Daniel Lovell, SIOR Director, Office Group Graham & Company, Inc.

Although demand for office space continues to be fairly weak, the general feeling for the Birmingham, Alabama, office market is that the worst is over. Development has been held in check with only 610,000 square feet coming to the market in the past 12 months. Just 310,000 square feet of that was multi-tenant space.

Speculative development has been at a standstill and this trend should continue for the next 12 to 18 months, according to Daniel Lovell, director of Graham & Company’s office group. “Birmingham’s rolling terrain, higher land prices and weaker demand for office space are the driving factors behind the lack of speculative development,” he explains.

The next speculative office developments in Birmingham will most likely occur in 2005 and will probably be in the midtown area, close to or along Lakeshore Drive. “When this development does occur, expect to see buildings 30 to 40 percent pre-leased prior to development with either third-party tenants or owner/users,” says Lovell.

Midtown’s current occupancy of 84.47 percent is the highest throughout all of Birmingham and this has been the case for the last few years. Although leasing activity has continued to be fairly slow, activity has picked up from the lows of 2001 and 2002. Much of the sublease space has not been leased and is burning off quickly as most subleases in the market have lease expiration dates of 2004 to 2005. The short time period remaining on these subleases have made most of them obsolete. “However, we will not know how that space will directly affect the market until 2004 to 2005, as the lease expirations arrive,” notes Lovell. Another positive note is that very few new substantial subleases have come on the market within the last 12 months.

The brightest spot for the Birmingham office market has been activity in sales. Many buildings have sold at well over $100 per square foot and quality buildings in quality locations typically sell to users and/or investors within 6 months of going to the market. Many of these quality buildings have been selling for between $100 and $140 per square foot, numbers that have not been seen in the Birmingham area for quite some time.

“Most brokers and developers throughout the area feel our local economy has turned the corner, although slowly,” Lovell says. “The corporate downsizings of 2001 and 2002 seem to have slowed to a trickle, and with Birmingham’s quality office environments, affordable lease rates and thriving financial and medical communities, we believe the demand for office space will increase, especially going into 2004. With Birmingham’s strong financial lenders and many qualified contractors, both of which are some of the best in the country, Birmingham is a great place to develop and own office property.”

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