The Birmingham, Alabama, industrial market has fared well for a recession. New construction has slowed but continues to be evident across the landscape. Compared with other cities in the south central region, Birmingham ranks ahead of Louisville, Kentucky; Memphis, Tennessee; and Mobile and Montgomery, Alabama, in terms of vacancies, according to the Society of Office and Industrial Realtors’ Industrial Statistics report. Birmingham’s overall industrial vacancy stands at 9.47 percent, which is historically about average for the area but much higher than in recent years.

There are pockets of weakness, however. The central business district has one of the highest industrial vacancy rates since the late 1980s and early 1990s at 19.33 percent. This could be attributed to more modern buildings being constructed in the suburbs in the past 5 years and tenants fleeing to more functional buildings. A major factor is that many of these suppliers and distribution companies are manufacturing-driven, and manufacturing has a major influence on a company’s space requirements. Currently, several companies have announced expansions, and this area should benefit from some automotive-related success.

The suburban markets have fared much better in this recession than previously. Vacancy in the overall suburban markets is higher than it was in 2002 but continues to be strong. The anticipation of Mercedes and Honda giving a great impact to this area did not figure into predictions for 2002, but they are certainly having an impact on 2003. In the Eastern submarket, Mercedes supplier Ogiharan has announced an expansion. Oxford Industries is constructing a facility in the Bessemer area at JeffMet Park, and Pastipak has announced plans to build its new facility at JeffMet. All of these industries are automotive-related and will continue to have an impact on the city.

New construction continues to have a positive impact. Shelby Commerce Park just completed a 500,000-square-foot bulk warehouse. The building was partially preleased when it was started and was completely leased prior to completion. Parkwest currently has 208,000 square feet of bulk space to be completed by May 1. Both of these projects are being developed with various partnerships of Graham & Company. To the east, Graham is developing a three-building bulk park at Moody Commerce Park. Also, further east in Lincoln, where Honda is located, Jennings Tooker of Atlanta is planning a 250,000-square-foot building. This new construction should keep leasing efforts busy through 2004.

- Claude Tindle, SIOR, vice president, Graham & Company, Inc.

Retail

The retail landscape in the greater Birmingham area has established itself as a player on the national scene with the coming of sought-after retailers and restaurants new to the area such as Saks Fifth Avenue, Pottery Barn, Panera Bread, Galyan’s Trading Company, Z Gallerie, Flemings Prime Steakhouse and Wine Bar, Brio’s Tuscan Grill and Tommy Bahama.

The city’s healthy retail environment continues to lure both national retailers and restaurants and local entrepreneurs to enter the market.

AIG Baker, Bayer Properties Inc. and Colonial Properties Trust have accelerated the retail momentum that was started in the late 1980s by Jim Wilson & Associates with the opening of the Riverchase Galleria. AIG Baker, Bayer and Colonial each have significant projects underway in the area.

AIG Baker and Bayer are both strong in development along the 280 corridor, but also have new developments elsewhere. Colonial recently completed the first phase of redevelopment at the 750,000-square-foot Colonial Brookwood Village in Homewood and has begun site work on Phase II of Colonial Promenade in Trussville. Wet Seal, Motherhood Maternity and Latin Grill, all new to the market, are set to open soon at Brookwood Village.

According to John Hughey, executive vice president of development for Colonial, the 290,000-square-foot second phase at Colonial Promenade will include a 135,000-square-foot Sam’s Club, 88,000-square-foot Kohl’s and complementary retail. The site work is underway with completion expected by the fourth quarter. Dan Wilburn is leasing agent for the center.

Colonial is also in the process of demolishing a former grocery store location 2 miles from the Promenade centers on which it will build a 50,000-square-foot Publix with 22,000 square feet of complementary retail. The Publix is expected to open in the spring of 2004.

Bayer Properties and AIG Baker are each building two Publix-anchored centers. AIG Baker’s recently redeveloped Vestavia City Center includes a Publix. AIG Baker’s Village at Lee Branch and Bayer’s Edgemont Town Center and Phase II of University Town Center in Tuscaloosa each have a Publix store under construction.

According to Bubba Smith, president of AIG Baker, Lee Branch will also bring an additional Academy Sports to the market in the 209,000-square-foot first phase. Site work is underway on the second phase of the open-air center with a 2004 opening date expected. Smith added that three major retailers have signed leases for the second phase.

“An important feature of the Lee Branch development is the traffic relief it will bring to Highway 280. A four-lane boulevard will connect 280 to 119 about a mile from the 290 intersection. Shoppers won’t have to get on 280 — the boulevard will become a cut-through,” Smith says.

Down Highway 31 from Vestavia City Center is AIG Baker’s 615,000-square-foot Patton Creek where the company will build its second Rave Theater. It is designed as an urban center with a Main Street feel. Site work is underway with completion expected in the spring of next year.

AIG Baker’s most recently announced project is the 150-acre Hayes Marketplace in Pelham. Smith describes the Pelham area as “an underserved market that has even greater potential than the Trussville area prior to Colonial developing the Promenade” and says his company will build a 675,000-square-foot center at the intersection of I-65 and Highway 52 that will also front on Highway 459.

Bayer also is in the Trussville mix with development plans for a center on Deerfoot Parkway near the Promenade that is expected to include grocery and department store anchors in the first phase.

Bayer continues to bring new quality product to the market at The Summit with recently opened Pazo, Liz and Jane, and Village Tavern completing the third phase. “The 100,000-square-foot fourth and final phase at The Summit is now pre-leasing and will bring even more quality restaurants and retailers,” according to Ann Taradash, senior leasing agent for The Summit.

Jeffrey Bayer, a principal of Bayer Properties, emphasizes,”Even though Birmingham retail has dramatically improved over the past 5 years, we, as developers, need to make certain that the market is not being overbuilt. There are other retailers and restaurants that want to come into the Birmingham area, but we have to maintain a healthy balance between supply and demand.”

- Marianne B. Sharbel, president, Concepts Public Relations and Advertising

Colonial Properties Trust recently sold off majority interests in two Alabama shopping centers, one in Hoover and one in Birmingham. The company sold 90 percent of its stake in the 155,000-square-foot Colonial Promenade Hoover to a joint venture partner. Colonial retained a 10 percent interest in the suburban Birmingham property.

The Eastwood area of Birmingham is in transition from a regional trade area to a neighborhood draw. The Eastwood Mall area has grappled with declining retail activity, despite the draw of a Home Depot and a Regal Cinemas Festival 18 movie theater. Bass Pro Shops is considering an Eastwood Mall location, among several other Birmingham sites, for its first Alabama store.

Lakeshore Parkway has experienced growth due to its extension across Alabama Highway 150 to the Morgan Road interchange on Interstate 459. The Shannon Valley project off Lakeshore is a 1,700-acre, mixed-use development that will include 2,300 homes and a new Robert Trent Jones golf course. The area has benefited from its use as a shortcut from the western part of Birmingham to the Oxmoor area.

Mountain Brook is transforming the Overton Road shopping area into a fourth village. The shopping area will include the Overton Road Shopping Center, a gas station and a dentist’s office. It is likely that Publix will develop a grocery store on the 4-acre tract across the street from the shopping center.

Federated Department Stores is integrating its Rich’s and Macy’s brand names in the Southeast. The only Macy’s in Birmingham closed last year, and Saks Inc. recently acquired the 230,000-square-foot store. The Macy’s name has been added to three Rich’s stores in the Birmingham area.

Three new retailers are entering the Birmingham market: Petco Animal Supplies, Anna’s Linens and Ross Dress For Less will open stores this year.

- Lynn Leonard, NewBridge Retail Advisors

Office

Birmingham’s office market endured another tough year in 2002 as the market continued to be the most challenging in over a decade. However, the “bleeding” has stopped with new sublease space being less prevalent and demand increasing for some of the current vacancy. With an overall vacancy rate of 15 to 18 percent, this is a welcomed sign.

Speculative construction is almost non-existent and should remain so for at least the next 12 to 24 months. The only substantial construction continues to be corporate campus expansions to existing Birmingham-based companies.

All of the “big four” Birmingham-based banking institutions (SouthTrust, Compass, AmSouth and Regions) have built their own operation centers in the suburban markets, leaving vacant space as they moved to their own campuses.

The Birmingham CBD grew by 460,000 square feet in 2002 with the opening of the CBD’s two newest speculative office buildings to be constructed in 12 years. Both buildings are anchored by local law firms and are attracting other legal-related tenants. Expanding law firms are dominating the lease market in the CBD with the bulk of all CBD transactions being attributed to the growth and prosperity of local law practices.

Demand for office leasing in the suburbs has increased recently, although larger tenants (over 20,000 square feet) continue to be prized assets. Concessions are available and choices for space are plentiful as landlords get creative in structuring deals.

A bright spot throughout all of Birmingham is the sale prices of quality office buildings. The market has seen several quality, Class A office buildings sell for well over $100 per square foot with some having received multiple offers. The mid-size owner/occupant is an active buyer and low supply, coupled with low interest rates, has pushed prices to new highs in the area.

The slow but steady leasing market and the active sales market are expected to continue in the Birmingham office market for the foreseeable future.

- Dan Lovell, SIOR, director, office group, Graham & Company, Inc.

©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.