“Better,” “flat,” and “sporadic” comprise the range of adjectives that might be applied to the current Birmingham area general purpose, multi-tenant office market, the Birmingham Business Journal reported in September. “But even though the market is still a challenge to navigate, several companies have pulled the trigger on large leases this year,” states the report. Nonetheless, an executive with Colliers International informed the source, 2012 has been “a phenomenal year for tenants as well as aggressive landlords who have the capacity to make solid deals to attract new, long-term tenants.” Along these lines, the Journal reported in August, Viva Health Inc. has announced plans to relocate its offices, for which the vacant Regions Plaza building downtown has been cited as a potential site. In July, law firm Adams and Reese LLP announced plans to move in October into 22,045 square feet at the 32-story, near-570,000-square-foot Regions Harbert Plaza, the city’s largest multi-tenant office building. Second quarter leases reported by industry sources include a 26,310-square-foot Class A deal by IberiaBank in the Grandview II building in the Highway 280/Southern submarket in the suburban southeast.
Reis’ reporting on this market gives evidence of all three of the above-cited characterizations. Net absorption, “sporadic” by the quarter, was negative overall for the first half of the year at 28,000 square feet (July and August lost 4,000 more) but should be “better” over the remainder of the year. Occupancy, meanwhile, has been essentially “flat.” The vacancy rate has scarcely budged over the past two years. It closed the latest quarter at 12.1%, up 10 basis points for the period, down 20 year-over-year, up 20 since the second quarter of 2010. No change followed by August. At $19.01 psf and $15.64 psf, asking and effective average lease rates for the latest quarter were up 0.1% and 0.2% for the period and were up 0.3% year-to-date following gains of 0.5% and 0.6% last year. There were no additional changes through August.
Speculative development, meanwhile, has been virtually non-existent in the recent period. Until August 2012, no competitive general purpose space had come on line metro wide since 2008. The August delivery, which will stand as 2012’s sole completion of this type, was the $4 million, 42,000-square-foot Railroad Square office redevelopment project at Second Avenue and S. 18th Street in the “Southside” area near downtown proper (in Reis’ Downtown/Medical Center submarket) and near the new professional minor league baseball stadium. The Birmingham News has reported a “full roster” of tenants for the new building. Shannon Waltchack LLC is the developer. “We’re seeing a strong office market downtown right now, especially on the Southside,” an executive with Watts Realty Company informed the Journal in August. “It’s hard to find any office space near the medical center.” According to an executive with Shannon Waltchack LLC, “the medical district was a driving force behind a real estate recovery downtown,” adds the report. The area is a focus of new residential development as well (see the Apartment Space section following).
Reis expects positive net absorption over the remainder of the year at about twice the volume of the newly completed Railroad Square building. Vacancy should fall to 11.8%, lowest since the fourth quarter of 2010. Gains of 1.0% are projected for both the mean asking and effective rents for the year.