Central Birmingham’s Multifamily Development Pipeline Set to Expand Significantly
Contrary to some Southeast markets’ recent shift in focus to the suburbs, construction in Central Birmingham continues to boom with activity. The Central Birmingham cluster — encompassing the CBD, Southside, Parkside District, University of Alabama Birmingham (UAB) and Lakeview neighborhoods — has established itself as a strong-performing submarket with 3,800 multifamily units total, according to CoStar. The growing number of desirable amenities such as parks, restaurants, museums and trails has helped foster rent growth and additional projects.
Birmingham’s overall multifamily construction activity has been consistent with 12,000 units added from 2009 to 2018 (approximately 1,300 units per year). Within the Birmingham metro itself, multifamily construction is highly concentrated in Central Birmingham, which experienced a 225 percent hike in multifamily construction from a low in second-quarter 2017 to 850 units currently under construction and 1,400 units planned or proposed.
Suburban supply has been tempered compared to similar metros given the lack of zoned land available. There are a number of planned suburban projects, including projects by Dobbins Group and Davis Development, but none under construction.
Drivers of this trend
Rents achieved in Central Birmingham enable multifamily development to ensue despite higher construction costs. The Pizitz and Thomas Jefferson Tower (TJ) are achieving effective rents per-square-foot in the $2.05 range with average rents per unit of $1,635 and $1,700, respectively. Two-bedroom units in Pizitz are achieving over $2,000 in average effective rent, demonstrating the premium that these properties with walkable amenities garner.
Overall, the Central Birmingham submarket maintains both the lowest vacancy and highest average effective rent at $1,196 as of March 2019, according to Axiometrics.
Job growth in the market is largely driving this trend with 6,600 net jobs added over the past year and unemployment dropping well below 4.0 percent. Along with this growth, incomes are rising. The metro’s average household income is projected to reach just over $88,000 by 2023, a 17 percent gain over the average today.
Key recent announcements that we point to as signs of growth include: Shipt’s 881 jobs, Amazon’s 1,500-job fulfillment center in Bessemer, Mercedes-Benz’ 429-job pair of facilities, Moller Tech’s 222-job manufacturing, Pack Health’s 175-job new headquarters in Birmingham and Evonik Corp.’s 50-job expansion with highly technical research and development positions.
Adding to this economic momentum is demographic-driven rental demand with Birmingham adding a projected 3,800 new renter households in the next five years.
Projects and players
Central Birmingham is housing several projects that are currently under construction. In the third quarter of 2017, Cortland broke ground on Vesta, a 318-unit high- and low-rise on Highland Avenue, which is projected to be complete in 2020.
In the Parkside area, Third & Urban began construction on The Denham Building in mid-2018. Once complete later this year, the property will offer 81,000 square feet of office and retail space, as well as 59 loft units.
In the Midtown area, RGS has cleared the site and is prepared to begin construction on Phase II of 20 Midtown. The property will offer 312 units and just under 40,000 square feet of ground floor retail space.
Situated at 1001 20th St. S, The Opus Group is building a 199-unit, 17-story, 522-bed student housing high-rise located near the UAB campus that is projected to be complete in late 2020. In the City Center project, Tellus Partners has begun demolition on the vacant, former AT&T office tower, with more than 300 residential units planned.
Planned multifamily developments in Central Birmingham span various projects, including Next Chapter Properties (130 units), The American Life Redevelopment (141 units) and Cityscape Group University Flats Phase II (57 units).
In addition, Novare Group, Daniel Corp. and Corporate Realty/Parallel Co. have several proposed multifamily properties in Central Birmingham totaling more than 900 units that may or may not come to fruition.
Some miscellaneous, submarket-changing commercial and mixed-use projects on the horizon include:
• Powell Avenue Steam Plant: Alabama Power Co. is in the process of undergoing remediation at the approximately 120,000-square-foot Powell Avenue Steam Plant in the Parkside district to ready it for mixed-use.
• The Post: Robins & Morton and Fifth Dimension Architecture are converting a former post office into a 21,000-square-foot office building to be known as The Post.
• The Battery: SRS Real Estate Partners is redeveloping the former Birmingham Electric Battery Co. property into a mixed-use development with tenants such as Birmingham District Brewing Co., Gus’s Fried Chicken, Wasabi Juan’s and The Syndicate Lounge.
The Birmingham market feels strong with solid fundamentals, continued job growth, multiple strong sales comps at over $250,000 per unit and projected multifamily deliveries happening at a pace that the market can absorb. The majority of these units were tracking before the Federal Opportunity Zone stimulus was announced.
We feel opportunity zones will be an additional incentive for capital to build and repurpose vacant buildings going forward, but that those benefits are not required for projects to proceed as the economics work with or without it. It’s exciting to watch Birmingham’s resurgence downtown continue.
By Craig Hey, Director at Cushman & Wakefield, and Kristina Garcia, Research Manager at Cushman & Wakefield. This article originally appeared in the April issue of Southeast Real Estate Business.