Amidst a sluggish economy, industrial development across the Southeast has slowed in the last few years. However, things are looking up in several markets — and a

few haven’t skipped a beat at all. With this in mind, developers say they are keeping a close eye on the market and looking forward with optimism to a renewed pace in development.

The Current Market

McDonald Development Company developed Horizon Ridge in Atlanta.

The Atlanta industrial market is showing signs of renewed strength, according to John McDonald, president of McDonald Development Company. Despite previous dot-com failures and 2 years of a slow economy, leasing prospects and potential build-to-suit opportunities have increased consistently since the beginning of the year, says McDonald.

Currently, the strongest markets in Atlanta are the Hartsfield International Airport and Fulton Industrial districts. Properties in these areas of south Fulton and Clayton counties benefit from their proximity to the airport, access to interstate highways and competitive leasing rates. Existing industrial properties in these markets are also profiting from new, large-scale retail and residential developments along Camp Creek Parkway.

Nashville, Tennessee’s industrial market is also seeing changes for the better. “Things are improving from where they were in 2002,” says Whitfield Hamilton, managing principal at Colliers Turley Martin Tucker in Nashville. In the first quarter of this year, the overall Nashville industrial market had a 6.9 percent vacancy rate. There has been 874,000 square feet of new net absorption, and 828,000 square feet of product is under construction. According to Hamilton, this construction is leased, build-to-suit product, which will be additional absorption once the buildings are complete.

Duke Realty Corporation is developingAirpark East in Nashville, Tennessee.

Currently, there is quite a bit of leasing activity in Nashville. “We still have a lot of space available, but it’s nice to see some activity,” says Hamilton. “We’re pleased to see companies starting to relax and commit to deals.” Hamilton says he remains cautiously optimistic about the rest of this year.

Most of the new development in Nashville is in the southeast and east markets, according to Hamilton. “Historically, the southeast market has been the most active, but over the past 2 years, the east market has really taken off,” he says.

The last 24 months have been extremely slow, according to Jim Reichardt, industrial real estate director at Clinton, Tennessee-based The Hollingsworth Companies. Reichardt does, however, see signs of improvement. “We have seen more activity in the last 3 months than we have in the last 18,” he says. “We’re getting more calls, we’re showing more buildings, and projects that have been put on hold for 2 years are now back in the search.” The Hollingsworth Companies is active in Alabama, North Carolina, Tennessee and Virginia.

Most of the company’s current activity, says Reichardt, is in Virginia. “In terms of our buildings, Virginia has not skipped a beat. It has continued to grow, whereas the other areas have been a little slower.” Now that the economy is picking up, Reichardt says he also is beginning to see activity in other areas.

NAI Realvest Partners is currently developing Monroe CommerCenter North in northwest Seminole County, Florida.

“The industrial leasing market has been okay to good,” according to George Livingston, president of Maitland, Florida-based NAI Realvest Partners. “There’s more demand from local companies expanding or starting up than national companies,” he says. “National companies are consolidating or extending in their current space.”

Vacancies across the market continue to increase slightly, and there is still some downward pressure on rent, according to Livingston. “I think things should be improving from here, though,” he says.

Most of the development in the Central Florida area is on the periphery of Orlando, notes Livingston. He says that due to a growing shortage of industrial-zoned land in the Orlando market, developers must look further out to counties such as Lake, Volusia and Osceola.

In the Works

McDonald Development is actively developing several industrial parks in metro Atlanta. SouthPark, McDonald’s 322-acre development in Clayton County, recently added a 273,200-square-foot cross-dock facility and leased it to appliance retailer h.h. gregg. By the end of the year, McDonald plans to construct two new buildings at SouthMeadow Industrial Park near the airport: a 354,400-square-foot cross-dock and a 184,000-square-foot rear-load. In August, the company will begin construction on a 121,600-square-foot expansion of its existing 134,400-square-foot rear-load facility at Westlake, a 400-acre master-planned development at the crossroads of the Fulton Industrial district.

There are several new developments in the Nashville area, according to Hamilton. In Lebanon, Tennessee, ProLogis is developing a 300,000-square-foot distribution center for Falken Tire at Eastgate Business Center. Also at Eastgate, First Industrial Realty Trust has recently completed Eastgate 3, a 423,000-square-foot build-to-suit for APL Logistics and Eagle Logistics.

Duke Realty Corporation is developing Airpark East at 880 Airpark Commerce Drive in Nashville. In the east market, Panattoni recently completed a build-to-suit for Bridgestone Firestone in its Commerce Farms park. The 750,000-square-foot building has a built-in expansion of 250,000 square feet. “This has been the largest build-to-suit transaction in our market in the past year,” says Hamilton. Commerce Farms also has three other building pads that range from 277,000 to 460,000 square feet available for future development.

The Hollingsworth Companies is the developer and one of the venture capitalists for a build-to-suit at SouthPoint Business Park in Prince George County, Virginia. The 77,500-square-foot building will double in size in 2 years, and it will house Service Center Metals. The projected completion date is late fall. Also in the works is a 108,000-square-foot speculative building at the same park. According to Reichardt, the company has also recently signed a lease with The Music Link for a 108,400-square-foot facility in WestBridge Business Park in Knoxville, Tennessee.

NAI Realvest Partners has three small bay projects underway in Florida that total 280,000 square feet, according to Livingston. Phase I of Carter CommerCenter in Winter Garden is complete, and Phase II will start this summer. Phase I of Monroe CommerCenter South in Sanford is complete, and Phase II is under construction. At Hanging Moss CommerCenter in Orlando, Phase I is under construction. The company also has another 187,000-square-foot project in northwest Seminole County called Monroe CommerCenter North. Phase I is complete and Phase II will start this year.

Trends

A trend that Hamilton has noticed over the past year is that while some pent-up demand exists in the market, there is also unwillingness on the part of corporations to spend money or free up capital for growth. “We are starting, however, to see some deals being made, which is a positive sign that we could be at the beginning of a recovery,” he says.

Many new deals are also a result of consolidations, according to Hamilton. He says cities like Nashville benefit from this. “We have a great story to tell in terms of our distribution efficiencies. We have three interstates that cross here, so companies can reach over half the U.S. population within a day’s drive.” He also notes that Nashville competes favorably on deals that have high labor requirements. “We have a high-quality labor pool compared to some of the cities we compete against.”

“We’re seeing a tremendous amount of automotive production facilities from the North begin to seek a presence in the Southeast,” says Reichardt. This is due to the availability of labor and low operating costs, he says. “Because automotive production facilities are moving south, a lot of automotive suppliers want a presence here as well,” says Reichardt. “This sector alone is a very strong market for us. We’re currently marketing our parks and facilities to them to make them aware of our lower-cost transportation and service ability.”

Reichardt says he also has continued to see a reduction in the number of manufacturing facilities and an increase in distribution facilities. “We’re seeing a lot more products produced elsewhere and distributed in more sophisticated warehouse distribution facilities,” he says.

Outlook

“The Atlanta market has bottomed, and we have begun the economic recovery phase,” says McDonald, who has worked in the Atlanta industrial market for 30 years. McDonald anticipates a gradual growth of business activity to continue through 2003 and 2004, culminating in a normal economic pace by first quarter 2005.

“Our market will continue to grow significantly,” says Hamilton. “Companies locate here because they can save money on distribution and trucking, and they can conduct their business with a good labor supply.” Because of these positive fundamentals, Hamilton says Nashville will continue to win its share of major projects. The smaller companies that support those projects will continue to thrive and grow as well. “This is a good place to do business,” says Hamilton. “We have a great quality of life, and our outlook is extremely positive over the long haul.”

Livingston says he is modestly optimistic about the future. “The architects say they’re busy, so that tells me there probably will be something starting the first or second quarter of next year. It’s still going to be slow, though,” he says.

“I think development will continue to be cautious and companies will be a lot more conservative,” says Reichardt. “As a result, developers will have to remain extremely flexible and be more venturesome in order to move business forward and bring jobs to the communities they serve.” He says this includes taking a closer look at start-up companies, providing more improvements with lease prices and offering more flexibility in lease terms.

“We are strong supporters of the Southeast,” says Reichardt. “We think that companies will continue to see the advantages of operating here because of our quality of labor, good work ethic and low operating costs.”


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