Birmingham Vacancy Rate Bombshell: Does It Add Up?

Birmingham vacancy rates could be about to shoot up.

That is the conclusion of an explosive piece of research published by a health and safety consultancy that has taken the brave decision to venture into the world of office market analysis.

However, Arinite has been careful to explain how it reached its conclusions, and to publish a full examination (you can read it here), using BNP Paribas Real Estate research as a baseline, and Gartner data that suggested that, as lockdown began, business planned to move 5% of its staff to permanent working from home (or something close to permanent). Arinite has assumed a (fairly generous) 100 SF per person office density.

Its conclusion, that Birmingham vacancy rates are about to rocket to among the highest in Europe, is hard to ignore.

Five months on, Arinite said the number may have grown from Gartner's 5% and now be closer to 20%, not least because many small and medium-sized businesses realise they stand to make significant cost savings if they can reduce office density.

London tops the European list, with office rental savings for office occupiers anywhere between £146K and £586K for the average SME downsizing an office by the original 5%. Birmingham offers rent reductions of £45K to £180K.

The effect on vacancy rates could be considerable, Arinite said. Assuming between 5% and 20% of the workforce are now based at home could take Birmingham’s vacancy rate from 12.8% to somewhere between 17.2% in the best case and 30.2% in the worst.

The only comfort here is that Manchester is slightly worse. Manchester currently has office vacancy rates around 15%. With this reduction in office size, this number will jump to 19.3%-32%, the highest office vacancy rates in Europe.

Arinite said the normal process of market correction could come into play. Excess supply could help nudge office rents down, which could attract new business and more SMEs to Birmingham. But that takes time, and an economy in recovery mode, implying the city may have to live with higher vacancy rates for some time.

It also suggested that whilst Birmingham and Manchester may take a hit to vacancy rates, the relatively high cost savings to be made from cutting office floorspace in London could encourage businesses to relocate from the capital to the regions.

Does it add up? The rental savings quoted for Birmingham suggest its baseline tenant is paying a rent of £900K a year, probably the higher end of expectations; and would imply occupancy of around 25K SF of floorspace. An allocation of 100 SF per person might also be questioned.

"The SME size is based on the upper limit of 250 employees. Arinite generally has clients with a larger employee base, so this size as a reference was deemed the most appropriate for the comparison," an Arinite spokesman told Bisnow.

The Arinite forecast was published as Croudace Properties scoop a 2.8K letting at 28K SF Cavendish House, Waterloo Street, leaving their vacancy rate at 14%, and as Birmingham’s tallest commercial office building has reached its full 354-foot height.

The 26-storey 103 Colmore Row is funded by Tristan Capital Partners and will provide 224K SF when it is completed next year.

Letting agents Colliers International, Cushman & Wakefield and Knight Frank will be hoping and praying that Arinite have got it wrong.