Most industrial and office markets in the Southeast are holding steady this year, as evidenced by the continued development activity of many of the region's major players. After a slight slow period at the end of 2000, some are even boasting an increase in occupancy and rental rates, with new construction continuing throughout 2001.

Memphis

The industrial market in Memphis has been quite active since the mid-1990s, both in new construction and net absorption. CB Richard Ellis reports that last year the Memphis industrial market showed a net absorption of 6.6 million square feet.

"The active market can be attributed to our central location, Federal Express and the distribution advantages that this city has to offer companies," says Jim Mercer, senior vice president of CB Richard Ellis. "Vacancy rates have declined, and our construction activity is up, with 6.2 million square feet delivered last year and new construction continuing and carrying over into this year."

Top developers in Memphis include Panattoni, who is beginning a 130-acre park called Memphis Oaks with a 650,000-square-foot facility scheduled to be delivered in late spring. The company just completed a 360,000-square-foot facility and has several sites left in a park called East Point, and also just leased a 650,000-square-foot warehouse to Technacolor at South Point.

ProLogis Trust is wrapping up a 360,000-square-foot warehouse in Memphis Industrial Park. They also have two other sites in Distriplex Farms, with an adjacent 26 acres under option.

Additional developers include Champion Partners, who currently has the largest spec warehouse in the market, called Memphis TradeCenter III, with 700,000 square feet due to be completed this spring. IDI is finishing its third park, Chickasaw Distribution Center, with tenants such as Endar, Ibid, Usco and Hewlett Packard. Belz Enterprises is developing Meltech, a 245-acre park with a 200,000-square-foot building, and has begun construction on a second 200,000-square-foot spec warehouse. And Weston has a planned facility of 538,000 square feet in its park called Midway Distribution Center.

Office development in Memphis has taken a slight dip, according to CB Richard Ellis. At year-end, the market for Class A and B properties totaled approximately 18 million square feet with occupancy rates slightly over 88 percent. "That's down about 1.9 percent from last year," says Kelly Truitt, senior vice president of CB Richard Ellis. "The decline is mainly due to a good bit of speculative product that came on-line at year end that's still in lease up." Rates overall are up about 3 percent and sub-markets downtown experienced an increase in both occupancy and rental rates.

Mike Harris of Highwoods Properties says the last five years have been tremendous in terms of absorption and demand, particularly in the company's Southwind project. Highwoods Properties is in the midst of developing the second phase of Shadow Creek at Southwind. Once completed, the Southwind Office Center will total approximately 800,000 square feet. Also in the works is the third and final phase of a complex at International Place, which is 100 percent pre-leased to International Paper.

Richmond

According to Grubb & Elllis/Harrison & Bates' Richmond Industrial Market Trends, the industrial market finished on a high note last year, capturing 766,000 square feet of absorption for the fourth quarter and more than 2 million square feet for the year. Although absorption was up, coming from segments including distribution and R&D/Tech intensive companies, the number of deals slowed.

One of the most active Richmond developers is Devon USA, a company that has completed Enterchange @ Walthall I and II on Ruffin Mill Road, and is currently constructing a third 262,000-square-foot-building called Enterchange @ Walthall - Building C.

In June 2000, General Land Company and Dominion Land began a project called Northlake in North Richmond. To date, the companies have over 1.5 million square feet under contract or commitment with five Fortune 500 companies. They are also developing three speculative buildings for privately held corporations. "The phases have happened a lot quicker than we anticipated," says Mike Carroll of General Land Company.

The Richmond office market was in great shape at the close of 2000, according to Grubb & Ellis' 2001 Real Estate Forecast. Inventory increased by 900,000 square feet, and net absorption was 1.1 million square feet. Vacancy fell both downtown and in the suburbs to a record 8.4 percent overall.

The immediate future for the office market looks just as bright. "Overall, the market is about as healthy as it's been since the mid-1980s," says Steve Gentil, senior vice president of Grubb & Ellis/Harrison & Bates. "Rental rates continue to tick upward. Vacancies are under control, and we're hitting some new highs on office building investment sales."

Highwoods Properties has two office buildings under construction -- North Shore Commons, a five-story, speculative building at Innsbrook Corporate Center that is over 50 percent leased, and a four-story, 53,000-square-foot building, called the "K" Line Building at the Park at Stony Point. Both buildings are expected to deliver in May. The company also has a three-story, 65,000-square-foot building at Innsbrook, called Innslake Center, which should break ground in February and is set to deliver in November.

Capital One will soon begin constructing its 1.5 million-square-foot corporate campus on 318 acres in West Creek for occupancy in mid-2002, and downtown Richmond will see the first new speculative office building in 10 years with the completion of the 93,500-square-foot Turning Basin on the Canal Walk. The lead tenant, First Market Bank, will relocate from The Park at Stony Point.

Liberty Property Trust is currently hunting for build-to-suit opportunities. The company currently has two office buildings totaling 157,000-square-feet under construction in a new park called West Gate. Also in the works is a 158,000-square-foot build-to-suit office project at Rivers Bend, a Class A industrial park in the southeast part of the city.

Louisville

The Louisville industrial market has slowed slightly over the past year according to Bob Rounsavall, manager of Dixie Real Properties. This, along with an increase in supply, has lengthened the time speculative properties tend to be leased. "Because of our diversification, we've not slowed as much during slower periods, but at the same time, we haven't had some of the speculative frenzy that other markets have had," says Rounsavall. Dixie Real Properties has finished two new projects in the past year, including a 110,000-square-foot property on Robards Lane that was about 50 percent leased before construction began.

Leasing activity has declined somewhat in Louisville's office market. Joe Helm, vice president of office properties for CB Richard Ellis, reports that Louisville continues to have a fairly robust Class A suburban market, but the Class B markets are flat, and the CBD markets have either been flat or have declined somewhat in the past 12 months.

"Downtown's decline in leasing activity is due to virtual lack of movement by existing tenants, coupled with the attractiveness of the suburban market for new tenants," says Helm. "There are some fairly exciting and significant office renovation projects that will very likely spark the downtown B market in the next 12 months or so."

One project in Louisville's suburban market is Old Henry Crossings, a mixed-use development by Carl Ray & Associates, which calls for up to 1 million square feet of office space. Faulkner Hinton & Associates is in the process of expanding Forest Green, with 300,000 square feet under construction and another 150,000 square feet being considered. Gault Development's East Point project is hot right now, with office and warehouse sections, as well as a corporate campus area.

Fenley Real Estate has grabbed a fair share of the Greater Louisville market with new developments at Fenley Office Park, Olympia Park Plaza, Triton Office Park and 614 West Main Street. "With these new properties, we will be doubling our portfolio to nearly 1.6 million square feet," says Richard Ashton, marketing director of Fenley Real Estate. "The year 2000 experienced positive absorption of over 400,000 square feet in Louisville's suburban office markets. This year, 570,000 square feet of speculative office space is scheduled for completion in suburban Louisville."

Tampa

Tampa's industrial market has also experienced steady growth. According to Cushman & Wakefield, fourth quarter statistics show that overall vacancy rates and leasing activity increased over the past year, though net absorption declined by over 100,000 square feet. Construction more than doubled in 2000 and is spilling over into 2001.

Duke-Weeks Realty Corporation is one of the developers continuing its industrial momentum in Tampa Bay. In response to a clear and growing demand for mid-size and bulk warehousing/distribution space in the Tampa industrial market, the company is developing Fairfield Distributions Center VI and VII, which will bring the 47-acre mixed-use development to a total of 769,054 square feet.

East Group Properties has several properties under development. Palm River South, formerly known as the American Freightway site, is a 20-acre piece that will hold two 70,000-square-foot rear loading buildings just across the street from Palm River Center, which the company is finishing up along with Palm River North. East Group is also completing a 90,000-square-foot building at Walden Distribution Center, two buildings totaling 215,000 square feet in Plant City.

West Shore is Tampa's biggest office submarket and is still very strong, according to Ron Ruffner, director of leasing for Crescent Resources. "We've seen a bit of a slow down like everyone else," says Ruffner. "But I think West Shore will remain strong for the rest of the year."

Crescent Resources recenlty completed Corporate Center I in West Shore, a six-story building with 400,000 square feet. Corporate Center II, a 10-story, 300,000-square-foot building is currently under construction and is expected to be completed this fall. Across the street is another 300,000 square feet of office space at Corner Stone Plaza.

On the east side of Tampa is Hidden River Corporate Center, three buildings totaling about 420,000 square feet, with another 960,000 square feet to be developed. And Cross Town Center, another Crescent Resources project, has about 160 acres of developable land, with about 2 million square feet for office space.

Atlanta

Atlanta has one of the largest industrial markets in the country. According to Ronnie Davis, associate director of research consulting services at Cushman & Wakefield, total inventory for the market topped at 413 million square feet. "Although the Atlanta economy began to slow in 2000, its industrial market remains one of the country's most dynamic, due primarily to its well-developed communication, transportation and distribution network, and its relatively low business costs," says Davis.

Although the market continued to show strength throughout 2000, Davis reports that there are certainly indications of softening. "It is estimated that the level of pre-leasing activity on new projects has declined, and although total construction completions for the year were down 8.7 percent from 1999 levels, the market will still need to absorb the 10.1 million square feet of space currently under construction," he says. "In addition, the 11.5 million square feet of proposed projects is a historical high for the market and will certainly have an impact on market fundamentals if built."

Triad Properties has a 375,000-square-foot project called Newpoint Commons under construction in Gwinnett County. Phase I will be completed this spring, and Phase II is scheduled for this summer. Judd Daniel of Triad Properties says that Gwinnett County is the hot spot for industrial property in Atlanta.

Triad and Trammell Crow Company are co-developing the Proscenium, a 23-story, 527,000-square-foot office tower in Midtown. The two have also paired up for the second, 100,000-square-foot building at McGinnis Park in Alpharetta, which was recently completed. McGinnis Park 300, a build-to-suit project, will begin once the first two buildings are 50 percent leased.

Sacramento, California-based Panattoni Development is adding to Interstate South Industrial Park, a 420-acre park with a 577,500-square-foot building that's expandable to over 1 million square feet. They also have a 1.6 million-square-foot project in northeast Atlanta called Newpoint Distribution Center. Anchors there include Kia Motors America, Distribution Services of Atlanta, Home Grocer and Danka.

Duke-Weeks is set to meet Atlanta's market demand with the fifth building in the Business Park at Sugarloaf. The speculative, one-story, 61,440-square-foot office building is the company's 14th building developed in the park in the past four years. Duke-Weeks is also in the initial phase of development for Breckenridge Place, a 62-acre development that will include seven office buildings in the Northeast/Interstate 85 submarket of Gwinnett County. The company has teamed up with M.D. Hodges Enterprises to develop the third Class A office facility at Hillside at Huntcrest near the Sugarloaf Parkway interchange at I-85. Construction will begin this month and is scheduled for completion in January 2002.

Holder Properties of Atlanta is still leasing tracts in its Royal 400 development in Alpharetta. The mixed-use development has two one-story office parks: Royal 400 Business Park, which contains three one-story buildings, and Great Oaks Center, with another four buildings. The company is also developing office space at Millennium in Midtown, a mixed-use development scheduled to open in December.

Clark Gore, executive vice president of Holder Properties, says there is a lot of speculation about what Atlanta's office market is going to do in 2001. "2001 absorption can fall off by almost 40 percent from the 2000 high of 6.9 million square feet, and still be in line with the 4.57 million-square-foot average absorption (1996-2000) we have been experiencing during the current development cycle," says Gore. "Even if we Šflatten out' to 4.5 million square feet of absorption, by most definitions that still constitutes a very good year."


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