Auto Manufacturing Drives High Occupancy For Birmingham’s Industrial Sector
Birmingham’s investor-controlled, multi-tenant warehouse market remains at or near record occupancy levels — 95 percent for bulk warehouse and 90.4 percent for office/warehouse. The 32-foot clear heights, Class A bulk market is even tighter at nearly 100 percent. Landlords are well into a cycle of market catch-up, rent growth and capital reinvestment. A growing list of tenants, reading the tea leaves, have gone long when appropriate.
But what about new construction? A local developer finally put a shovel in the ground in 2018, delivering a 30 percent preleased, 112,500-square-foot front load project on a well-located infill site. The timing was perfect and captured some pent-up demand with two leases promptly signed for the balance of the building. Rents for this development were quoted at $5.95 per-square-foot, while the submarket average trailed at $4.87 for tenant sizes under 40,000 square feet.
The gap is narrowing. Two build-to-suits were also delivered in early 2018: Gardner Denver Nash’s 52,000-square-foot facility and Mercedes-Benz U.S. International supplier Truck & Wheel Group’s 127,000-square-foot assembly plant, the latter purchased by Gladstone Commercial Corp.
Along with absorption rates, site scarcity is a limiting factor for Birmingham’s development pipeline. That said, there are a few developer-controlled sites suitable for the next project, depending on location preference for the tenant.
Demand is being driven largely by the automotive sector. Mercedes-Benz now produces over 300,000 vehicles per year in nearby Vance, Alabama. A new Mercedes-Benz-owned support campus is well under construction in Bibb County, which is closer to Birmingham. The three-building campus will house the export operations (900,000 square feet), aftermarket parts business (1.5 million square feet) and a new battery assembly plant (unknown square footage) as Mercedes-Benz prepares to launch electric vehicle production in the next two years.
All of this will have an impact on the industrial market in late 2019 and 2020 as Mercedes-Benz vacates three quality facilities ranging from 160,000 to 512,000 square feet. Some of this space could subdivide and be a well-timed delivery in the current tight market.
In addition, Michelin North America is vacating 595,000 square feet at year-end in Birmingham’s Eastern submarket, which is a great opportunity. Honda Manufacturing of Alabama is to the east of Birmingham, and the conjecture is that its supplier base will expand with the new Mazda Toyota Manufacturing U.S.A. joint venture near Interstate 65 in the Decatur/Huntsville area. It too will be designed to produce about 300,000 vehicles per year with production beginning in 2022.
Birmingham is a diverse economy of financial services, medical and manufacturing bases. The manufacturing base is rooted in the history of our steel and mining operations in the area. CSX and NFS railroads serve Birmingham with the BN Railroad terminating its southeastern penetration in Birmingham as well. These present-day manufacturing uses are supported by warehousing and light assembly operations that help drive industrial real estate demand. Case in point, Z Modular recently secured a long-term lease of 76,000 square feet to help support a nearby larger production line producing prefabricated modular buildings.
In 2018, Birmingham landed $1 billion of capital investments with 4,511 new jobs according to the Birmingham Business Alliance (BBA). Since 2012, the automotive sector has accounted for 26 percent of the announced new jobs in the local area, according to the BBA.
The most notable new industrial announcement came with Amazon’s new 855,000-square-foot fulfillment center now under construction in the Bessemer area.
The fundamentals for the Birmingham market are strong. Lower absorption and site scarcity compared to Atlanta, Nashville and Memphis keep the Birmingham market from being overbuilt. An excellent transportation network, a relatively strong manufacturing base and an automotive sector that is ever growing all contribute to give strength and balance to a secondary market that geographically lies between the mentioned higher profile markets.
— Sonny Culp, SIOR, Senior Vice President of Graham & Co. This article originally appeared in the April issue of Southeast Real Estate Business.