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SOUTHEAST SNAPSHOT, OCTOBER 2005
Birmingham Office Market
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Barbara Bushnell
Associate Broker, Landlord Representation
Eason Graham & Sandner, Inc.
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The Birmingham, Alabama, office market is very tight in the Midtown suburban market along U.S. Highway 280. The Lakeshore Park Plaza building is the only building showing any significant vacancy at present resulting from the Infinity Insurance relocation that put about 100,000 square feet on the market. However, this space is being absorbed quickly, as it is being divided into smaller tenant increments. Most of the Class A buildings in this submarket are 100 percent leased. The overall Class A office market reports a second quarter 2005 occupancy of 90.5 percent. The central business district Class A occupancy rates stand at 84.1 percent (up from 82.7 percent at the same time 2004); the Midtown market consists of 23 Class A, multi-tenant buildings with occupancy at 93.4 percent; and the 280/Southern market has 33 Class A structures holding an occupancy rate of 94.2 percent as of June 30, 2005. Class A rental rates range from $15.50 per rentable square foot to $24 per rentable square foot depending on the submarket. The CBD rates generally are in the $17 per square foot to $24 per square foot range; the Class A Midtown market has offerings in the $16 per square foot to $22 per square foot range; and the 280/Interstate 459 market runs from $17.50 per square foot to $23.50 per square foot. Rates for to-be-developed office space in this area start around $24 per square foot to $24.50 per square foot.
Predictably, new office building developments that have been in “mothball” stage for a while are being prepared for construction. Most of the tenant prospects the market is seeing for these new construction projects are willing to pay new construction prices and sign long-term leases, but generally, they want to own or share an equity position with the developers.
The majority of Birmingham's growth is occurring along the U.S. Highway 280 corridor south and east of the CBD, and along the I-459 beltway, driven by proximity to new suburban housing developments, by increased traffic congestion along major arteries into the city, and by occupational tax issues within the municipal limits of the city of Birmingham. The new office developments (though none currently is underway) are in the area bounded by Red Mountain and I-459—what is referred to as the Midtown or “middle market” area. Development is happening here because this area has the highest overall occupancy rate. Farther south, traffic is the concern, and farther north, you get into the Birmingham city limits.
Developers new to the area are involved in office development only to the extent that they are buying long shuttered office properties—primarily in the CBD—and converting them to lofts and condos. The CBD has attracted quite a few small developers from larger markets involved in the retrofitting of older office and warehouse structures for loft developments. Most of the work, however, is being performed exclusively by local developers or by local developers teamed with outside partners.
Birmingham has grown largely from within as opposed to having office space users relocate to the city. However, that is expected to change, especially with the availability of space at the Colonnade that hit the market last year. In addition, the Metropolitan Development Board (MDB) now has a business recruiter focused entirely on bringing white collar jobs to Birmingham. Heretofore, the emphasis was on encouraging manufacturing jobs and industrial users.
As the city is the legal and financial heart of the state of Alabama, the largest space users at present are still the large banks headquartered here—Regions, AmSouth and Compass—and, in the CBD, the law firms. There are also quite a number of new smaller, service-oriented banks opening here.
Additionally, Birmingham's national reputation as a leading edge medical center and home to the University of Alabama at Birmingham creates demand for office space. There are some physician practices looking to locate in office space outside the hospital campus POBs, thus allowing them to combine practice groups in one location—centrally located to all hospitals—cut costs, eliminate inefficiencies and, in some cases, participate in ownership of their office buildings. I have seen several groups interested in taking up chunks of traditional office space in older, well-located properties, effectively increasing the demand for space in the middle market area.
The recent leases of note are mostly renewals with moderate expansion. However, this time next year there may be some interesting deals to report related to the new office building developments.
The markets most interesting to watch in the near term will be the Class A CBD market and the Midtown market. Construction cranes could soon be making a comeback in Midtown, and downtown is experiencing a revival of sorts with the creation of a slew of new residential units in refurbished office buildings; newly announced projects immediately are having more reservations than available units. Following on the heels of the residential influx, retail tenants will return to the CBD. These aspects make for a more vital and attractive city center and ideally will translate into more office users wanting to be located in downtown Birmingham.
Overall, the economy appears to be improving. Unemployment figures are decreasing to levels not seen since 2001, and businesses and law firms are hiring and beginning to contemplate expansion again, all of which translates to Birmingham having finally turned the corner.
— Barbara Bushnell, associate broker, landlord representation, Eason Graham & Sandner, Inc.
©2005 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.
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