The Birmingham industrial market was much like the rest of the country in 2008. The recession reared its head in Birmingham, resulting in an overall decline in average rental rates and occupancy levels. The multi-tenant bulk distribution sector was the hardest hit, falling to 82.4 percent occupancy with a negative absorption of 206,000 square feet compared to the previous year’s 600,000 square feet of positive absorption. Surprisingly, the service center market showed positive absorption for the second year in a row, settling at 91.7 percent occupancy for the year end.
There were no new developments completed in 2008, as landlords struggled to retain tenants and conserve cash. Other than the delivery of a 150,000-square-foot building currently under construction in Shelby County, we anticipate much of the same for 2009. Despite these challenges currently facing our market, several significant transactions completed in 2008 meant that the market was certainly not stagnant.
Brookwood Pharmaceutical, a manufacturer and leading provider of surface modification and drug delivery technologies to the healthcare industry, acquired the former Saks corporate headquarters facility in the Lakeshore corridor. This 286,000-square-foot office and warehouse will receive an additional $30 million of capital investment. It is a prime example of Birmingham’s focus to retain and attract white collar industries. Belk was also able to sell the former Saks distribution facility in Steele, Alabama. This 171,000-square-foot facility was purchased by Rainbird and will serve as its manufacturing and distribution hub for the Southeast. One significant automotive-related transaction in 2008 was Sumitomo Electronics, a Honda supplier. The company leased approximately 140,000 square feet at Moody Commerce Park.
Although 2008 presented many challenges, Birmingham’s automotive sector remains a driving force behind industrial development. Honda has recently announced that in addition to the Ridgeline, it will also begin producing the Accord from their Lincoln, Alabama, facility. By re-tooling for the sedan, the company could open the door to other sedans or luxury vehicles being produced from the same plant, thus ensuring this facility will play an integral role for years to come. Mercedes has also confirmed a $290 million expansion to their Vance, Alabama, manufacturing facility. It is widely believed that this expansion will bring Mercedes one step closer to eventually producing a traditional automobile in addition to the SUVs and current R-class vehicles it currently manufactures in the surrounding area.
Birmingham continues to redefine itself through a changing economy and seeks to diversify by focusing on new service industries as well as biotech-related companies. This trend, along with the growing automotive sectors, will provide a solid economic base for a strong recovery.
— John Coleman is an industrial broker at Birmingham-based Graham & Co.