Pictured above: Carl Potter, director, head of national offices at GVA Grimley

The Midlands continued to experience weak demand for business park office space in the first half of 2010 while availability increased, according to the latest GVA Grimley Business Parks Review, which monitors office space supply and demand across the UK's business parks.

New construction activity slowed to a standstill with few developers willing, or able, to initiate new schemes speculatively. Rental values continued to fall in most submarkets although the pace of decline eased.

Occupier activity on business parks in the Midlands also remained subdued in the first half of 2010.  The 208,000 sq ft of floorspace take-up recorded was approximately half the five-year average. 

Carl Potter, director, head of national offices at GVA Grimley commented: "The occupier market was characterised by a background churn of smaller deals rather than any headline-grabbing lettings.  Binley Business Park in Coventry, Birmingham Business Park and Blythe Valley in Solihull all saw healthy levels of occupier transactions."

Headline rents generally continued to come under negative pressure across the region with the GVA Grimley rental index showing an annual fall of 2% for the region as a whole.

Carl Potter added: "Despite the fall in rents, we have seen a few cases that have bucked the regional trend. For example, the out-of-town markets of Coventry, Wolverhampton, Leicester and Northampton all saw prime headline figures holding steady, while in Derby rents increased by 3%."

In terms of new supply, the slowdown in construction activity that commenced in 2007 had ground to a complete halt by mid-2010.  With debt funding in short supply, falling rental values and rising availability, investors and developers remain reluctant to go ahead with new schemes.  However, the time-lags associated with the development cycle mean that the severity of the current slowdown raises the possibility of a shortage of grade-A supply when the occupier market eventually returns to normal.

Carl Potter added: "Availability continued to increase during the first half of 2010, reaching its highest level in the survey's 14 year history.  A 16% increase since the start of the year was recorded, bringing total available floorspace to 2.8m sq ft by mid-year.

"The vacancy rate meanwhile crept up to 15%, which is also a record high for the Business Parks Review." 

Looking ahead, occupier demand is expected to improve with rental growth forecast to take the lead from the central London office market, where rents have continued to strengthen since turning the corner in late 2009.  But, there remain a number of downside risks to rental growth.  To what extent the new coalition government's proposed spending cuts will impact upon the UK's business parks is a key concern.  With public sector occupiers accounting for around 20% of the out-of-town market (by floorspace), the consequences of the forthcoming retrenchment in government spending for occupier demand could be significant.

Carl Potter concluded: "Many regional markets will hope to benefit as the government looks to rebalance the UK economy away from Financial and Business Services based in the South East of England.  However, any such structural adjustments the government may be able to influence will occur slowly, and so any significant short-term boost to demand appears unlikely."