In this uncertain economy, many developers are beginning to feel the lull as some companies hesitate to expand. But even as developers express some concern about the economy, industrial developments across the Southeast continue to come on line and companies continue to fill buildings.

Economy

"There is good news and bad news," says Robert Chapman, executive vice president, southern region, for Indianapolis-based Duke Realty Corporation, a company with developments across the Southeast. "The good news is that we' renewing our tenants. The bad news is that there just isn1t as much development."

Many of the projects currently under construction or recently completed by Duke were started earlier in the year, says Chapman, who expects the number of speculative projects that companies approve will decrease. Companies are renewing rather than moving into new buildings and expanding, Chapman explains. Duke' renewal rate is at 85 percent across the company, which is the highest it has been in a long time. Usually 60 to 70 percent of the tenants renew.

In Memphis, Tennessee, Kurt Nelson, vice president of development with Atlanta-based IDI, agrees. "We' going to end up building a little less this year than we have over the last couple of years -- as will the market as a whole. We, along with our competitors, don1t tend to put more than one of the same type of building out there at a time. So when it takes longer to sell it, it takes longer to replace it," Nelson says.

Commenting on development in the Atlanta area, Ray Stache, director and industrial specialist with Cushman & Wakefield in Atlanta, says a fair number of speculative large box buildings remain on the market. "Some of the recent transactions have gone on a build-to-suit basis rather than taking the 25 to 30 spec buildings that are available," he says, mentioning that a couple of transactions in the works could take some of that space off the market.

"I think there' a slowdown overall," Stache notes. He adds that activity still continues on 40,000- to 60,000-square-foot buildings, but that big box buildings are more affected because supply and demand are out of sync for these properties. For example, of the new speculative distribution centers, existing or under construction, 300,000-square-foot or larger with at least 30-foot clear ceilings, approximately 11.8 million square feet within 26 buildings is available in Atlanta, says Stache.

The market has slowed in South Florida as well, according to Scott Helms, head of IDI' South Florida district office. "I think our absorption rate is slightly off this year due to the general economy," notes Helms, who says he believes supply and demand will remain relatively balanced because the lack of available land in the South Florida market will make it difficult to overbuild the area.

Recent Developments

Because of space restrictions imposed by the Everglades and the ocean, some South Florida building activity is moving north to Palm Beach County. "Most of the industrial development in the past has been either in Broward County or Dade County," Helms says, and it is in Broward that IDI has built in two business parks recently. In Miramar Business Center, just north of the Dade County line, IDI recently completed a 186,000-square-foot building and expects a 289,000-square-foot building to be complete this month. Helms says the company is negotiating with a tenant but has no pre-leasing yet. In Sunrise, at Marina West Business Center, IDI is working on two buildings totaling 391,000 square feet to be complete at the end of first quarter 2002.

Recent leases with Sara Lee, 265,000 square feet, and Andrx, 130,000 square feet, completed the IDI development in Weston Business Park, which totaled 1.1 million square feet of development, in Weston. "We did a full build-out of 70 acres within about 2 1/2 years. That is one of our big success stories," according to Helms, who reports a total of 1.1 million square feet of IDI-South Florida industrial development in 2001.

IDI will also complete about 1.2 million square feet of industrial development in the Memphis area, according to Nelson. This includes a recently completed 787,000-square-foot build-to-suit for Hewlett Packard and a soon-to-be-completed 435,000-square-foot speculative building in Southaven, Mississippi, which is part of metropolitan Memphis.

In the Atlanta area, IDI' industrial development will total 1.7 million square feet in 2001, says Lisa Ward, vice president of leasing with IDI. The company is working on a 550,000-square-foot cross-dock facility for Office Depot. The facility, which will be completed in March 2002, is located at Hamilton Mill Business Park in Buford. At Shawnee Ridge, IDI has leases out on approximately half of a recently finished 318,000-square-foot bulk facility, and the company has leased 200,000 square feet of a 315,000-square-foot inventory building at Westfork in Lithonia Springs to GES Exposition. IDI also recently completed two speculative projects: a 358,000-square-foot cross-dock facility at SouthPoint and a 140,000-square-foot distribution center at Shawnee Ridge.

"Typically northeast Atlanta has been the highest absorption submarket in Atlanta. Because of the amount of sublease space coming back on the market, it is actually breaking even in terms of absorption. You are seeing more positive absorption on the west side of town, which is a little unusual. The last couple of years, the west side has been off, and this year it is the biggest gainer in terms of net absorption," according to Ward.

McDonald Development Company of Atlanta is seeing more activity on the south side of Atlanta. "I believe it is because the south side leases to more basic industries like tires and automobile parts -- it is less tied to the higher end products," says President John McDonald, who reports his company will build 1 million to 1.5 million square feet of industrial space in Atlanta in 2001. McDonald recently completed a 496,000-square-foot cross-dock distribution center in the Fulton Industrial submarket for Quaker Oats. Currently, the company is working on a 296,000-square-foot building in Gwinnett County at Horizon Ridge; this speculative building is expandable to 623,750 square feet and will be complete in March 2002. Also due for completion in the first quarter of 2002 is a 100,000-square-foot building for Kirk-Rudy in Woodstock, Georgia. In Clayton County, near Hartsfield International Airport, the company is developing a 272,000-square-foot building, expandable to 1 million square feet, at SouthPark. The project will be complete in December. At WestLake in the Fulton Industrial submarket, McDonald Development has leased 115,000 square feet of the 280,855-square-foot Building 5800 to Clean Rite.

Mike Demperio, a partner in the Atlanta office of Sacramento, California-based Panattoni Development Company, also says the south side of Atlanta is seeing more activity. "In the last year, there has been a lack of good, available industrial land [in Atlanta]. But the south submarket of Atlanta is faring pretty well. I think that is where you are going to see the majority of activity occurring in the future because of available land and accessibility."

Panattoni' Atlanta office will develop 1 million square feet of industrial projects this year, including two speculative buildings recently completed: a 408,000-square-foot building in the Fulton Industrial area and a 577,000-square-foot building, expandable to 1.05 million square feet, in Henry County. Also in Henry County, Panattoni has completed a 428,000-square-foot build-to-suit for Wal-Mart. In Gwinnett County, the company recently constructed a 450,000-square-foot building for Kia Motors and Hyundai Motors at Newpoint Distribution Center.

Matt Wall, Panattoni' project manager in Durham, North Carolina, says business is slow in the area. "There has been a fallout in relation to IBM, Nortel and some other large manufacturers in the area. The logistics contractors have sort of borne the brunt of that," Wall explains, calling it an "interruption in the technology boom." The company has a vacant 324,000-square-foot speculative warehouse in Durham that was completed in March.

Johnson Development Associates, based in Spartanburg, South Carolina, will complete 760,000 square feet of industrial development in 2001, according to Garrett Scott, director of industrial developments. Most of the company' work is along the Interstate 85 corridor. The company has been working on a 300,000-square-foot speculative building in Kings Mountain, North Carolina. The building, located at the intersection of I-85 and Highway 161, was completed this month. In Gaffney, South Carolina, at Cherokee Corporate Park, Johnson Development recently completed a 60,000-square-foot speculative building that is expandable to 200,000 square feet.

Two recent 100,000-square-foot leases for Johnson Development Associates in the Spartanburg area prompted the company to begin construction on a 100,000-square-foot building, expandable to 150,000 square feet, at Fairforest Business Center. The building, Fairforest VI, will be complete in April 2002. Just north of Charleston, South Carolina, the company recently completed a speculative building of 100,000 square feet in Berkley County at the North Rhett Business Center.

Scott says his company has noticed "higher-end manufacturers considering locations in North and South Carolina. There is a lot of potential here. Infill from retail development is spreading down into the area," he explains. In addition, the downturn in the textile industry has made available good labor, according to Scott, who also points out that the South Carolina area offers an attractive tax structure and a non-union environment that appeals to industry parks.

Duke Realty is also working on a number of industrial projects in the Southeast. According to Chapman, the company expects to complete about 2.5 million square feet of industrial development in the Southeast this year. Duke has several projects in Raleigh, North Carolina, currently underway. At Walnut Creek Business Park, the company has pre-leased 70 percent of a 106,000-square-foot building to The Trane Company. Also in Walnut Creek, the company has a 132,000-square-foot building due to open in several months. In September, Duke completed an 86,000-square-foot building at Perimeter Park. In Florida, a 100,000-square-foot building in Lee Vista is currently under construction, as is a 167,000-square-foot building in Lakeland. In Atlanta, the company has pre-leased 40 percent of the 750,000-square-foot Liberty Distribution Center to GENCO and has a 500,000-square-foot building opening soon at Braselton Business Park.

Dallas-based Lincoln Property Company also has a big project currently underway in Atlanta. Inside the 200-acre World Business Center Park near the airport is the 20-acre Airport West Distribution Center where Lincoln Property is developing two buildings totaling 287,520 square feet. "We have been working on this project for over 9 months," says Julian Brown, senior vice president for Lincoln Property Company. Brown, who is located in Atlanta, states, "We look at this as kind of an infill site close to the airport."

The buildings are designed for freight forwarding as well as business distribution. Brown estimates the buildings are about 5 minutes from being inside the terminal. "Obviously we are anticipating, as the airport expands, we will have the opportunity to accommodate some of the tenants that are displaced by that expansion," says Brown, who is working with Denton Shamburger, a vice president at Lincoln Property Company, to market the property. There are no tenants signed at this point; completion for the project is set for the end of March 2002.

Trends

While industrial buildings have not changed much recently, developers agree that distribution buildings are getting larger. For example, "five years ago, a large spec building would have been 250,000 square feet. In this day and time, a large spec building would be an 800,000-square-foot building," says Ward. Further explaining, she adds, "More and more large users are consolidating and having regional distribution centers to handle distribution throughout the Southeast."

"Inventories are moving faster through buildings. Therefore the buildings have gotten larger. The companies are requiring more truck doors and they are requiring spaces to store trailers," says McDonald.

In the past, new technology has affected the demands clients place on industrial developers, but recent technological advances have not changed the building of industrial sites. "If you look at the end users and how they are radioing their trucks and how they are doing inventory control, I think there has been a lot of change, but we don1t really get involved in that aspect of it," says Ward.

Nelson agrees. "From a building sciences perspective there hasn1t been a whole lot of change," he says. "But from a client perspective, there are those companies that have gotten more high-tech with their distribution systems. This means more conveyor and material handling equipment as opposed to just straight fork lifts and pallets."

"We build them the building, but usually the material handling equipment and conveyors are things the tenants bring," says Nelson. The developers do provide flatter floors and more electricity to power conveyor systems or carousels if the companies are using such equipment, "but we still do a lot of deals with companies that are sticking a forklift in there and lifting pallets off a rack with very low automation levels," Nelson adds.


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