After a dismal 2002, brokers breathed a sigh of relief as 2003 ushered in some modest activity in the Southeast real estate market. The worst of the market’s downward spiral seems to be over, but will this slight upward trend continue next year? Brokers throughout the region pull out their crystal balls to give Southeast Real Estate Business the answer.

Raleigh-Durham

The Raleigh-Durham, North Carolina, office sector is finally beginning to soak up some of the space that flooded the market during 2002, a year that posted three quarters of negative absorption in office space. Second quarter 2003 showed a positive absorption of 121,000 square feet. There was additional positive absorption in the third quarter, indicating that the office market is beginning to improve.

Pulliam

“Activity is significantly better this year than it was last year,” says Ed Pulliam, senior vice president of asset services with CB Richard Ellis. “Sublease space is either being subleased or is coming back to the landlords as direct space. With increased activity and more and more deals going through, it bodes that space is going to slowly get leased.”

The news is not so good on the industrial front. “Of our five sectors (office, flex, industrial, retail and multifamily), industrial by far is the worst,” says Pulliam. “With sublease space, 1 of out of every 3 square feet is vacant. So you’re basically seeing no industrial development.”

Glenn

However, the retail market, which didn’t experience the negative absorption rates typical of 2002, continues to thrive. “Over the past 12 months, every product type in the Triangle, with the exception of retail, had negative absorption,” reports Jeff Glenn, vice president of investment properties with CB Richard Ellis. “Retail posted almost a million square feet of positive absorption.” That number is quite significant considering the market delivered close to 3.5 million square feet of retail in 2002.

And developers aren’t quitting either. Midland Atlantic Properties has completed Renaissance Center at Southpoint in south Durham. The 188,000-square-foot center includes retailers Linens ‘n Things, Cost Plus World Market and Pier 1 Imports.

In north Raleigh, Kane Realty is redeveloping the North Hills mall. The new North Hills will feature 220,000 square feet of retail, with anchors including Target and JC Penney. A 100,000-square-foot office component is planned for the mixed-use development, as is a theater, a hotel and condominiums. The project is scheduled for completion in fall 2004.

Pulliam and Glenn are cautiously optimistic that by fall 2004, Raleigh-Durham’s entire commercial real estate market will have turned the corner. But the national economy and employment rates need to improve. “We need job growth,” says Pulliam. “That would solve a lot of our problems.”

Nashville

Hamilton

Nashville, Tennessee’s industrial market is one southeastern market that has profited, albeit modestly, from the black cloud that has settled over the national economy. “Even though there have been significant vacancies in our industrial market, there has been more leasing activity,” says Whitfield Hamilton, managing principal of Colliers Turley Martin Tucker. “We’ve experienced some deals and activity in this down economy because our central distribution location makes sense for many companies looking to shutdown multiple facilities to open a new, more efficient facility here.”

Hamilton reports that Nashville’s office market has also experienced a recent upsurge in activity. “We’re still in a recovery mode,” he says, “but overall, it feels like we’re touching the bottom and seeing some signs of activity on the horizon.”

Small-scale expansions by local and regional companies dominate most of Nashville’s office activity. New deals are few and far between, but the city received some good news when Louisiana Pacific recently announced it would relocate its headquarters to Nashville. That office transaction is expected to exceed 70,000 square feet.

Hamilton predicts that in 2004, the market will build on this small momentum. “We’re going to see leasing activity pick up slightly in the office markets,” he says. “We’ll see more activity and better absorption in the industrial market. We’ll start to see a little more construction in 2004. Right now things are very, very quiet, with limited speculative construction. As some space is absorbed, and if the economy continues to improve, you could see some construction start to kick off toward the end of 2004.”

Those developers looking to jump start construction will want to consider the Cool Springs area, which has experienced significant office and retail development over the past 4 years, says Hamilton. Cool Springs is located in Williamson County, one of the fastest growing counties in the country with the highest per-capita income in the state.

Other areas poised for growth include the Interstate 24 corridor from Smyrna to La Vergne and, in Wilson County, the Interstate 40 corridor. “You have two proactive areas that are seeing a lot of residential growth,” says Hamilton. “As the rooftops come up, the retail follows.” Also, I-40, the country’s major east-west truck corridor, is a logical choice for warehouses and distribution companies.

Atlanta

Garland

The key word in Atlanta’s commercial real estate market is “stabilization,” says Thomas Garland, vice president of corporate services with NAI. “The decline is slowing to a halt finally,” he says. “In terms of the key indicators, such as vacancy rates and rental rates in primarily the office markets, things have basically reached bottom.”

The city has experienced decent leasing activity throughout 2003, but with the deluge of space still available, vacancy rates remain high. Garland notes that out of 125 million square feet of office space in Atlanta, 28 million of that is unleased, resulting in a vacancy rate of 21 percent.

However, some Atlanta submarkets, particularly the Midtown market, are showing signs of life again. In October, Hines broke ground on 1180 Peachtree, a new 41-story office building adjacent to the Atlanta Symphony Orchestra’s planned Symphony Hall. Law firm King & Spalding will occupy 416,000 square feet of the 681,000-square-foot building. Completion is scheduled for 2005.

Also in October, Dewberry Capital purchased the Wyndham Midtown Atlanta hotel, which it will integrate into its Midtown Square development. Scheduled for a 2004 opening, the project will include 750,000 square feet of office, 280 residential units and 175,000 square feet of retail.

Speaking of retail, Atlanta still has a relatively strong market. “Because interest rates have been low, the housing market in Atlanta has been pretty good even if the job market hasn’t,” explains Garland. “And so with new growth in rooftops and homes, the retail sector has fared okay.”

The situation is not the same for the industrial and multifamily markets. “On the industrial side, things are slow and the recovery has been perhaps slower than in the office sector,” says Garland. “In the multifamily market [in the late 1990s through 2001], Atlanta had almost frantic activity in terms of development and investment, which fell off through 2002 and has remained flat in 2003.”

Looking ahead to 2004, Garland says “hopeful” is his outlook. He expects that corporations, after downsizing and consolidating throughout 2002 and 2003, will enter a static, wait-and-see mode.

“We’ve generally led major markets out of most downswings and recessions,” says Garland. “With a bit of real growth, Atlanta will swing back into, if not the full gear of the late ‘90s through 2000, certainly a good, consistent growth model.”

Jacksonville

Jacksonville, Florida’s office and industrial markets remain slow but stable, while the retail and multifamily markets prosper, says Douglas Blair, investment sales associate with Colliers Dickinson.

Blair reports that in 2002, retail developers added close to 500,000 square feet of new space to the Jacksonville market, increasing the square footage from 23.7 million to 24.1 million. Meanwhile, the retail vacancy rate decreased from 9.8 percent posted in May 2002 to a current rate of 8.2 percent.

“Anything else that’s becoming vacant is being absorbed as well,” adds Blair. “That shows a really healthy retail market.”

Simon Property Group and Ben Carter Properties will be adding another 1.5 million square feet when they open St. Johns Town Center in 2005. Dillard’s, Barnes & Noble and Dick’s Sporting Goods will anchor the Main Street-style project located in the Southside area.

The Southside is also popular for multifamily and other residential developments. “All the investors I talk to ask me to find them some more land in the Southside area,” says Blair. He explains that Southside’s high growth rate, stability and high average household income attract developers. Plus, the area’s State Road 9A now completes the city’s perimeter loop, Interstate 295, further adding to Southside’s appeal. Multifamily developments are popping up all over this corridor. “It would be hard to list them all,” says Blair.

Though retail and multifamily are going strong in Jacksonville, the same cannot be said for the office and industrial markets. Developers continue to shy away from speculative office construction, with activity mostly tenant-driven.

While the industrial market isn’t active, it is stable. “The main Jacksonville industrial developers maintain the space really well,” says Blair. “They don’t put out too much product to overbuild. They keep that supply and demand in a pretty good equilibrium, below a 10 percent vacancy, which is considered healthy.”

Blair predicts that if the national economy continues to improve, Jacksonville’s office market should follow suit, with residential and retail continuing to grow. Overall, he feels that Jacksonville has weathered this economic storm better than most cities. “We feel fortunate in that regard,” he says. “A lot of that is a result of our diversity and the lack of dependence on any one type of market.”

©2003 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.