A surge in demand for flexible office space is helping to push Birmingham prime office rents to £35/SF.

According to Savills, flexible office providers have accounted for 13% of total office take up in the city so far in 2017, up from zero transactions in 2016.

In the second half of 2017 the trend was even more pronounced, with flexible providers accounting for up to 20% of the market. Savills expects more to come.

The rash of deals for cool flexible offices, combined with more pre-lets and shrinking supply, made the consultancy predict that Birmingham prime office rents will climb steadily through £34/SF during 2018 to reach £35/SF in 2019.

“There continues to be strong demand for serviced office space in Birmingham, with take-up estimated to hit circa 150K SF by the end of the year," Savills Agency Director Ben Thacker said. "This uptick in activity has taken a big chunk out of Birmingham’s ‘mid-market’ supply at a time when availability is in rapid decline, and for this reason we are likely to see further rental growth as we head into 2018."

Savills said there are still a number of the major flexible office operators not yet present in Birmingham, particularly those providing co-working space.

“We think the picture will be completely different this time next year, particularly as the city is an obvious choice for those potentially reaching saturation point in London," Savills Associate Director Jonathan Ottewell said. "However, if more occupiers seeking sub-5K SF space focus on flexible offices, this will present challenges for the traditional leasing market at the smaller end. Landlords will need to evolve and adapt to stay relevant."

The growth of the serviced sector comes as Birmingham’s office market ends an up-and-down year on an upswing. Savills predicts city centre take up during 2017 is likely to approach 1M SF after an unusually strong second half.

Prominent leasing deals in 2017 include 240K SF at Arena Central to the Government Property Unit; 75K SF let to Spaces by Regus at Crossway; 24K SF to Hogan Lovells at The Colmore Building; and 16K SF at No. 1 Colmore Square to Hays.

The data is published as West Midlands metro Mayor Andy Street celebrated the topping out of One Chamberlain Square where PwC is to take the whole of Hermes and Canada Pension Plan Investment Board’s 150K SF block after signing up for the remaining 60K SF.

“A key issue now is that no new-build supply is due for delivery until 2019, when Three Snowhill and 2 Chamberlain Square at Paradise will enter the market," Thacker said. "In the interim the increasingly limited existing supply will continue to decline and ultimately this will encourage ongoing rental growth.”