The Birmingham office market is set to outperform the rest of the UK outside London in 2006 - with rents forecast to reach £30 per sq ft (psf) for prime grade A office space, according to the latest research from commercial property consultancy Lambert Smith Hampton.
The LSH 'Weather Map' which provides market forecasts for the UK and Ireland office, retail and industrial sectors in the next six months predicts that prime office rents in Birmingham will increase by 9.1 per cent from £27.50 psf to £30 psf.
Only office rents in London, with a predicted ten per cent growth, are expected to perform better than Birmingham, with Slough on a par.
Key city rivals for footloose inward investments, such as Manchester and Glasgow, are expected to perform less well.
"The outlook for the national office market as a whole is bright," said Ross Bendall, director and head of office agency at Lambert Smith Hampton's Birmingham office.
"In 2005, prime office rents either increased or stabilised, as occupier demand steadily improved in all key markets around the UK.
"In Birmingham the outlook is very sunny, as there is little or no immediately available grade A office space, with good latent occupier demand. As a result, simple supply and demand dynamics are putting upward pressure on rents.
"Rather than a gradual rise, we are most likely to see a sudden step change in top rents this year, with Baskerville House, the only grade A space to complete in 2006, the prime candidate to achieve the £30 psf, which it is quoting for its top floors."
In the industrial market, the LSH Weather Map shows Birmingham performing less strongly than the office market with the forecast of a rise in Birmingham prime industrial rents of 1.7 per cent from £5.75 psf to £5.85 psf within the next six months.
"Sunny periods are predicted for the Birmingham industrial market," said Nick Ford, director and head of industrial agency.
"The shortage of mid-range industrial and distribution buildings in the Midlands looks set to ease in 2006, as developers start to bring through a number of new speculative developments. However, there is currently very little prime standing stock.
"Rising fuel costs and retailers squeezing contract prices are keeping logistics companies on the back foot and sensitive to any increase in rents.
"We have seen incentive levels reducing which, coupled with the new speculative stock coming on stream, will feed into modest g rowth in prime rents in Birmingham.
"The national expansion in supersheds of 500,000-plus sq ft is in danger of passing Birmingham and the West Midlands by, as the lack of large strategic distribution sites and rising land values in the West Midlands and distribution operators' logistical criteria are pushing occupiers towards locations previously considered to be secondary in the Northern East Midlands and Staffordshire."
Birmingham continues to command some of the top retail rents in the UK, although average prime zone A rents are only set to increase by 1.5 per cent to £330 psf in 2006, according to LSH.
Director Chris Walters said: "Since the opening of the Bullring, Birmingham city centre has become one of the UK's premier shopping destinations, attracting a number of new and exciting retailers.
"Demand for space in Bullring remains strong, with the latest letting to Apple rumoured to have attracted a record rent for the scheme.
"However, the addition of the Bullring's 1.2 million sq ft of retail space, has naturally had an impact on other locations in the city where we are experiencing a period of consolidation, in particular Corporation Street and parts of New Street, where a number of high profile stores have come to the market.
"We are likely to see an on-going rebalancing of rental values in these locations.
"The overall effect on rents for 2006 and onwards will be positive."