Relocations, Expansions Push Birmingham Office Market to a Tipping Point
Birmingham is a unique market for Class A office space. Last year had its fair share of notable transactions (both sales and leases), but overall a few key transactions from previous years pushed absorption in the negative figures.
The most significant deal that is still impacting our market was a tenant relocation into the Red Roofs Colonnade (Colonnade North and South) located at the interchange of Highway 280 and Interstate 459, the heart of the 280/459 office submarket. Southern Co. Services signed a 700,000-square-foot, long-term lease at the project, and as of Jan. 1, the Red Roofs are now fully occupied. This transaction left a sizable block of Class A office space along the 280/459 corridor.
Soon after announcing the relocation, FIS backfilled about 112,500 square feet within Inverness Center North. The CBD is still recovering from Regions Financial giving back about 160,000 square feet at Regions/Harbert Plaza, but this building has seen a large amount of activity since this announcement. Our market is in the midst of absorbing these previous deals now and moving in the right direction.
This year has gotten off to a quick start with two encouraging announcements. Shortly after Wells Fargo announced it will be giving back roughly 90,000 square feet in the Wells Fargo Tower, Shipt announced it would be leasing about 60,000 square feet of this space.
Soon after Shipt’s game-changing announcement, the news broke that Burr Forman, one of Birmingham’s largest law firms, renewed its 104,514-square-foot lease within this same tower. Whenever bad news has been delivered in our market over the past few years, good news seems to come shortly after. Our Class A office market needs only a few more large announcements to absorb the large blocks of space that remain on the market.
Last year saw a host of Class A office buildings trade, primarily in the CBD and 280/459 submarkets. These include the CBD’s Concord Center, as well as Colonnade and Meadowbrook in the 280/459 submarket. International Park, also in the 280/459 submarket, recently traded in the first quarter of 2019. The majority of these investment sales were executed by outside investors, proving that Birmingham’s Class A office market continues to be an attraction.
While Birmingham’s Class A office market doesn’t see a large amount of new construction, there was one particular deal that was a huge success. Announced in 2017 and delivered in 2018, Pump House Plaza, home to First US Bank and Huie Fernambucq & Stewart LLP, is an approximately 40,000-square-foot development along Highway 280 in the Midtown submarket. Will niche products like this continue to pop up in the Class A office market? Only time will tell, but rising construction costs will most likely limit deals like this.
Historic renovations are another trend that has continued in the Class A office market over the past few years. Two key deals have been redeveloped in recent years include Historic Federal Reserve (65,000 square feet) and 2200 Magnolia (30,000 square feet). Historic tax credits have been crucial for the success of redevelopments like these. These two deals produced a “cool factor” that ultimately convinced numerous reputable companies to relocate and call these buildings home.
Birmingham is a unique market that is currently at a tipping point. The basic fundamentals are in place for a successful 2019, and Birmingham continues to be an affordable market. This year has gotten off to a great start, and office brokers are optimistic about Birmingham’s future.
— Charlie Norton, Leasing & Brokerage Associate at Harbert Realty Services. This article originally appeared in the April edition of Southeast Real Estate Business.