Spurred on by high-profile economic development successes, the pace of commercial real estate activity is picking up in the larger markets of the state of Alabama.
In the fierce competition for new businesses, Alabama enjoys a number of advantages, according to Alabama Power vice president for economic development Phillip Wiedmeyer. "The Southeast is the fastest-growing region in the nation these days, and Alabama is strategically located in its geographic center."
The moving in of Mercedes-Benz and Mitsubishi "is a sign that the economy is doing well. With companies like these moving in, it shows that the employment base is good and the economy is sound," says Ron Cameron, vice president/business development in the Atlanta office of SPL Corp.
Slated to open in January 1997, the $300 million Mercedes-Benz plant will ultimately employ some 1,500 worker. Lured by a state/local capital investment/financing/tax abatement incentives array worth approximately $168,000 per job, the plant was first announced in September 1993, "And it's felt like we've been in kind of a whirlwind ever since," says Tuscaloosa County Industrial Development Authority project manager Alan Harper.
A burgeoning base of automotive component suppliers is one of the major changes the Tuscaloosa County and vicinity is enjoying. According to Steve Sewell, spokesperson for The Economic Development Partnership of Alabama, an alliance of 43 businesses and related organizations dedicated to "filling in the gaps in state and local economic development efforts," the Mercedes-Benz plant has generated well in excess of 1,100 new jobs among seven Mercedes suppliers that have located in and around the new plant.
Mobile sees new development
Major economic development announcements have also been in the news in Mobile, a port city of nearly 500,000 on Alabama's Gulf of Mexico coast. This past April, Tokyo-based manufacturing conglomerate Mitsubishi announced its decision to build a $130 million, 150-employee plant here for the manufacturing of polysilicon, a computer chip material. This announcement comes on the heels of a 1995 announcement by IPTN, an Indonesian firm, of its plans for a 500-employee aircraft manufacturing plant in Mobile, according to Mobile Area Chamber of Commerce vice president/economic development Jim Apple.
New companies coming to Mobile will find an apartment leasing market "that is nothing short of incredible," says Bert Ephgrave, senior vice president for the Mobile office of Mortgage and Capital Investors, a Birmingham-based mortgage banker. Rents for newer, two-bedroom units here average a strong $0.75 per sq. ft., while market vacancy is running between 2% and 2.5%, he says. This situation has been engendered by a lack of new apartment construction between 1986 and 1994.
"Until last year, new construction has been limited," says SPL's Cameron. "Construction is next to nil in Mobile."
New product is being added to the area's apartment inventory, but that may not change the existing dynamics to a great extent, Ephgrave says. Approximately 1,000 new units in four projects have recently been completed or are near completion in Mobile, he says. Three of these complexes are products of local developer The Knight Co., while the fourth, 180-unit Inverness Lakes, is being developed by Birmingham-based Colonial Properties, currently in the lease-up phase.
"We've been very pleased with the high level of demand for apartments in the Mobile market," says Colonial Properties senior vice president Paul Earle.
On the retail front, "Mobile is a solid market," says Zach Hutto, president of Birmingham-based Commercial Alabama Inc. "You don't see a lot of the big mega/power centers here, but there is a good bit of activity in the neighborhood strip center sector." Funding commitments have been obtained for two new Winn-Dixie-anchored strip centers, according to Ephgrave. A 120,000 sq. ft. Target is slated to open this month at the Bel Air regional mall, he says, accompanied by a major renovation and expansion of the mall. The market for small-shop space in anchored centers "is as tight as it can be," Ephgrave add.
Mobile's office market has remained fairly static for the past five years, with vacancy in the 10% range, rents running from $12 to $16 overall and no major new construction, Ephgrave says. The local industrial market "is primarily a build-to-suit environment where large users typically occupy space they build and own," he says. The investment market here is slow, he says, "a function of the fact that demand is just beginning to intensif."
Building boomlet in Birmingham
The pace of economic development has been steady in Birmingham. According to information supplied by the Birmingham Metropolitan Development Board, a little more than 1,800 jobs were added to the area's employment base in 1995 and the first part of 1996.
Businesses looking for existing offices in Birmingham will find a market where available space is scarce. Hutto says, "The Birmingham office market is very tight, primarily because of a lack of new construction recently."
The Class-A portion of the Birmingham office market is about 95% occupied, with rates of $16.50 to $19.50, reflecting a 20% increase over the past 24 months, says Dallas Whitaker, CARTER director of marketing/general manager at Colonnade, a 106-acre suburban mixed-use development. "The rest of the market is in the 80% occupancy range," he says.
Today's rental rates don't support a wave of new construction here, says ARES vice president Brent Falkenhagen. But "waves" of anything are not a hallmark of Birmingham, he says. "Birmingham has never been a `boom-and-bust' market."
It doesn't quite constitute a building boom, but there is a fair amount of construction going on in Birmingham these days. In the Midtown market, a three-story, 72,000 sq. ft. office building will soon be completed by Johnson, Rast & Hays, a Birmingham-based developer/manager/broker, according to Bob Schleusner, senior vice president of the firm's commercial division. Named Morgan Keegan Center for its anchor tenant, the building had 20,000 sq. ft. of space available as of late May 1996.
Near Colonnade, Birmingham-based Bayer Properties Inc. is developing The Summitt, a 165-acre mixed-use project. A 460,000 sq. ft. specialty center is now under way, according to Bayer president Jeffrey Bayer. Construction is also under way by Security Capital on the first phase of a 700-unit apartment complex on a 54-acre site at The Summitt, Bayer says, while negotiations are under way with a hotel operator to kick off a 300-room lodging facility at the project.
Also, the Riverchase Galleria mixed-use project is expanding. The Riverchase Galleria Mall has just added Sears as a sixth anchor, along with 70,000 sq. ft. of shop space, bringing its total GLA to 1.7 million sq. ft., according to Jim Wilson Jr., president of Montgomery-based Jim Wilson and Associetes Inc., developer and manager of the project
Nearby, Colonial Properties is developing Phase II of Rime Village apartments, according to Colonial Properties' Earle. This project will add 160 units to the 920 currently in place. The Birmingham apartment market is strong, he says, with the typical rent for a high-quality, two-bedroom garden apartment currently running in the $600 to $650 per-month range.
"Apartment projects are springing up in several parts of the Birmingham area, with a number of outside developers showing a keen interest in the market," says Don Barnhill, manager of the Birmingham office of McNamara Associates. "Occupancies of existing projects are very high, with waiting lists common in some parts of the metro area." According to data supplied by Barnhill's office, recent Birmingham-area apartment complex per-unit sales prices have ranged from $5,533 per unit for circa 1949 product to $29,467 for a 150-unit property built in 1972.
Birmingham has a speculative industrial market "that is not huge, but very tight these days," says Hotto. Rental rates for quality bulk distribution space typically range from $2.50 to $3.50 per sq. ft.
Montgomery market on the move
Like that of Birmingham, the economy of Alabama's capital is steady, without major peaks and valleys. It relies on state government and two nearby U.S. Air Force bases, Maxwell and Gunter, for this stability, according to Al Cook, senior vice president, corporate recruitment and development, for the Montgomery Area Chamber of Commerce. Stable doesn't mean stagnant, though; since 1992, approximately 16,300 jobs have been added to the city's employment base.
When it comes to commercial real estate, retail is today's hot ticket in this market. "Montgomery has more retail developers per capita than anywhere else in the country," says Cook. Aranov Realty Management is developing the 240,000 sq. ft. Montgomery Town Center, according to company principal Owen Aranov. This center is slated to be opened by year's end.
Meanwhile, Home Depot will be making its entry into the Montgomery market by the start of 1997 in a center developed by Colonial Properties. According to Bryan Ratliff, the company's senior vice president for retail development, ground has been broken on a 125,000 sq. ft., with two additional yet-to-be-announced anchors on the way.
In the local office market, the major activity downtown has been the opening of five state-owned office buildings, according to Cook. Outside the CBD, Aranov Realty Management recently finished the 94,000 sq. ft. Carmichael Center office building at I-85 and Perry Hill Road. The building is almost fully leased, says Aranov, with a tenant list that includes Merrill Lynch and New York Life.
In the apartment sector, Aranov has 256 units of additional garden apartments under construction at the Vaughn Way complex. Other projects under way include a 216-unit development called Sturbridge Commons, and Colonial Properties has recently finished a 180-unit expansion to the McGehee Place complex.
Scott McClain, CCIM, and managing broker of McClain Commercial Real Estate, calls Huntsville "the missile center of the United States and the Western world," thanks to the presence of NASA and the U.S. Army Missile Command at Redstone Arsenal. "Changes in federal programs have not seriously impacted our local economy," he says.
Ben Walker, owner and president of United Properties, reports an increasing number of locally based high-tech companies in Huntsville. "There are a lot of smart folks who, when the (defense and NASA) cutbacks happened, started their own businesses," he says. These companies "are sucking up a lot of the empty office space" in the Huntsville market. As a result, "rental rates are coming back, and there is a fair amount of new construction going on."
According to Hutto, downtown Huntsville office space is "virtually 100% leased," while rental rates in the remainder of the market are in the $13 to $14 per sq. ft. range.
Retail is the most active real estate sector in Huntsville. A closing on the land for Green Cove Mall, a 1.2 million sq. ft. regional mall long planned by Chattanooga-based CBL & Associates, is slated for July 1996, says McLain.
Meanwhile, "there is a good deal of strip center development going on," adds Walker. Publix is entering the market with five new stores, he says.