Birmingham, Alabama, is no different from the rest of the nation. Office development, at least on a speculative basis, is in a period of hibernation. “However, there have been a few ‘invisible cranes’ at work,” says Brad Jones, vice president of leasing with Daniel Corporation. “Just like a lot of major cities across the country, large blocks of sublease space have been dumped on the market. In some cases, this is equivalent to having an entire building delivered to the market overnight!”

The sublease space has definitely changed the way landlords market their space; however, this will not be the case for long. The majority of sublease space in Birmingham has a very short fuse — most remaining terms are only 1 to 2 years.

While no one major tenant has absorbed a great deal of space, the financial services/banking industry has been quite good for Birmingham office. There are several large regional banks that have large space demands and have absorbed a lot in the past. However, in recent years these banks have developed and occupied operational centers that they also own.

The range for Class A rental rates in Birmingham is $16.50 to $24. Total Class A space in Birmingham has increased by 300,000 square feet since mid-year 2002. However, available space and sublease space has declined. The current vacancy rate for Class A space is 11.37 percent compared to 11.88 percent at mid-year 2002. In 2002, Birmingham added approximately 750,000 square feet of new Class A space.

Allstate Insurance recently leased approximately 100,000 square feet in Meadow Brook Corporate Park. This was a significant lease to the Birmingham market in that Allstate considered several geographical locations and chose Birmingham over other major markets. Birmingham’s labor market proved to be one of the main deciding factors.

HealthSouth, headquartered in Birmingham, intends to make healthcare history with its all-digital, completely automated hospital. This “Digital Hospital” will be located on the Highway 280 corridor close to Interstate 459 and will encompass approximately 500,000 square feet. Total development cost is expected to be between $100 million and $125 million, and the delivery date is slated for early 2004.

“In my opinion, the development of this hospital will have a huge positive impact on the Highway 280 market,” notes Jones. “We expect to see a lot of medical use coming to the immediate 280/459 submarket.”

The Highway 280 corridor will continue to experience strong growth due to residential development leading this charge. However, the submarket and corridor to keep an eye on in the near future will be the Midtown market along the western part of the Lakeshore corridor. United States Steel Corporation, Retirement Systems of Alabama, Daniel Corporation and Alabama Real Estate Holdings are teaming up to develop 1,600 acres just off the Lakeshore Parkway extension, which will have a new 18-hole championship golf course and approximately 2,400 residential units. This residential development will obviously spur commercial development along this corridor.

“Based on several conversations I have had with friends and colleagues around the nation, Birmingham seems to be holding ground with regard to office activity,” Jones concludes. “My advice to any tenant in Birmingham is to secure space now because it will not be long before office supply and demand are back in equilibrium.”

Brad Jones is vice president of leasing with Daniel Corporation.


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