Overlooking the city of Birmingham, Ala., is a statue of Vulcan — a remnant of the city's former reign as one of the largest steel and iron producers in the nation. The city, in fact, was the largest producer of steel for the Confederacy during the Civil War. But the smelters have long gone cold. Once one of the beacons of the South as a center of industry, Birmingham has not grown in decades. The city's population dropped 14.6 percent between 1980 and 2000 to 240,000, losing nearly 42,000 residents to its suburbs.
But for the first time in a long time there may be a glimmer of hope for the region, if not for the city itself.
Birmingham finds itself in the midst of a booming auto industry. Just one hour south, Tuscaloosa has become a major hub of manufacturing, joining other southern cities such as Montgomery, Ala., Spartanburg, S.C., West Point, Ga., and Georgetown, Ky., among others. Foreign automakers including BMW, DaimlerChrysler, Honda, Kia Motors Corp. and Toyota have all targeted the Deep South — because of its historically low unionization rates — to open domestic plants. Detroit's Big Three have also located plants to the region. In 2005, the last year for which data are available, the Alabama Automotive Manufacturers Association reported 44,834 jobs were linked directly to the industry, up 44 percent from 31,197 in 2003.
“Jobs create spending, which needs to be serviced by retail,” says Bernie Haddigan, senior vice president and managing director for the national retail group at Encino, Calif.-based Marcus & Millichap Real Estate Investment Services. “Once a large plant goes in, you're going to see a lot of interest.”
High-paying jobs have streamed into the Southeast and made it a prospective hotbed of retail development. For example, in September 2008, South Korean automaker Hyundai plans to break ground on a new engine manufacturing plant in Montgomery where it already operates a two-year-old facility. Combined, the plants will employ 2,500 workers with average salaries of between $60,000 and $75,000 based on wages that start at $25 per hour. That's less than the $29 per hour paid to Detroit autoworkers but greater than the non-automotive manufacturing wage in the region of $11.80, according to the Montgomery Area Chamber of Commerce (MACC).
With the heightened interest, real estatefirms are now veering into unchartered territory. Tina Long, CB Richard Ellis Inc., senior associate for retail brokerage services, says it's only been in the past two years that clients have asked for data in markets outside major markets in Georgia, Louisiana and Tennessee.
Local and regional players are expanding their portfolios. Meanwhile, national developers actively scoping the region for mixed-use and lifestyle center opportunities include Chattanooga, Tenn.-based CBL & Associates Properties, Charlotte, N.C.-based Crosland, Addison, Texas-based Cypress Equities,-based General Growth Properties and Palm Beach, Fla.-based Menin Development Cos.
About 20 minutes north of Montgomery sits Prattville, Ala. The “sleepy community with no retail” in the 1990s counted just 19,000 as residents. Its population has almost doubled since, partly due to a Hyundai plant that opened in May 2005, according to Steve Sewell, executive vice president of the Economic Development Partnership of Alabama. It's now home to the state's first Bass Pro Shops and several big-box retailers.
A total of 1.5 million square feet of retail is coming on-line or under development. Montgomery-based McClinton & Co. and Birmingham-based AIG Baker are developing High Point Town Center, a one-million-square-foot lifestyle center set to open next year. The project will come on-line in two phases with 450,000 square feet of retail in each. When completed, the center will feature as many as 70 retailers and seven restaurants. Later phases may include a hotel and residential development in addition to retail.
Prattville mayor, Jim Byard, Jr., notes Hyundai has energized the region north of the Alabama River. “I grew up in Prattville and I never would have imagined having a Bass Pro Shop. What Hyundai has done is strengthen the number of citizens with higher incomes.”
The added income, industry analysts and brokers cite, has been the catalyst for retail developers coming to the area who traditionally follow rooftops. In the two years since Hyundai opened its plant, Montgomery, whose population is 350,000, has added 5,000 jobs almost all linked to the automaker and its suppliers. According to Ellen McNair, vice president of corporate development for MACC, it is anticipating yet another growth spurt with Kia's announced plans to open a $1.2 billion manufacturing plant in 2009 along Interstate 85 in West Point, Ga., just 90 minutes away.
To keep pace with growing retail demand, two existing centers — Eastchase Center and Eastdale Mall — have expanded. Locally based Jim Wilson & Associates opened the 500,000-square-foot Eastchase power center last year after selling the Shoppes at EastChase and the Plaza at Eastchase to NP/I&G Institutional Retail Company, a joint venture between New Plan Excel Realty Trust and JPMorgan Fleming Asset Management.
Taking it to Tuscaloosa
A similar story has played out in Tuscaloosa — located two hours north of Montgomery and just an hour southwest of Birmingham. There, jobs in the automotive industry have pushed workers' average household incomes to $75,000. Most non-automotive manufacturing jobs in the region start at $13 per hour, according to the Tuscaloosa County Industrial Development Authority. Manufacturing now accounts for 15 percent of the city's workforce, up from 12 percent. MercedesBenz opened the plant there in 1997 and Honda, Hyundai and Toyota followed it into the market.
The auto boom caught the attention of Cypress Equities, the retail development unit of Addison, Tex.-based Staubach Cos. The firm is building Midtown Village, a $200 million mixed-use project situated on 34 acres that will include 220 residential condos and 330,000 square feet of retail. It will open in March 2008.
“We were attracted by the traffic that bypassed Tuscaloosa and traveled to Birmingham to shop,” says Ed Coury, national director of leasing for Cypress Equities. “Since Mercedes went in, the payroll impact and the peripheral industries have contributed $1 billion to the local economy.”
To address the market's increased demand for upscale products and services, Midtown's roster of retailers will include Ann Taylor Loft, JoS. A. Bank, Coldwater Creek, Barnes & Noble, Circuit City and Kobe Steakhouse.
The other major project in the works is Eastwood Village, which is part of a local initiative called the Crestwood-Oporto Master Plan. Eastwood Village, the redevelopment of two million square feet of obsolete retail space that includes Century Plaza, Eastwood Festival and Village East shopping centers, is scheduled to open this month. In its mid-year retail report, CoStar found Birmingham absorbed 7,176 square feet of retail in the first six months of 2007 and 914,930 square feet was under construction. Its vacancy rate is 8.9 percent and rents average $10.63 per square foot.
As for Birmingham itself, the city has yet to find its ground in the latest boom. Since MercedesBenz came to Tuscaloosa, Bob Robicheaux, University of Alabama at Birmingham professor of marketing, notes most of the residential and retail development has been south of Birmingham in or near the affluent communities of Vestavia Hills, Homewood, Mountain Brook and Hoover, which is where the Galleria is located.
According to an economic report for the Birmingham area by Porter, White and Co. during the fourth quarter of 2006 retail sales were “a sobering indicator of the loss of retail sales inside the city limits.” It showed Birmingham's retail sales grew at less than one-half the rate of inflation between 2000 and 2006. Instead, the city's suburbs posted the largest gains in retail sales.
And, despite the influx of new jobs to the region, not everyone is sure that new development is justified. The region is already served by Aronov Realty's University Mall and the adjacent McFarland Mall, owned by local businessman Ward McFarland. While Midtown is new, McFarland Mall general manager Delbert Reed says it isn't bringing new retailers into the region, instead it's just swapping retailers in the market from one mall to another. “There is all this hoop and holler it's going to bring in all these new stores. It's only making a mess,” Reed says.
Since MercedesBenz came to town, he says, retail sales increases have slowed from the double-digit pace seen in the first couple of years. And 70 percent of the households in the Tuscaloosa region have annual incomes below $50,000 and 30 percent are below the poverty level, he says.
Cypress' Coury disagrees and argues the Tuscaloosa market is under-retailed and the area's growing number of affluent residents are looking for upscale retailers. “The additional monetary capacity has raised the consumer's level of sophistication and expectation from what it was 20 years ago,” Coury says.