According to the latest Birmingham office market survey from international real estate advisor Savills, the office investment market experienced a much higher level of activity in Q2, boosted by the sale of The Mailbox, Two Snowhill and 120 Edmund Street, which helped increase transactions numbers to £260 million up from £14 million in Q1.

Jonothan Holmes, investment director at Savills, comments: "The recent transactions demonstrate investor appetite both within the CBD and the wider central Birmingham office market for letting, development and lease term risk. We haven't seen this type of activity outside of the central London office market for some years and it demonstrates the increasing strength of Birmingham as a pre-eminent regional centre.

"Investor interest has been present across all equity types be it core, core plus or opportunity capital. Well we have no evidence of hardening prime yields given the benign benchmarking metrics, if anything we are likely to see marginal yield compression." 

Savills reports that the continued investor interest in the Birmingham office market has also acted as a catalyst for speculative development. Hines and Ballymore are jointly developing Two Snowhill, which is one of the only speculative buildings currently being built in a regional city. 

Despite the ongoing development of Two Snowhill, the lack of wider development activity in the prime core will almost inevitably cause supply shortages in the medium term. This is highlighted by Savills prediction that overall supply could drop as low as 15% by the end 2011. This also underlines the case for rental growth as supply and demand finds a more balanced relationship.

Nick Williams, Savills director, comments: "Lettings to The Law Society and Vax along with an imminent deal to Grant Thornton could see prime core take-up figures reach approximately 350,000 sq ft by the end of the year boosting take up figures for the wider Birmingham CBD. Whilst take-up levels have continued to increase since reaching a low point in 2009, we still have not seen a high level of large requirements coming to the market. In fact, 88% of deals done since Q1 of 2009 have been for sub-5,000 sq ft. Looking forward I expect an increasing number of larger scale corporate relocations putting further strain on the diminishing levels of Grade A stock."

According to Savills, rents have remained stable in the first half of 2011 with Standard Life's 45 Church Street achieving headline rents in the order of £28.50. The firm predicts that grade A headline rents will remain at their current level throughout 2011, with upward growth expected from 2012 onwards.

Clare Bailey, associate director in Savills research department, comments: "If we look at the employment pattern for Birmingham, the Financial & Business Services sector, which includes banking and insurance, shows a steady growth over the next two years, returning to 2008 levels by 2013, which we expect to have a positive impact on take-up going forward."