Office development in Birmingham, Alabama, is slowing after several years of relatively healthy new construction, says Dallas Whitaker Jr., vice president and market officer with Colonial Properties Trust's Birmingham office division. "The most recent new developments have been at least 35 percent pre-leased," he says. "And currently no new unanchored/ pre-leased office developments are underway or have been announced."

The majority of new office development in Birmingham is taking place in the central business district (CBD) submarket, where two office buildings are currently under construction. The 300,000-square-foot One Federal Place and the 150,000-square-foot Concorde Center, both anchored by local law firms, are scheduled for delivery in 2002. One Federal Place is a joint development of Sloss Real Estate Group, a local developer, and Barry Real Estate Companies of Atlanta, a company that is new to the Birmingham office development community, Whitaker notes.

Bradley, Arant, Rose & White has leased approximately 160,000 square feet in One Federal Place and Lange, Simpson, Summerville & Robinson has leased approximately 40,000 square feet in Concorde Center. "These two developments were driven primarily by requirements of the two law firms for new office facilities in downtown Birmingham," Whitaker says. "No additional leases have been executed yet in either building."

Based on historical absorption rates, the addition of the two new buildings means the CBD submarket will have approximately a 5- to 6-year supply of Class A and B+ space. "The CBD will experience a condition of significant oversupply of Class A and B+ space in 2002, most likely resulting in rate reductions and increased concessions. Recovery could take 3 to 4 years," Whitaker predicts. "The Highway 280 submarket currently has a substantial amount of large block sublease space available at below-market rates. Absorption of this space is expected to take at least 12 months, possibly longer."

Approximately 263,000 square feet of new suburban office space was delivered in 2001. Only 43,000 square feet of the new 2001 inventory is still available for lease.

The only speculative multi-tenant office construction currently underway in the suburban submarkets is approximately 150,000 square feet of space that is available for lease as part of a 300,000-square-foot headquarters expansion underway on the campus of Protective Life Insurance Company. The building, which is located on Highway 280, is scheduled for completion in the fall.

Several other major tenants are in the process of absorbing large blocks of space. While this activity represents positive economic growth in Birmingham's business community, most of these moves will result in the user vacating space in a multi-tenant facility. It is anticipated that this will contribute to a near-term reduction in the rate of net absorption in multi-tenant office buildings in Birmingham. "The only transaction that represents 100 percent true positive net absorption is the Allstate deal in Meadow Brook," says Whitaker. "Allstate Insurance has signed a lease for 75,000 square feet in a recently completed building in Meadow Brook Corporate Park and will occupy the new space in the first quarter."

In other developments, Regions Bank is building the first phase (300,000 square feet) of a 600,000-square-foot operations center on 50 acres recently purchased by the bank on Lakeshore Parkway in Oxmoor Valley. AmSouth Bank is building a new 400,000-square-foot operations center on its campus in Riverchase, and the company will take over approximately 80,000 square feet of space previously occupied by Sonat Services in the AmSouth/Sonat Tower in downtown Birmingham. Blue Cross Blue Shield of Alabama has recently taken occupancy in a 150,000-square-foot expansion facility on its campus in Riverchase. SouthTrust Bank is expanding its operations facility at Wildwood by approximately 185,000 square feet and plans to occupy the new building in mid-2002.

Recent major leases include Parsons, Lee & Juliano's 15,000-square-foot lease at Protective Center; a 40,000-square-foot lease by AOL Time Warner at Lakeshore Crossing; a 23,000-square-foot lease at Colonnade Parkway by Ceridian; and Sonat Services has renewed a lease for 188,000 square feet at AmSouth/Sonat Tower.

Total market vacancy is approximately 10 percent while Class A vacancy is approximately 11.5 percent. Class A rental rates range from $18 to $23.50 per square foot.

"The real estate community is hopeful for a meaningful economic recovery in 2002 resulting in increased demand for office space," says Whitaker. "The consensus seems to be that we will begin to recover in 2002 but a quick rebound of the office market is not anticipated. On a more positive note, we are beginning to see more interest in the Birmingham area from out-of-state users seeking southeastern expansion facilities. These users include claims offices, call centers and other back office uses for regional or national companies. Over the years, Birmingham has developed a diversified service economy that is attractive to companies seeking a qualified, educated workforce and a high standard of living in a strategic southeastern location."

Dallas Whitaker serves as vice president/market officer, Birmingham office division, with Colonial Properties Trust.


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