Pictured above: Jonathan Robinson 

Jonathan Robinson, Associate Director in Industrial agency, gives his outlook on the industrial market in the West Midlands:

"The year began on a positive note with improvement in market sentiment and a growth in enquiries compared to the same period in 2009. This continued throughout the first two quarters of the year. Letting activity during this period saw a significant increase in the leasing of grade A stock built over the last two to three years with a series of high profile deals, which included the sale of Opus Axis in Burton on Trent extending to 466,000 sq ft to Boots in a freehold deal worth £23 million. 

In the north of the region GAP took 230,000 sq ft at ProLogis Park at Stafford on a five year lease for its internet business whilst to the east, Euro Car Parks secured 220,000 sq ft at the IM Properties Development at Birch Coppice near Tamworth. Other major deals in Birmingham throughout the year included, Stapleton Tyres and Exhausts taking a 10 year lease with a five year break at Express Point in Erdington, Pallet Network acquiring 313,000 sq ft at ProLogis Park at Midpoint and Biffa taking a new lease on 237,134 sq ft also at Prologis Park. Closer to Birmingham we have seen WH Smiths lease the 212,165 sq ft Big Blue on a 10 year lease with a five year break. 

During the year we have seen the take-up of grade A and good quality grade B stock outweigh the release of space coming back to the market and activity has largely been driven by retailers looking to take space to service new business streams or expand their online retail offering. 

The shortage of grade A space in some locations has meant attention has switched to good quality grade B stock. Grade A and B stock over the year has reduced significantly over a twelve month period. The shortage has also meant that many occupiers are having to be flexible about their location and building specifications with a number of them opting for design and build opportunities. 

We anticipate that deal terms for occupiers will become less attractive during 2011 and would encourage them to bring their requirements forward where possible. We have also seen enquiry levels improve and become more credible in their nature, a trend we see continuing in 2011. 

Two of the notable design and build deals during 2010 saw Ocado purchase 35 acres of land at Birch Coppice Business Park in Tamworth, which will be used to build a 350,000 sq ft distribution centre and Marks & Spencer's entering into a design and build deal for a 900,000 sq ft warehouse at East Midlands Development Centre, Castle Donnington on a joint venture between First Industrial Developments and Clowes Developments.

We have seen the churn of multi-let buildings on estates being particularly good, especially those located in prime locations within the region. Two good examples include Standard Life Investment's Birmingham portfolio of Gravelly Industrial Park and Elmdon Trading Estate both which have attracted new tenants into good quality, refurbished buildings on well maintained estates. During 2010, over 100,000 sq ft of stock has been transacted across these two estates

2011 will see a gradual improvement of market conditions with modern grade A and B, well maintained and refurbished stock in good quality locations continuing to prosper. We also believe that 2011 could see the return of the speculatively built property to cater for improved demand."

David Tonks, Head of Office Agency at DTZ in Birmingham, gives his thoughts on the office market:

"At the start of 2010 there was a general concern that the city centre office market would grind to a halt and the number of transactions would fall dramatically. These pessimistic predictions proved to be overly downbeat and the Birmingham market has been remarkably resilient against a backdrop of widespread business concern. 

"Overall take-up during 2010 within the city centre reached almost 650,000 sq ft which is broadly in line with the long-term average and is largely attributable to the diverse nature of demand active within the city.

"The market has, however, faced numerous challenges. The build up to the general election caused a number of large occupiers to delay implementing their property strategy, and a combination of the emergency budget and the largest public sector spending cuts since 1981, caused consumer confidence to hit an 18 month low during the autumn period.

"Concerns about future occupational demand and the significant levels of supply evident in the market have resulted in an environment where extremely competitive terms are available. Key deals during 2010 included, The Office of Legal Complaints acquiring 45,000 sq ft at Baskerville House and The Binding Site acquiring the 107,000 sq ft Calthorpe House. The acquisition of 10,000 sq ft by Mazars at 45 Church Street, demonstrating that there is still demand amongst the professional services sector which dominated take-up during 2006 and 2007.

"The absence of substantial new development within central Birmingham means that the supply of grade A accommodation will continue to fall over the next three to five years, causing larger occupiers with a lease event during this time to actively consider their strategy in 2011. 

"Active demand in the market suggests that consolidation will be the key driver of demand. Those organisations with a lease expiry or break clause in the next 12 - 24 months are frequently able to take advantage of current market conditions and relocate their staff into better quality accommodation that offers increased flexibility and improved profile for the business. 

"Looking forward, we anticipate that demand during 2011 will originate from a wide range of sectors and the general level of demand will remain steady during the first six months. Rents for better quality space are expected to remain largely unchanged over the course of the year and a modest reduction in rent frees or other incentives available to incoming tenants is anticipated as the supply of grade A space returns to long-term average levels.

"Central Birmingham is expected to benefit from the trend towards the consolidation of offices in light of the strong demographic profile of the city, combined with evident investment in infrastructure, including the redevelopment of New Street station. The supply of accommodation available in the city centre currently stands at around 17% of total stock, meaning that any occupier considering the acquisition of space within the city centre has a substantial choice of suites for large and small occupiers alike. 

"As we enter 2011, the gradual improvement in business confidence combined with increasing levels of merger and acquisition activity should serve to further underpin the strength of the city centre office market."

Steve Kirby, Senior Surveyor at DTZ in Birmingham gives a valuations perspective: 

"Throughout the second half of 2010, bank property funding tightened considerably with all the major High Street banks looking to re-gear facilities or preferably exit existing loans. In some cases this resulted in banks considering more aggressive action when their customers have breached banking covenants.

"Despite this, banks do have an appetite to lend but their criteria restricts them to only consider properties in prime locations that are well let with long-term income from tenants with strong covenants. This is mirrored by Pension Funds which are also solely focused on prime assets. Over the course of 2010, this has resulted in a widening gap between what is deemed prime and secondary, a situation enhanced by the lack of prime stock in the market. Competition from purchasers for prime assets therefore, remains strong in all property asset classes, whilst those not classed as prime are struggling to attract interest. 

"Loan to value levels at which banks are willing to lend stabilised over 2010 but are at a significant discount compared to the level obtainable two to three years ago. This causes concern to existing bank customers who are unable to obtain comparable terms when the time comes to refinance. The full effect of this scenario will be keenly viewed during 2011.

"Speculative development funding is non-existent with pre-let developments experiencing difficulties in obtaining funding. The fragility of the occupational property market is not assisting the 'risk factor' that is inherent within any property development appraisal. This is making some schemes unfundable or leads the banks to suppress land values, which in turn, is stalling land transactions.

"We anticipate further bank balance sheet repair over the course of 2011, especially once the Irish government has digested the full extent of its property holding, having taken control of the property debt of failed Irish-based institutions. We anticipate this will represent an opportunity for cash rich property developers and investors during the course of 2011."

Nick Allan, Head of Investment at DTZ in Birmingham, gives his thoughts on the investment market:

"With this year's institutionally-driven mini-boom in prime stock having run its course, we all wait to see if a broader market including secondary stock will develop. The early signs are encouraging in that there is certainly a more diverse range of investors eyeing the market, with interest in industrial shopping centre and retail warehouse sectors noticeably up. As banks begin to release stock into the market, issues relating to shortage of stock will be eased.

"While property company legacy issues are being addressed, the weakness in the occupational markets will be the major brake on the market and will mean that the secondary and tertiary risk premiums will continue to rise.

"Quantitative easing induced low interest rates mean that annuity style income with long leases and fixed uplifts is currently the hot ticket with pricing back to or even better than at the top of the market."