Pictured above: Scott Rutherford
An impressive leap in the value of office deals in the Midlands
has masked an adverse reaction to an overheated market, says
Cushman & Wakefield.
According to the firm's latest investment market overview, in
the first half of 2010 only the South East office market was more
active than the Midlands and the North West, with transactions
nationally totalling £1.6bn, a massive 90 per cent up on the
same period a year ago.
The South East clocked up £585m of transactions, but the
Midlands weighed in with an impressive £265m of deals, thanks
in part to the sale of One Snow Hill in Birmingham to overseas
institution CommerzReal. This figure is close to the total achieved
for the whole of 2009, £309m.
However, Cushman & Wakefield has warned that anyone coming
to the obvious conclusion that the recession has melted away in the
office market could be making the wrong assumption.
Scott Rutherford, head of the firm's Birmingham office, said
that despite the encouraging increase in activity in the first
quarter of 2010, the third quarter had been quiet, and whilst prime
offices were expected to hold their value due to a lack of stock,
secondary pricing was under outward pressure.
"There was a lot of activity at the end of last year, and prices
went up accordingly," he said. "However, everything had in fact got
too 'hot', and there has been a reaction from the market, which has
seen prices coming down again to a more realistic level."
Because of this, prime yields in Birmingham have worsened
slightly, from 5.75 per cent during the last quarter of 2009, to
6.00 per cent at the end of the first half of 2010. It is a similar
picture in most other locations in the UK.
Overall, C&W has concluded that in the regions, investors in
the offices property market have become more cautious in their
approach during the first six months of the year, with only the
best quality properties being traded.
Despite this, the firm has predicted that total transactions for
2010 will probably total £2.2bn by the end of the year.
However, that will still mean that transaction levels are some way
off the peak of 2006, where £3.64bn of deals were completed
in the second half of the year alone.
With regard to prime rent levels, the figure per square foot for
Birmingham is £27.50, which is slightly lower than some other
cities, including Glasgow (£29.00), Manchester (£28.00)
and even Reading (£28.50).