SOUTHEAST SNAPSHOT, AUGUST 2009

Huntsville Industrial Market

The Airport Distribution Center’s second phase spans 208,031 square feet in Huntsville’s Jetplex Industrial Park.

The industrial vacancy rate in Huntsville may seem low compared to the steep numbers seen in larger markets — in fact, major media outlets have recently presented Huntsville as a model of economic stability — but this mid-size city is about to experience a significant increase in unoccupied warehouse space. The vacancy rate at the end of 2008 stood at 4.5 percent — compared to a national rate of 14.1 percent, according to Huntsville-based Graham & Company — but vacancy will undoubtedly creep higher during the second half of the 2009.

“There is more than 500,000 square feet of speculative space that is  coming online in 2009, which alone will add 3 percent to the vacancy rate,” says Jeff Wilke of Graham & Company’s Huntsville office. Of course, a 7.5 percent vacancy rate is still enviable, but it’s relatively large when put into perspective. “It will be a long time before speculative buildings are introduced to the market as they have been in the past 2 to 3 years,” he says, predicting that after the latest wave of buildings are finished, the market won’t benefit from any new developments for 12 to 18 months. This moratorium on speculative projects will usher in a new era in the industry. “The fundamental shift will be to a build-to-suit environment, where developers partner with tenants to obtain financing for  new facilities,” Wilke says.

Currently, industrial tenants in Huntsville are trying to predict when business will turn around; they’re waiting to see how landlords deal with increasing pressures brought on by the economic downturn. These landlords are trying everything to lease tenants to speculative properties. “Tenants are hesitant to commit to take on  new space because of uncertainty in future business  activity,” he says.

Industrial activity in Northern Alabama and surrounding areas will have an impact on the Hunstville industrial market. Auto suppliers looking to be close to Volkswagen’s new plant in Chattanooga, Tennessee, may look to Huntsville for warehousing options. In Muscle Shoals, Alabama — an hour-and-a-half drive west from Huntsville — National Steel Car is building a 2.2 million-square-foot facility. The development of this $350 million facility should have some affect on the Huntsville market.

Baring the very real fact that Huntsville’s vacancy rate will increase, Wilke remains optimistic about the speculative developments entering the market. The attention of national papers and magazines will help turn things around as well. “Huntsville and the surrounding community promotes  the region very well,” Wilke says, “and it is just a matter of time before we see the  benefits of all the positive national press.”   

— Jon Ross

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