Consistency, Young Talent Lead to High Expectations for Birmingham Office Market
For the first time in quite a while, the Birmingham office market has experienced a rejuvenation and resurgence, catered around growth, a diversification of the tenant base and an effort to attract and retain bright young minds. Like many markets nationally, the city’s focus on urban renewal has made downtown Birmingham an attractive place to live, work and play, and thus will help companies attract talent to the market.
Birmingham has entered a new era of industry and residential growth with one of the Southeast’s most dynamic markets after evolving from a historically steel and manufacturing-focused economy. Driven by a new generation of local leaders who have focused on developing biotechnology, life sciences and automotive sectors as catalysts for growth, Birmingham has witnessed a remarkable economic transformation.
A preference for dynamic locations to live, work and play is occurring in Birmingham, as a significant amount of development has taken place in downtown Birmingham. While the bulk of this activity is occurring on the multifamily side, the same factors that draw people to live downtown are expected to positively impact the desire of employees to work downtown. In the long run, it is reasonable to expect office development to take off in the area.
Multiple projects have delivered recently, in Parkside and the CBD, and continued growth of University of Alabama at Birmingham (UAB) is having a positive effect. The deal flow has been steady, leading to an overall market office vacancy of 11.3 percent among Class A assets.
The financial services industry has a strong presence, as Birmingham is home to Regions Bank’s headquarters, and boutique banks continue to sprout in the market. Much of the growth has been organic and internal, including Servis1st Bank’s new 100,000-square-foot headquarters in Homewood, a move that is expected to bring nearly 200 jobs to the area. Also, Oakworth Capital Bank has purchased the pervious Servis1st Bank Building.
Outside of financial services, HealthSouth Corp. has a 250,000-square-foot headquarters building under construction in the I-459 submarket. Additionally, Southern Co. Services Inc. is moving into 665,000 square feet at The Colonnade in 2019. The company will serve as the property’s sole tenant.
In line with the national trend, well-situated office buildings are experiencing an uptick in asking rents. The gap of available space is shrinking, and 5,000- to 10,000-square-foot tenants are having a tougher time finding viable options within the I-280 corridor. Landlords are at an advantage at the I-459 and I-280 intersection in Midtown and in the Parkside and Lakeview districts, which have become home to a few adaptive reuse projects including former Dr. Pepper syrup plant Pepper Place and The Stockyard at Railroad Park.
Railroad Park and the minor league baseball field, Regions Field, have added to Birmingham’s “cool factor” with projects like Bakers Row — a former bakery turned loft office building — and downtown welcomed the redevelopment of the former Federal Reserve building. Birmingham’s Parkside, Theatre, Loft, Lakeview and Entertainment districts have unique aspects that together offer any type of environment desirable. Entertainment venues, traditional office space, loft office, space near nightlife and restaurants, adaptive reuse and space near culture and theater can all be found in Birmingham’s core.
Creating non-traditional office environments has contributed to drawing labor to the market and retaining talent, an effort backed by the Birmingham Business Alliance and the City of Birmingham. The market has become a bit of a tech hub, with top companies such as Shipt, Daxko, Command Alkon, McLeod Software and CTS as examples of success stories in our area.
UAB and other organizations have created programs to help grow the talent base and have supported the Innovation Depot, an incubator and co-working space that offers events and education. One such effort is the City of Birmingham’s TechHire program, which strives to provide residents with classes that train them for well-paying technology jobs. This is pivotal for Birmingham, as it will help to grow the talent pool in the market, making it more attractive to technology and business services companies alike.
Landlords are taking notice. With cap rate compressions in neighboring competitor cities such as Nashville, Charlotte or Atlanta, investors are chasing yields and finding value in good real estate in Birmingham. Perhaps the most notable transaction recently is Los Angeles-based Griffin Capital Corp.’s purchase of the 669,438-square-foot office campus 3535 Colonnade for $131.6 million. CBRE Capital Markets arranged the transaction on behalf of the seller, Zurich Alternative Asset Management.
Looking forward, fundamentals are expected to remain relatively stable, with vacancy decreasing and rental rates increasing slightly.
— By David Fullington, Senior Vice President, CBRE. The article was originally published in the April 2017 issue of Southeast Real Estate Business.