SOUTHEAST SNAPSHOT, OCTOBER 2006

Birmingham, Alabama Retail Market

The Birmingham market continues to thrive on the retail side due to its central location in the state, highly educated workforce, low cost of housing and temperate climate. Over the last several years the retail development market has flourished throughout metro Birmingham particularly to the east in Trussville and to the south in Alabaster. The University of Alabama at Birmingham (UAB) drives the metro economy with its medical center ranked third in the nation in overall quality of health care. Large corporate employers continue to show their commitment to Birmingham. For example, Wachovia, which acquired locally-based SouthTrust Bank last year, has made a commitment to a new $400 million data center in the area. This follows the bank’s earlier investments in the Birmingham region where its Alabama, Mississippi and Tennessee banking operations are headquartered.

The mixed-use phenomenon is appealing to the marketplace as evidenced by developments such as Soho in Homewood, developed locally by Cyprus Partners. This particular mixed-use project incorporated 75 residential condominiums, retail space of approximately 30,000 square feet as well as the new Homewood City Hall. Downtown Birmingham, Homewood and Mountain Brook are areas capitalizing on this growing trend. Hallman Hill, another Homewood mixed-use development in the planning stages, is designed for 120 condominiums, 17 townhouses and shop space. Locally-based Bayer Properties is currently constructing Cahaba Village, expected to open next year. The project is a unique mixed-use boutique village anchored by a 50,000-square-foot freestanding Whole Foods Market and Stoney River Legendary Steaks (both retailers are new to the market). Located off of Highway 280, Cahaba Village will include an additional 45,000 square feet of retail with residential condominiums above. Apple Development has plans for The Grove, a 550,000-square-foot retail center and approximately 250 homes located at the intersection of Interstate 459 and Highway 150 with an expected delivery of 2008. Additionally, there is rumor of a large-scale mixed-use project along the Highway 280 corridor in Shelby County. Shelby County has continued to see strong growth on both the residential and retail front, with projects such as the Village at Lee Branch by prolific locally based developer AIG Baker.

Active developers include Birmingham-based Colonial Properties, which continued to bring large-scale projects to the marketplace. Projects include Colonial Promenade Alabaster II (under development), anchored by Super Target, JC Penney, and Best Buy as well as shop space; and The Pinnacle at Tutwiler Farm, anchored by Belk, JC Penney and Best Buy to open in October. Alabaster II is a follow up to meet pent up demand shown for Alabaster I, anchored by a Wal-Mart Supercenter, Belk and Lowe’s. Palisades Shopping Center, formerly anchored by Winn Dixie, is being redeveloped and will be anchored by a Wal-Mart Neighborhood Market. Wal-Mart is planning a roll out of several Neighborhood Market stores in the area. Wal-Mart Stores continued to expand and has a major project at the site of the old Eastwood Mall, which has been razed. Developed by MAP Development of Birmingham, this more than $50 million project will include a 200,000-square-foot Wal-Mart Supercenter and shop space of approximately 150,000 square feet. Additionally, Wal-Mart has plans for another Supercenter and shop space next year in Chelsea, Alabama, in Shelby County off of Highway 280.

Underutilized retail centers in the Birmingham area continue to evolve as either redevelopment opportunities or non-traditional retail uses. Palisades, recently acquired by Atlanta-based Locke Investments, is an example of great real estate in need of redevelopment. Locke plans to breathe new life into the property through a re-tenanting and capital improvement program, along with the creation of multiple outlots for several well known retailers looking in the area. Another example is Sulphur Springs Market Place, formerly home to Winn Dixie. Baptist Health System recently acquired the mostly vacant center at a key intersection with future plans for medical-related uses. Publix continues to show its dominance in the Birmingham market with several stores recently completed; however, the rollout of the Wal-Mart Neighborhood Market concept will prove interesting in the fiercely competitive Birmingham grocery market. The developers of The Summit Birmingham have filed a lawsuit against Belk stores to prevent Belk from rebranding the Parisian store currently anchoring Phase I of the development. The developer contends that the conversion would violate a covennant in the original lease with Parisian because Belk is not deemed a first-class retail fashion department store by the developer. This lawsuit could have a major impact for Belk and other mall and retail developers across the southeast where Parisian is a tenant.

Major significant retail sales in the Birmingham market include Inverness Corners (229,667 square feet) and Inverness Plaza (74,785 square feet) both sold by MetLife in December 2005. Riverchase Village (178,510 square feet) was acquired by Phillips Edison & Company in June. Palisades Shopping Center (289,936 square feet) was sold by Victory Investments in August and brokered by NewBridge Retail Advisors.

— Joseph Schneider is an investment specialist with BridgePointe Advisors.

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