The M42 Corridor And Post-Pandemic Workspace: Birmingham's Road To Nowhere?
Lower workspace densities, an office building with your own front door, fresh air and the outdoors just a few steps away, plus somewhere to park your car … Birmingham’s suburban and out-of-town office schemes seem like the answer to a post-pandemic workplace prayer.
So will Solihull and the M42 corridor, Coventry and the burbs, become the focus for the 2020-2022 West Midlands office market? And if they do, at what price?
The future of Birmingham workspace has never been harder to read. But one thing is certain: Everything will change.
“It’s still early days, but we’re going to see some rethinking on what occupiers want,” CBRE Head of Office Agency Will Ventham said, looking forward to the reopening of the Midlands economy after the coronavirus pandemic.
The immediate call is for more floorspace to meet social distancing requirements. “We’re talking to occupiers who work today at a ratio of one person to six or seven square metres of floorspace. To meet social distancing they are looking at 1:12, and this is particularly true of call centres, who can’t use hot-desking and for whom agile working doesn’t offer many benefits,” Savills Director of Office Agency Nick Williams said.
“It could be that call centres need 10-20% more office floorspace in the next 12-18 months.”
Simultaneously, occupiers are pondering how to survive a second wave, should the coronavirus come back again and again.
“In the city centre that might mean controlled, managed estates like Brindleyplace or Paradise, because they offer greater control of social distancing,” Ventham said. “But it also means locations out-of-town or on business parks with vehicle access will be an attractive proposition. At the same time employers and employees will both like the idea of more space and access to the outdoors.
“And a trend might emerge for control of your own front door, so we might see single-user office buildings become more popular.”
West Midlands brokers, developers, landlords and office interiors businesses are chewing over these ideas, and many more, as the UK economy begins to grind back into action. Meanwhile, office occupiers are rethinking their disaster recovery plans in light of the coronavirus and deciding how best to remain in business should there be a second wave, or another pandemic.
Nobody is yet prepared to say that the days of major city centre hubs are over. But there’s a definite chill in the air.
“Occupiers are looking to diversify their business," Ventham said. "A single city-centre hub of 200 or 300K SF might feel risky. Two or three buildings of half the size, one out of town and some in town, would give them more resilience.”
Whilst others postulate a 3:1 split favouring the city centre, Bisnow hasn’t found anyone who disagrees with the basic principle of dividing business between the city centre and the burbs or business parks.
Unhappily, a potential surge in demand for office space in Solihull and along the M42 corridor arrives at exactly the point that the supply of potential category-A floorspace is at an all-time low.
"I expect out of town will benefit in general, but the core issue on the Solihull-M42 corridor remains supply," KWB Head of Office Agency Malcolm Jones said. "It would be great to say there were loads of buildings which will come back and can be refurbished, but there are simply fewer and fewer buildings, and individual suites, coming back, and it might well be that shortage which holds the Solihull-M42 corridor market back, rather than any COVID-19-related challenge.”
So, what gives?
The options boil down to these: rents go up, developers develop, or demand gets diverted to less popular but more immediately useful locations like Coventry or Longbridge.
Taking each in turn reveals the dilemma.
Despite a shortage of good new (or newish) floorspace, the likelihood of rents going up is rated low-to-moderate by the brokers Bisnow has spoken to.
Today, Savills said, rents vary from £25 to £27/SF at the new or soon-to-be-completed blocks at IM Properties’ 1 Blythe Gate (60K SF) and Trinity Park close to junction 6 (35K SF). Pricing is roughly the same for smaller units in the 5K to 15K SF range at Birmingham Business Park. They look cheap compared to £35/SF at Hermes’ Paradise scheme in Birmingham city centre.
“The M42 corridor has record low levels of supply, and the development pipeline is not huge, so on our route out of pandemic we’re obviously going to be undersupplied with floorspace and that has to have an upward effect on rents. But at the same time we have a recession and caution, and my guess is rents will plateau,” Ventham said.
With rents holding steady, developers may choose to sit on their hands, which helps to answer the second question: Will developers begin to build to meet new demand?
“Developers will be watching office occupiers navel-gazing and they will also see the funding market scrutinising proposals even harder than usual, and I think they will conclude that if the demand-supply equation was all that mattered, then they’d do it — they’d build. But that equation isn’t the only thing that matters. Not yet. Maybe by 2021 it will be very much on the agenda,” Savills’ Williams said.
If development to meet perceived need is, for now, unthinkable how about diverting out-of-town demand away from the M42 corridor to somewhere with office space ready to use?
Savills' Williams gently suffocates this idea, too. “The options are limited. There’s Edgbaston, but that has the same problems as the city centre and large multi-occupier blocks that post-pandemic occupiers might not want. Or there is Coventry, but that is further from Birmingham, and out-of-town Coventry where the single user blocks are is even further, and what there is tends to be dated buildings. Rents in Coventry would be £16-18/SF for refurbished space, and it could be a target for some occupiers,” Williams said, but he doesn’t expect a stampede.
The final option is outer-urban locations like Longbridge, where there is floorspace available and some socially distanced options. But Longbridge won’t suit everyone.
That, in a nutshell, is the problem. Two or three strong years left the M42 with little new stock, and a truncated development pipeline, whilst the alternatives to existing M42 floorspace will have limited appeal, or long time-delays, or both.
For now, the Birmingham out-of-town office market is potentially on a road to nowhere.