Birmingham Industrial Market Poised for New Projects with Record Low Vacancy

The surge in demand for Birmingham’s industrial real estate over the last few years has resulted in the highest occupancy rates in over 20 years. Alabama’s level of business friendliness has created a strong economy and high level of job growth since the end of the Great Recession. Manufacturing is a key driver of job growth. Overall vacancy rates in Birmingham’s multi-tenant industrial market have fallen to around 7 percent, which is an all-time low. Average rental rates have crept up to approximately $4.25 per square foot, which is historically high for Birmingham but still significantly lower than rents in larger markets around the Southeast.

In spite of the robust activity, there are no active plans for any sort of speculative multi-tenant developments in the market. The last project was the 90,000-square-foot Oxmoor Logistics Center located in the Oxmoor Valley submarket, which was completed in the fourth quarter of 2018. It is currently 100 percent occupied. However, there are over 2 million square feet of individual projects that will be completed before the end of 2019.

Rich Vanchina
Director of Industrial Brokerage,
Southpace Properties Inc.

One is a $1.3 billion expansion at the Mercedes-Benz Tuscaloosa plant, which includes a new body shop, enhancements to the SUV assembly shop and upgrades in logistics and information technology. The other is Amazon’s $325 million, 855,000-square-foot robotic fulfillment center on 133 acres in nearby Bessemer. The facility will initially employ 1,500 workers, but that number could grow to 3,000.

The small- to medium-sized deal flow has been healthy as usual, but the number of significant transactions so far this year is fewer than this time in 2018.

Another trend that we’ve been seeing over the last four or five years is the adaptive reuse of older industrial buildings in and around the Downtown and Southside submarkets. These are buildings considered functionally obsolete for industrial use but make great conversions to office, retail and/or apartment developments. Removing product from this category to repurpose it is another factor contributing to the supply shortage in the market, which will hopefully become a factor to help ignite new industrial development in the region.

Although we’re not seeing quite the amount of sales and leasing activity as we did this time last year, Birmingham’s industrial market remains healthy, as evidenced by the recent success of Oxmoor Logistics Center. Also, major investments made by Mercedes-Benz and Amazon show an ongoing confidence in our region’s economy. As supply continues to tighten, and rents and property values continue to rise, we can hopefully expect to see additional new industrial development in our region in 2020 and beyond.

— By Rich Vanchina, CCIM, SIOR, Director of Industrial Brokerage at Southpace Properties Inc. This article originally appeared in the August 2019 issue of Southeast Real Estate Business.

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