SOUTHEAST SNAPSHOT, OCTOBER 2004

Birmingham Office Market

Barbara Bushnell Associate Broker Eason Graham & Sandner

The current trend in the Birmingham, Alabama, office market is small- to mid-size space users who desire to own their office facility. A shortage of buildings in the 5,000- to 10,000-square-foot range, coupled with an interest in multi-use live/work environments, is spurring rehabilitation projects throughout the city of Birmingham. Older structures in the central business district are candidates for office and loft redevelopment, while new construction in the suburban markets is combining office, retail and residential uses.

“Large-scale office development is presently arrested as a result of several years of market softness and sluggishness in the rate of absorption,” says Barbara Bushnell, associate broker with Eason Graham & Sandner. “The past year has seen a significant reduction in the amount of sublease space available and moderate tightening of overall availability.” As a result, no new large, multi-tenant office buildings are slated for construction until 40 to 50 percent of pre-leasing commitments are secured.

A significant development that is sure to impact the market includes two buildings built in the late 1980s to house BellSouth Corporation. Located in Colonnade at the highly desirable intersection of U.S. 280 and Interstate 459, the buildings are being vacated as employees are relocated to other facilities in the Birmingham area. The larger of the two buildings, totaling 430,000 square feet with 45,000-square-foot floor plans, will be available first. The smaller 265,000-square-foot building will be made available as demand warrants.

“This is a tremendous opportunity for Birmingham to attract large regional space users,” says Bushnell. “Economic development efforts in our market have historically been hampered by the lack of large blocks of space which will now be available at the Colonnade.”

The recent merger of SouthTrust Bank with Wachovia also will have a great effect on the office market. The merger will mean a significant loss of jobs in the Birmingham market accompanying the loss of a major bank headquartered in the CBD. At the same time the SouthTrust presence is waning, the recent merger of Regions Bank and Union Planters is a positive development drawing new bank officials to Birmingham.

The majority of growth in the market is occurring along the U.S. 280 corridor — south and east of the CBD — and along the I-459 beltway. “Growth is being driven by proximity to new suburban housing developments, increased traffic congestion along major arteries into the city and occupational tax issues within the municipal limits of the city of Birmingham,” says Bushnell.

Another growth corridor gaining momentum and worth monitoring in the future is the Interstate 20 area between Birmingham and Atlanta, being fueled by the location of the Honda plant. New housing, warehouse and retail construction is underway, with medium-sized office facilities likely to follow suit.

Though presently there is not an influx of new office developers in the Birmingham market, the CBD has attracted some small developers from larger markets involved in the retrofitting older office and warehouse structures for loft development. Most of the work is being transacted exclusively by local developers or by local developers teamed with outside partners.

“Birmingham is a city that has largely grown from within as opposed to having office space users relocated to the city,” says Bushnell. “We believe that will change, especially with the availability of space at the Colonnade.”

The largest space users include the large bank headquarters — SouthTrust, Regions, AmSouth and Compass — and the law firms in the CBD. With Birmingham poised as the legal and financial heart of the state, Bushnell feels that with Mercedes, Honda and Hyundai locating plants nearby, the city will see an increase in engineering firms locating in close proximity.

Birmingham’s national reputation as a leading medical center and home to the University of Alabama at Birmingham (UAB) also creates demand for office space. Nine percent of the area’s employment base and six of the city’s top 25 largest employers are healthcare providers. Additionally, UAB is the largest employer in the Birmingham metro area.

The largest lease to close recently was for space in the U.S. 280/Southern market, which is expected to be a corridor to keep an eye on in the future. Eason Graham & Sandner represented Blue Cross/Blue Shield of Alabama in the 100,000-square-foot lease at Meadowbrook, a development located south of the I-459 interchange on U.S. 280.

As of the end of the second quarter, Class A rental rates in Birmingham range from $16 to $24 per rentable square foot. The CBD rates fall in the $17 to $24 range, with the Class A market experiencing 83 percent occupancy, having eight buildings counted as Class A, multi-tenant facilities. The Midtown market has offerings in the $16 to $22 range, with 19 Class A, multi-tenant building at 96 percent occupancy. The U.S. 280/I-459 market runs from $17.50 to $23.50, with 20 similarly described buildings and a 93 percent occupancy as of June 30.

Though the SouthTrust/Wachovia merger will cause additional vacancies downtown, the vacancy created by the availability of the Colonnade space is viewed as a plus for the U.S. 280/Southern market, with employers outside the Birmingham area showing a strong interest.

©2004 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.