Before we look at the current happenings in the Birmingham industrial market, it is worth glancing into the rearview mirror of the last 24 months or so. 2021 and 2022 saw the delivery of 10 notable industrial build-to-suit projects. Some were announced in 2020 before pricing surges. The last delivery of these projects was completed in fourth-quarter 2022, an automotive project on the west side for Lear Automotive Seating oriented toward Mercedes-Benz.
This unprecedented streak of projects totaled 3.3 million square feet. In addition to Lear, tenants included: Lowes, Mercedes-Benz, Motion Industries, TSF Sportswear, Samuel, Son & Co., Amazon (two) and FedEx Ground.
Interestingly, two of these facilities are now available for sublease and were never occupied by the tenant. And as of this writing, there is not a single industrial build-to-suit announced or under construction.
What did follow the noted build-to-suit wave were six speculative (or partial speculative) projects. The first one delivered — the first phase of Crossroads Commerce Center in the Central submarket — spanned 186,000 square feet, and the twin second phase was recently completed. The two phases are now 75 percent occupied, demonstrating market demand shown in other Southeastern markets in mid-2022 and prior.
In this same submarket, a 140,000-square-foot shallow bay project is now complete, with a 30,000-square-foot tenant that committed during the construction phase. Near both projects is a new 225,000-square-foot spec building that just tilted up. That project has an estimated June completion. All told, there is about 428,000 square feet left to be absorbed between these three neighboring projects.
In the Shelby County submarket, a 208,000-square-foot development was delivered in the fourth quarter at 50 percent preleased. Of the remaining 108,000 square feet of speculative space, half of that has recently been taken. On the west side of town, where the two mentioned subleases sit — 187,000 square feet and 110,000 square feet, respectively — a 311,900-square-foot cross-dock building will also be delivered in late spring. This is joined by a 112,230-square-foot spec building adjacent to the Lear build-to-suit, a shallow bay building that delivered in the fourth quarter of 2022.
Recent Spec Projects
If you include all the current speculative space, subleases and quality second generation space, there is about 2.1 million square feet of available space in the Birmingham market. Absorption trends should capture a portion of this space in the 2023 calendar year, noting that our average tenant size is less than 100,000 square feet. Rental rates for the new construction space are on par with that of similar projects in the Southeast, at about $7.00 per square foot.
As most know, there is a spike in the cost of the tenant improvements, and tenants desiring turnkey delivery seem willing to add to the lease term to help the deal pencil. When possible, the landlords of second gen space are working to ratchet up rents, closing the spread on new space rates and having success doing so.
Potentially breathing some life into the 2023 build- to-suit market is a recently delivered, 172-acre industrial park on the east side of Birmingham at exit 147 of I-20, located just inside tax-favored St. Clair County. Kelly Creek Commerce Park cut the ribbon in February and is a joint venture of Graham & Co. and Capstone Real Estate Investments. The new development features shovel ready sites that have been fully cleared and is designed for projects ranging from 200,000 square feet to 1 million square feet.
We are cautiously optimistic as we head into this new interest rate environment and possible recession. These current headwinds could certainly impact a secondary market like Birmingham. Leasing up a healthy portion of our noted inventory, along with a build-to-suit development or two, would go a long way toward a successful 2023 for Birmingham’s industrial market.
— By Sonny Culp, SIOR, senior vice president, Graham & Co. This article was originally published in the March 2023 issue of Southeast Real Estate Business.