget changes which have removed commercial stamp duty relief from the majority of the commercial core, including the prime address of Colmore Row.
The cost of investing in most property in the city centre has just risen four per cent.
Peter Fowles, director of valuations at Jones Lang LaSalle, said: "There is a widespread recognition that the under-supply in the city centre, coupled with the roadwidening and traffic management schemes on the M42 have created an excellent investment opportunity.
"Investors have moved quickly to exploit the disparity in rents, but the opportunity is unlikely to last too much longer."