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Cushman & Wakefield warns of nasty surprise waiting for businesses looking for out-of-town offices14th May 2013

Cushman & Wakefield in Birmingham has warned that businesses seeking out-of-town office buildings in the Midlands may be in for a nasty surprise.

Cushman & Wakefield's Scott Rutherford said that top quality space had become so rare outside of the main urban centres that companies are increasingly considering new developments.

And although there were plenty of sites available for this, the nasty surprise would be the financial implications associated with such a move, particularly the length of the lease involved.

“If you have to get a building built, the terms are going to be stringent, simply because it is very difficult to fund new developments at the moment,” said Mr Rutherford.

“Those seeking a new build are going to have to consider leases of 15 years upwards with a minimal rent free period to make it work – and we haven’t seen those kind of leases since the 1980s.

“It is all about the cost of funding and lack of willingness of investors to invest in new office buildings at the moment. There is currently not enough return for investors – yields need to move in, and until they do, regional offices will not be as desirable for investors as those in central areas.”

Mr Rutherford said the situation was particularly relevant to markets such as the M42, where there were few requirements and not much speculative space.

He added that the latest research from Cushman & Wakefield in the Midlands has revealed that the offices market was improving, and there was currently a two-tier market in place, with tenants seeking space in the main central zones in a far stronger position to those in the out-of-town market.

He said that there was still an over supply of grade A space in central Birmingham, with landlords still offering attractive terms to retain or attract occupiers – but very soon the in- town market would mirror that of the out-of-town, with no new supply likely until 2017.

However, there were now only two significant offices buildings under construction or refurbishment (Two Snowhill and 5 Brindleyplace), and at the same time a number of large businesses in the professional services sector were believed to be ready to firm up their intention to move to new premises in the near future, which could put pressure on the availability of top quality space.

Despite this, the C&W research has revealed that headline rents for the Grade A space had remained unchanged in Birmingham during 2012, at £27.50 per sq ft, and this had continued throughout the first quarter of 2013.

Headline rents had also flatlined in other key regional centres, including Coventry, Leicester and Nottingham.

Where the out-of-town supply was concerned, the research had shown that there was now a shortage of space for those seeking offices of 15,000 sq ft and above, and this was set to get worse as there were no new construction starts in the pipeline, nor any imminent completions due. The only major office building on the horizon is One Trinity Park, a major refurbishment which will provide 50,000 sq ft of top quality space once complete.

Mr Rutherford said that he believed the situation in both in-town and out-of-town would improve once investors decided that the regional markets were undervalued, and he thought this would occur within a year or two.

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