CITY HIGHLIGHT, MAY 2008

BIRMINGHAM CITY HIGHLIGHTS
Philip Currie, Jimmy Adams & Andrew W. Loveman

Birmingahm Office Market

Birmingham remains a great place to own an office building, especially in the suburban markets where rates are at historical highs. While the city is typically conservative in its office building development, several developers are discussing “getting out of the ground” while the demand is still in the market. The market will be closely watching for these new developments during the remainder of the year as many speculate that the market may only be deep enough to absorb one or two new office buildings. Colonial Properties Trust set the pace last year with the 170,000-square-foot Colonial Brookwood Center that was fully leased prior to completion.

The biggest news of the year is Daniel Realty’s recent acquisition of the HealthSouth Corporate Headquarters Campus in the Highway 280/Interstate 459 submarket. They have announced plans for transforming the corporate campus environment into several multi-tenant office buildings, along with a retail mix of properties. Colonial Properties Trust has a fourth building on the drawing board in the Highway 280/I-459 submarket at the Colonnade, as well as a second building at Colonial Brookwood in the midtown market. Also, Corporate Realty of New Orleans announced that they, along with Bayer Properties, are exploring several office developments. One of the new office buildings would be strategically located at Birmingham’s premier retail development known as The Summit in the Highway 280/I-459 submarket, while the other two would be in the stable Southside and the rebounding central business district submarkets.

In light of the cautious national outlook that has come out of the sub-prime mortgage meltdown, one might wonder where the office tenants will come from. Alabama has been very successful in the recruitment of several large automotive companies along with several other large industrial projects in the past decade. This has had a positive impact on many service businesses and professionals that are the primary tenants in the office market, and not just a positive impact on the industrial real estate market.   

The tenant brokers in the market will be closely watching the asking rates on these new developments in the suburban markets. The low $20’s per square foot was on the high end of the market until Colonial’s success at Colonial Brookwood where the asking rate was $28 per square foot.  While the majority of the new development is focused in the midtown and Highway 280/I-459 submarkets, the central business district seems to have survived several bank mergers and departures, so it will be a market to watch as it rebounds.

Overall, the outlook is positive for not only the Birmingham office market, but also the general economy for the entire state of Alabama. Birmingham will continue to attract national and regional investors due to the positive growth in the state.

— Philip Currie is the Office Services Group – Managing Director with Birmingham, Alabama-based J.H. Berry & Gilbert, Inc.

Birmingham Multifamily Market

The Birmingham apartment market shows signs of continued rent growth, strong demand and healthy overall occupancy across all submarkets. With employment growth of more than 5,000 jobs in Birmingham, demand for rental housing continues to increase while growth in supply remains relatively low, due to limited new construction as well as the demolition of existing, older units. The trend of condo conversions and apartment teardowns continues in the Southside/UAB area as well as Homewood, replaced by for-sale condominiums.

Higher-end, desirable municipalities within the MSA, including Mountain Brook, Vestavia Hills and Hoover, have not allowed for the zoning of multifamily land in years; thus, developers look to the Birmingham or other neighboring municipalities for opportunity. New construction supply falls in the range of 1,200 to 1,500 units per year due to the lack of available land.

Within Birmingham there have been recent noteworthy developments. Focus Development of Atlanta has plans to develop River Glen, a 324-unit Class A apartment community adjacent to the Super Target at River Ridge Center, located along the Highway 280 corridor. Stonegate Apartments, a 260-unit luxury property located along Lakeshore Parkway, began lease-up in last July and is well over 50 percent occupied. It was developed by Mitchell Management of Mobile and was recently acquired by EBSCO. Daniel Corporation is moving forward with 240 units in Ross Bridge, the mixed-use resort home community in Hoover, for which they received the proper zoning years ago.

Local property managers now point to the return of residents that were previously lost to the single-family market as the clearest indication that the rental market will improve this year. Higher-qualified tenants are making life easier for property managers.

Engel Realty, a full-service commercial real estate firm in Birmingham, manages in excess of 30 multifamily properties and has seen springtime occupancy at its highest level in recent memory. Overall, market occupancy hovers at approximately 94 percent, with the most desirable locations achieving the highest economic occupancy.

— Jimmy Adams is an investment advisor in the Birmingham, Alabama, office of Southeast Apartment Partners.

Birmingham Retail Market

The retail market in the Birmingham/Hoover MSA as of this spring is in a wait-and-see mode, like most of the country. During the last several years there has been significant retail growth in this market with five new power centers. Two more power centers will come online later this year along Interstate 459, but 2008 will have much less fan fare in the retail development sector than in years past. This is due to the current financial markets, as well as the lack of choice sites. With the deficit of good sites comes a push for infill sites. This type of activity is continuing and is often coupled with a residential mixed-use concept.

This is not to suggest that developers have given up on the retail sector. There are two Publix-anchored centers under construction currently – one just off Highway 31 in Hoover and the second off Highway 52 in Pelham. These grocery anchored neighborhood centers will have small shop retail space involved as well. Pharmacy chains are also active in the marketplace and are willing to pay top dollar for desired sites. The highly anticipated Bass Pro Shops development in Leeds is underway, but no opening date has been set. The whole Interstate 20 corridor seems to be a sleeping giant. Daniel Corporation plans a 3,100-acre residential, retail, commercial and recreational development called Grand River in this area. Add these developments to the Trinity Hospital move to the Grants Mill Road area, and it is clear that the I-20 corridor is poised for significant growth during the next decade.

During the early part of this year there have been numerous national retailers announcing the closure of stores, and there has been a pullback in terms of new store rollout. Some new retailers in the Birmingham/Hoover market are Ulta and hhgregg. The grocery sector has been hit hard during the last decade in this market with Bruno’s, Delchamps and Winn-Dixie closing a significant amount of stores. This has presented both a challenge and opportunity that has been discussed widely in the political arena, as well as the development arena, but no solutions have come forth to date. Wal-Mart Neighborhood Centers have not come to fruition as anticipated either. Publix and Aldi have been the most active in this sector with new stores.

Overall, the retail environment is stable in the Birmingham/Hoover MSA. The wait-and-see period will most likely extend to the latter part of this year. Next year, however, will be a banner year.

—  Andrew W. Loveman, CCIM, is with Birmingham, Alabama-based Southpace Properties, Inc., a member of the Retail Brokers Network.

©2008 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.