Pictured above: Ashley Hancox
Renting a prime office in the centre of Birmingham is now
cheaper than it was a decade ago.
Although headline rents are higher than they were in 2000 -
currently circa £28 per sq foot, as opposed to £24 per
sq ft ten years ago - the amount of rent-free incentives landlords
are now being forced to dole out to secure tenants means that they
are receiving less income for their space.
According to CB Richard Ellis' 'Net Effective Rental Analysis'*,
if you factor in rent-free periods, landlords of Grade A office
space in Birmingham are now achieving around £16 per sq ft
over an initial five year term for their premises.
In net effective terms, that's around 50p less than ten years
ago, and a massive £12 less than in 2007, when the market was
at its peak and prior to the credit crunch.
Ashley Hancox, the Birmingham-based head of regional office
space at CBRE, believes that the gap between headline rents and the
net effective rent is the widest it has been since 2000.
He said: "There is a gulf of around £11.50 between what
landlords are asking for and what they are genuinely getting. It's
all in the small print.
"With rent-free periods of 2-3 years now typical on a ten year
lease, in reality landlords are discounting their headline rents by
20 per cent plus."
However, Ashley predicts the space between headline rents and
net effective rents will soon begin to close.
"It's no secret that the city's supply of Grade A space is
dwindling, and with no development pipeline to speak of, a handful
of significant deals will quickly change this. Landlords will be in
a position to offer fewer incentives.
"The next two or three major occupiers to take up space in the
city will benefit from this historically low net effective rent,
and those who hold out will unfortunately lose out."
This window of opportunity is not exclusive to new occupiers.
Alan Klein, who heads CBRE's lease consultancy team, has helped
tenants shave up to 50 per cent off their occupation costs in the
last year.
He said: "Incumbent tenants in the fortunate position of facing
a lease event and who wish to remain in their existing premises are
taking the chance to re-gear their lease.
"If they are confident enough to extend their lease, say for
five years, they can end up with the equivalent of a year's rent
free - a welcome cash injection into their business in these
challenging times."
* CBRE's Net Effective Rental Analysis is based on
headline Grade A office transactions within Birmingham city centre
from 2000 - 2011.