Perhaps with the exception of Clearwater, Florida, and Jackson, Mississippi, the sagging economy has bulldozed development and leasing plans across the Southeast with undeniable and unshakable force. Southeast Real Estate Business talked to several brokers throughout the region to find out how their markets are faring and what the outlook is for 2003.

Atlanta

Atlanta is seeing very little in the way of development right now, according to Dan Granot, senior managing director with Insignia/ESG.

“It’s clearly a sign of the economy,” he says. “It’s as slow as it has been in 10 years. It’s just a very difficult market right now.”

There has, however, been some office development in the Interstate 75/285 corridor. And there are a couple of large users that could potentially cause some development by signing as anchor tenants, such as Norfolk Southern and King & Spalding, a large law firm in Atlanta.

But every market is struggling, especially downtown and the Roswell/ Alpharetta area, which is overbuilt, adds Granot.

“We still have not finished taking all the large subleases off the market, and that’s direct competition for these buildings that have direct space to lease,” he says. He says development will probably begin again “once we get rid of subleases and some of the direct space.”

Hines has been the most active developer in the past 12 to 24 months with One Overton Park, a 325,000-square-foot building completed early this year in the I-75/285 corridor. In the North Central market, Hines has also developed 2002 Perimeter Summit, which is 400,000 square feet. And Pope & Land has developed One Glenlake on the Perimeter for Siebel Systems. It’s a 350,000-square-foot building, of which Siebel took approximately 175,000 square feet.

“I really don’t think there will be more development in the next 12 months,” notes Granot. “It’s my job to be optimistic, but I don’t see any real positive signs. In the last 6 to 12 months, it’s been very challenging. You’ll get blips of activity that you hope are signs of good things to come, but then it slows back down. It’s awfully tough here.”

Atlanta’s industrial market tells very much the same story.

“Right now there’s not a whole lot of development occurring anywhere,” says Scotland Wright, president of Scotland Wright & Associates. “But if there’s any development going on, it’s occurring in the Northeast, the largest submarket within Atlanta, and in close proximity to the airport.”

In the past year, Atlanta has experienced the arrival of Duke Realty Corporation’s Braselton development as well as IDI’s Hamilton Mill development, two large distribution buildings. Duke has two buildings close to 300,000 square feet — one is leased to Sears Logistics and the other is vacant. The Hamilton Mill Business Center is a 4 million-square-foot center located in Buford, Georgia. In addition, Rooker & Associates built a 200,000-square-foot-plus building for Office Depot around Georgia Highway 20 near the Mall of Georgia.

Though times are tough, Wright does think the market will turn in 2003.

“As each quarter goes by, we’ll start to see more activity coming around to where hopefully we’ll be moving in a positive direction in 2004,” he says. “As far as new development, I think we’ve got enough space right now that the market will be supplied for a while before there is any need for new building.”

Memphis

The industrial market in Memphis is seeing activity in two primary areas, according to Eddie Saig of NAI Saig. One of those areas is the Southeast submarket of Memphis, and the other is the north Mississippi area, primarily because of their relationship to Memphis International Airport, Federal Express and major transportation routes.

“Activity in the north Mississippi area has increased dramatically within the last 36 to 48 months,” says Saig. “Those two submarkets of the Memphis area are primarily where all the developers and users want to be.”

The market suffered a slowdown in the past 12 to 18 months, and developers had a substantial amount of speculative warehouse distribution product available to users, which lay dormant during that time. But within the last couple of months, Memphis has started to see activity come back to the big box users, and there is adequate inventory to accommodate them.

“Once the sublease and excess speculative buildings begin to be absorbed, there is going to be demand for land and for development of new warehouse distribution facilities,” Saig says.

There is also approximately 2 million square feet of new product in the market, either ready for occupancy or under construction, that needs to be absorbed.

The Memphis office market, however, is still waiting for a recovery. Rental rates remain stable at approximately $17 per square foot, and absorption levels are higher than they were a year ago.

“The amount of space available in the market has caused concern for investors,” notes Saig. “Available space, which includes vacant as well as sublease space, totals over 3.5 million square feet, and the majority of the sublease space totals about 600,000 square feet.”

What the market is seeing is a move up from Class B to Class A space that’s absorbing some of the new and vacant space available. For example, International Paper Company just built a brand new 288,000-square-foot building in the Poplar corridor, Germantown, area.

“That building appears to be very successful because International Paper is moving from an existing facility of 97,000 square feet in Lenox Office Park,” says Saig.

The Memphis retail market is currently focused on discount and value-oriented retail. Those types of retailers report increased sales while the high-end department store retailers are suffering the effects of decreased consumer spending.

“Basically that market has remained pretty healthy and balanced,” says Saig. “The people who are doing well are the Wal-Marts, Sams and Costcos. The major, higher-end retailers are suffering at this time.”

Clearwater

Good news for the real estate market in Clearwater — not only was 2002 a better year than 2001, it looks like 2003 is going to be even better than 2002.

“We came out with a fairly slow start after September 11 through the fall of 2001 and the first quarter of 2002, but we’re having a strong finish,” notes Lee Arnold with Colliers Arnold.

As for 2003, Arnold says some of the issues currently going on in the stock market are seemingly adding some boost to office investment sales.

“We’re seeing quite a bit of user activity where people would rather own their own business locations than some of the positions they might have taken in the stock market in previous years,” he says. “We’re doing quite a bit more in the way of leasing also. So, subject to war and subject to the market not crashing and the capital markets not collapsing, we’re looking for a good 2003.”

According to Arnold, the condominium developments on Clearwater Beach will have a dramatic impact on the culture as well as the future of Clearwater Beach, enhancing the restaurants and pubs that service the increased housing stock. In addition, the potential for additional hotels of high quality increases dramatically. There are several significant assemblages at work in Clearwater in redevelopment areas that will be extremely positive to the community if successful. Those will be popping up on the beach and in the downtown area as well as out on the commercial strip, US Highway 19.

A very positive impact for the city of Clearwater is the US Highway 19/ Drew Street overpass that is finally under construction. The new highway will speed up access to Clearwater’s retail community up and down Highway 19.

One of the developments that will benefit from the overpass is Drew19 Shopping Center’s redevelopment on US Highway 19. Colliers Arnold just wrapped up the redevelopment with the grand opening of Marshalls and is anxiously awaiting the opening of the final department store, Babies ‘R’ Us, which is scheduled to open in early December. Other retailers in the center include Best Buy, Rooms-To-Go Outlet and a few smaller shops.

Other projects of note are The Sembler Company’s massive redevelopment of the Clearwater Mall, which includes a SuperTarget, and the opening of a new Publix on Fort Harrison. In a joint venture with White Development, Jerod and Greg Brown redeveloped a small urban Publix on South Fort Harrison.
Downtown, Colliers Arnold is working on a condominium/retail complex with a hotel component at the intersection of Osceola and Drew Street. The project will be more than 20 stories. The company is currently finalizing some land assemblage and plans to break ground sometime in 2004.

“I would say the entire downtown of Clearwater is in discussion for redevelopment, and it’s a pretty exciting time,” says Arnold.

Jackson

There are two particular counties that are hot in the Mississippi area. One is Madison County, in which a top one percent real estate deal was made last year with Nissan Corporation, and the other is Rankin County.

“We think that Madison County is just getting ready to explode,” says Jim DeFoe with Ergon Properties, “and I don’t think Mississippi or anyone really realizes what the impact will be.”

Ergon Properties has a 46-acre, mixed-use development, called Colony Crossing at Madison, located at the northwest corner of Mississippi 463 and Highland Colony Parkway/Bozeman Road. The development will include a 270,000-square-foot retail area anchored by Home Depot and a national grocery. It will also have a hotel segment, bank, convenience store, Wendy’s and Wine & Spirits.

Rankin County is also on fire, seeing a major shift in the demographics. In Brandon, Mississippi, Ergon Properties has opened Orleans Center, a 275-acre, mixed-use development with a Home Depot.

Rankin County is also seeing a good bit of industrial growth with ease of distribution at Interstates 20 and 55. Ergon just closed a 30-acre deal with Quanta Industries, which is planning to build its regional headquarters in the area.

“We think Madison and the entire Rankin County areas will continue to grow and flourish with retail as well as other developments because there are so many residential subdivisions underway,” says DeFoe.

He also notes that the Jackson area as a whole does not seem too affected by the economy.

“I think that has a lot to do with the fact that we don’t have any large industry,” he says. “We certainly don’t have an Atlanta market, but we just have very good steady growth.”

Carolinas

On the Carolinas office front, there is minimal to no development occurring at the moment, other than tenant-driven office buildings. An example is the new Progress Energy headquarters in downtown Raleigh.

“We’ve got a demand level that dropped by 50 percent last year, from an excess of 2 million square feet a year to less than 1 million square feet, and I don’t think it will be any different this year,” says Jim Sineath, president of Commercial Carolina. “We’ve had the exodus of as much sublease space as new space, which probably exceeds a 3- to 4-year supply. So with the combination of oversupply and half of the demand, there’s no demand to develop anything.”

If there is one market where there is a little bit of new office development occurring, it’s probably Charlotte.

“Downtown is not terrifically healthy, but the suburban market is,” notes Sineath. “That’s because Charlotte, particularly suburban Charlotte, didn’t experience the quantity of cutbacks that the Raleigh/Durham office market experienced in terms of technology cutback and sublease space being put on the market.”

The same picture applies in Raleigh, Greensboro and Charlotte on the industrial front: virtually no new development, only oversupply and less demand. South Carolina, on the other hand, is having a healthy spurt of industrial growth, a lot of which is user driven, such as the $400 million expansion of BMW’s manufacturing facility in Greenville.

The apartment market is overbuilt across the board, and retail in every market seems to be continually resilient and continually under development, according to Sineath.

“Probably the brightest spot at the moment is an aggressive volume of institutional grade office buildings at aggressive prices,” he says. “But I think that the demand level is short-lived and may die off in the next 90 days.”

Sineath believes the Carolinas will continue to see a lack of corporate growth and demand possibly through the summer of 2003, but that demand will come back starting in third quarter 2003, and growth will begin again.

“I think that there is a huge pent-up demand and stockpiling of money that will go into corporate growth that we will see whenever hiring begins again,” he says. “I think we’re going to see a significant boom occur, all of which is predicated on three things not happening: more significant corporate corruption, prolonged war in Iraq or another terrorist event. Barring those three, I think we’ll see growth in third quarter of 2003, and maybe we’ll be back into some form of reasonable economy in 2004.”

©2002 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.