2012 Annual Market Report

Transcription

1 2012 Annual Market Report

2 Brookwood Women s Medical Center If everyone is moving forward together, then success takes care of itself. - Henry Ford

3 Annual Market Report 2012 Table of Contents State of the Market 2 Cushman & Wakefield Alliance 3 Office Market Overview 4 Industrial Market Overview 6 Retail Market Overview 8 1

4 Children s Hospital Photo Courtesy of The Birmingham News State of the Market 2012 From its early role as an industrial and manufacturing center to the current diversification in healthcare, banking, technology, and transportation, Alabama s economy has continuously evolved in response to economic challenges and changing conditions. In 2011, the state s economy made modest improvements, and it continues to rebound from the damaging effects of the economic recession. While there are remaining obstacles, we anticipate that commercial real estate will experience steady growth in 2012 as Birmingham and the state of Alabama continue to regain solid economic footing. Unemployment remains a factor in the recovery process for the commercial real estate industry. The state of Alabama continued to make modest gains in employment in 2011, with the pace of those gains increasing during the second half of the year. The unemployment rate for the state was 8.1%, while the unemployment rate for metropolitan Birmingham was 6.8%, which is significantly below the national unemployment level of 8.5%. As the employment picture continues to improve both locally and nationally, consumer confidence and likewise, commercial leasing and sales activity, should improve as well. Despite the challenging economic environment, the state of Alabama upholds a vibrant healthcare community, notably in major metropolitan areas such as Birmingham, Huntsville, Mobile, and Montgomery. In response to the changing dynamics in healthcare, the EGS team has created a strategic focus in order to serve as a resource for physicians, healthcare practice groups, and healthcare providers. We provide our clients expertise in evaluating their real estate decisions in order to bring value to their healthcare practices. As we begin our 25th year, EGS will continue to play a key role in the communities we serve by providing the highest possible level of leadership, innovation, integrity and teamwork. In this spirit of service, we offer our 2012 Annual Market Report, presenting our in-depth analysis of the trends and transactions that shape Alabama s office, industrial and retail landscape. 2

5 114 Offices Nationwide WA MT ND SD OR ID WY NE NV UT CO KS CA AZ NM TX HI MN IA MO OK AR LA WI MS IL MI PA IN OH WV KY VA TN NC SC AL GA FL NY VT ME NH MA RI CT NJ DE MD DC Alabama Birmingham Arizona Phoenix Tempe Tucson California Carlsbad Inland Empire L.A. L.A. South Bay L.A. West Marin/Sonoma Cty Oakland Orange County Sacramento San Diego - Downtown San Diego - Eastgate San Francisco Silicon Valley Walnut Creek Colorado Colorado Springs Denver Connecticut Hartford Stamford Delaware Wilmington District of Columbia Washington, D.C. Florida Ft. Lauderdale Ft. Myers Jacksonville Miami Orlando Palm Beach Gardens Tampa Georgia Atlanta Savannah Hawaii Honolulu Illinois Chicago Chicago Suburban Indiana Bloomington Indianapolis Kentucky Louisville Maine Portland Maryland Baltimore Bethesda Massachusetts Boston Michigan Detroit Grand Rapids Holland Kalamazoo Lansing Muskegon Minnesota Minneapolis Minneapolis Suburban Missouri Kansas City St. Louis Nevada Las Vegas New Hampshire Manchester New Jersey East Rutherford Edison Morristown New York Albany Binghamton Buffalo Corning/Elmira Hudson Valley Islandia Ithaca Melville, LI N.Y. Downtown N.Y. Midtown Rochester Syracuse (2) Utica Watertown Westchester County North Carolina Charlotte Raleigh/Cary Raleigh/Durham Ohio Cincinnati Cleveland Columbus Toledo Oklahoma Oklahoma City Tulsa Oregon Portland Pennsylvania Philadelphia Philadelphia Suburban Pittsburgh Puerto Rico San Juan Rhode Island Providence South Carolina Charleston Greenville/Spartanburg Tennessee Chattanooga Knoxville Memphis Nashville Texas Austin Dallas Houston San Antonio Utah Clearfield/Ogden Park City Provo/Orem Salt Lake City St. George Virginia Fredericksburg Lynchburg McLean Newport News Norfolk/Virginia Beach Richmond Roanoke Washington Bellevue Seattle Wisconsin Milwaukee C&W Offices C&W Alliance Offices AS OF OCTOBER 2011 Cushman & Wakefield: Expertise at your fingertips, in Birmingham and beyond EGS Commercial Real Estate is based in Alabama, but we offer the world to our clients through our alliance with Cushman & Wakefield, one of the world s premier corporate real estate firms. Offering a full array of real estate services in all major business centers around the United States and the world, Cushman & Wakefield is a market leader in all of its core businesses, setting the standard for knowledge, service and execution. Our clients experience a seamless delivery of quality services in other markets, while continuing to work with EGS, the local company they know and trust. Additionally, we are able to offer clients access to a wealth of resources and vertical capabilities spanning all areas of commercial real estate, including brokerage services, global supply chain solutions, specialty practice groups and capital market services. As a founding member in 2002 of the Cushman & Wakefield Alliance, a group of independently owned best in class real estate firms, EGS partners with C&W and other members of the C&W Alliance to provide nationwide and international expertise for brokerage and other real estate services. The C&W Alliance has expanded to 750 brokerage professionals in 28 firms, covering 59 markets throughout the U.S and Puerto Rico. With 235 offices in 60 countries, including 114 offices in the U.S., our network of real estate professionals offers highly focused real estate and business solutions aimed at improving overall performance and operational productivity for owners, occupiers and investors. You can rely on EGS not only for our local expertise and market knowledge, but also as your real estate advisor wherever your needs may be, across the U.S. or the world. Argentina Australia Austria Belgium Brazil Canada Channel Islands Chile China Czech Republic Denmark England Finland France Germany Greece Hong Kong Hungary India Ireland Israel Italy Japan Korea Kuwait Latvia Lebanon Lithuania Luxembourg Malaysia Mexico The Netherlands Northern Ireland Norway Poland Portugal Romania Russia Singapore Slovakia South Africa Spain Sweden Switzerland Thailand Turkey United Arab Emirates United States 3

6 Office Market 2012 The Birmingham office market ended 2011 with negative absorption of 386,538 square feet (sf), a continued decrease from 2010, which ended with negative absorption of 117,561 sf. The occupancy rate for 2011 was 87.6%, down slightly from 89.9% at the end of Rents held steady in most submarkets with an average weighted rental rate of $19.44 psf for the office market and $20.91 psf for Class A space. The majority of negative absorption during 2011 took place in the Central Business District (CBD), which had negative absorption of 286,458 sf. Direct occupancy for the CBD was 87.4%, a decrease from 92.9% in The major contributor to this decrease in occupancy was the Regions Plaza building, an older, vacant 211,000-sf building, which was listed on the market as multi-tenant space for lease in the first quarter of The Midtown submarket also had negative absorption in 2011, ending the year with negative 52,088 sf. The Midtown submarket, however, continues to maintain Birmingham s highest occupancy rate at 91.3%, with 93.0% occupancy in Class A space. This is a slight decrease from 2010, which ended at 93.4% total occupancy. The decrease in occupancy for the Midtown submarket was primarily due to several large vacancies, which occurred due to tenants vacating or downsizing their office space. Birmingham Office Market Direct Rental Rates Class A Class B Total Market $22.00 $21.00 $20.00 $19.00 $18.00 $17.00 $16.00 $15.00 $14.00 Birmingham Office Market Overall Market Trends Birmingham Office Market Vacancy Trending Direct Available Space Sublease Space CBD Midtown Suburban Total Market 2,250,000 2,000,000 1,750,000 1,500,000 1,250,000 1,000, , , ,000 0 $20.00 $19.50 $19.00 $18.50 $18.00 $17.50 $ % 14% 12% 10% 8% 6% 4% 2% 0% 4 Birmingham Office Market Direct Rental Rates

7 The Luckie Building Office Market (continued) Birmingham s suburban submarkets, which include 280/Southern, Hoover/Riverchase, and Vulcan/Oxmoor, had only modest changes in occupancy levels from While the 280/Southern submarket had negative absorption of 113,889 sf in 2011, direct occupancy, which does not include sublease space, decreased only slightly to 87.4%, down from 89.5% in Occupancy for the Hoover/Riverchase submarket remained virtually unchanged at 82.6%, up from 82.5% at the end of In the Vulcan/Oxmoor submarket, which is comprised mostly of Class B and Business Park space, occupancy increased to 81.9%, up from 75.4% at the end of CBD Direct Vacancy Non-CBD Direct Vacancy CBD Class A Direct Avg. Rental Rate Non-CBD Class A Direct Avg. Rental Rate MARKET SNAPSHOT % 12.4% $20.48 $21.04 Change from 2010 A positive for the Birmingham office market was the continued decrease in the amount of available sublease space. At year-end 2011, the amount of available sublease space in the Birmingham office market had decreased to 658,593 sf, as compared to 810,756 sf at year-end This brings the overall occupancy rate for the Birmingham office market, including both direct occupancy and sublease space, to 83.8%, a slight decrease from 85.3% in In addition, there has also been virtually no new office construction in the Birmingham market. While many larger markets have endured the harsh effects of overly aggressive development, the conservative approach of Birmingham s local development community will continue to have a positive impact on overall occupancy for Birmingham s office market. OFFICE SUBMARKET STATISTICS Submarket Total SF Direct Available SF % Occupied YTD Absorption Available Sublease SF Average Weighted Rental Rate * CBD 5,165, , % (286,458) 124,234 $20.34 Midtown 4,005, , % (52,088) 23,386 $ /Southern 5,444, , % (113,889) 503,061 $20.73 Hoover/Riverchase 1,961, , % 2,157 5,512 $16.76 Vulcan/Oxmoor 823, , % 63,740 2,400 $13.80 TOTAL 17,400,407 2,163, % (386,538) 658,593 $19.44 * Rental rates reflect $psf/year full service 5

8 Shelby West Commerce Center Industrial Market 2012 The Birmingham industrial market experienced a significant increase in activity during The excess industrial inventory available in the Birmingham market over the last several years resulted in a decline in rental rates, which is a contributing factor to the increase in activity. Several new tenants moved into the Birmingham market, and many local companies expanded their presence. The increase in activity has resulted in a substantial rise in occupancy levels from The year-end direct occupancy rate for 2011 was 84.0%, up from 78.9% at the end of However, sublease space had a significant effect on the market. The overall occupancy rate for the Birmingham industrial market including sublease space was 79.3%, still a positive trend from 76.3% at the end of While the majority of Birmingham s five industrial submarkets experienced an increase in occupancy levels, the Southwestern submarket had the most considerable changes in occupancy. Direct absorption for the Southwestern submarket was 390,260 square feet (sf) at the end of 2011, an improvement from negative absorption of 24,100 sf at the end of Direct occupancy for the Southwestern submarket increased to 80.0% in 2011, a dramatic increase from 62.7% at year-end Two significant lease transactions contributing to the rise in occupancy were Caterpillar Logistics Services, a new tenant in the Birmingham market, who leased 160,160 sf of bulk distribution space at Jefferson Metropolitan Park and the 100,000 sf expansion of L Oreal to a total of 220,220 sf in the same development. 30.0% Birmingham Industrial Market Vacancy Trending Bulk Distribution Office/Warehouse Service Center Birmingham Industrial Market Available Space by Property Type Bulk Distribution Office/Warehouse Service Center 25.0% 20.0% 15.0% 18% 12% 10.0% 5.0% 70% 0.0% 6

9 Industrial Market (continued) The Southern submarket also saw marked improvement in 2011 with year-end positive absorption of 219,763 sf, an increase from negative 10,972 sf absorbed at the end of Direct occupancy for the Southern submarket increased to 86.1%, up from 80.5% at year-end Most of the absorption occurred in the bulk distribution product type, including 94,600 sf at Shelby West Commerce Center, a speculative 154,000-sf bulk distribution warehouse developed by EGS. JanPak, an established company in the Birmingham market, and Kauffman Tire, a new tenant to the Birmingham market, each leased 47,300 sf in this development. We anticipate that the Birmingham industrial market will continue to see improvement in overall occupancy in No new speculative development, the interest in space spurred by the completion of Norfolk Southern s intermodal facility in 2012, and the supplier activity being created by the expansion of automobile manufacturing in our area, should lead to a more vibrant industrial market at the end of , , , , , , , , , , ,000 Birmingham Industrial Market Absorption by Property Type Bulk Distribution Office/Warehouse Service Center MARKET SNAPSHOT Change from Direct Vacancy 16.0% Bulk Distribution Avg. Net Rental $3.56 Office/Warehouse Avg. Net Rental $6.35 Service Center Avg. Net Rental $6.66 Birmingham Industrial Market Vacancy Trending Bulk Distribution Office/Warehouse Service Center INDUSTRIAL 30.0% SUBMARKET STATISTICS 25.0% Average Direct YTD Available Weighted 20.0% Submarket Total SF Available SF % Occupied Absorption Sublease SF Rental Rate * Central 4,197, , % 80,226 6,400 $ % Eastern 1,247, , % (17,995) 0 $3.68 Oxmoor 10.0% Valley 2,666, , % 57,873 80,199 $5.67 Southern 3,947, , % 219, ,016 $4.87 Southwestern 5.0% 2,248, , % 390,260 0 $3.86 TOTAL * 0.0% Rental rates reflect $psf/year 14,307,606 2,285, % 730, ,615 $4.44 Birmingham Industrial Market Available Space by Property Type Bulk Distribution Office/Warehouse Service Center 7

10 Retail Market 2012 Occupancy remained flat across Birmingham s retail market in 2011, a trend that is likely to continue in The tight market is the result of little new development taking place or new retail tenants moving into the Birmingham area. The Birmingham market experienced negative absorption of 144,038 square feet (sf) in 2011, a decline from positive 35,620 sf in Although occupancy rates shifted across each submarket, the total occupancy rate for 2011 remained unchanged from 87.6% in Average weighted rental rates declined from $15.77 per square foot (psf) in 2010 to $15.27 psf in The Highway 31 South submarket maintains the highest occupancy level in the Birmingham market of 94.6%, an increase from 92.2% at the end of Community & Power centers in the Highway 31 South submarket had the highest occupancy levels at 97.8%. The average weighted rental rate also increased to $12.38 psf, up from $10.75 psf at year-end Due to its close proximity to I-65 and I-459, two of Birmingham s most traveled transportation corridors, the Highway 31 South submarket is well-positioned to maintain high occupancy levels. Birmingham Retail Market Available Space vs. Rental Rates Available Space Rental Rate 3,200,000 3,100,000 3,000,000 2,900,000 2,800,000 2,700,000 2,600,000 2,500,000 2,400,000 $16.50 $16.00 $15.50 $15.00 $14.50 $14.00 $13.50 $13.00 $12.50 $12.00 Birmingham Retail Market Available Space vs. Absorption Birmingham Retail Market Vacancy Trending by Property Type Unanchored & Specialty Neighborhood Available Space Absorption Community & Power Regional & Super Regional 3,500,000 3,000, % 15.0% 2,500,000 2,000,000 1,500,000 1,000, % 9.0% 6.0% 500, , % 0.0% 8

11 Target - Colonial Promenade at Fultondale Retail Market (continued) The Highway 280 and Hoover/Riverchase submarkets also had an increase in occupancy levels in Occupancy for the Highway 280 submarket was 87.6% at the end of 2011, up from 86.2% in 2010, while occupancy for the Hoover/Riverchase submarket increased to 89.6%, up from 87.9% in The Highway 280 and Hoover/Riverchase submarkets include three of Birmingham s Regional & Super Regional Centers, and therefore, maintain the market s highest rental rates at $19.24 psf and $31.75 psf, respectively. Direct Vacancy Unanchored & Specialty Avg. Rental Rate Neighborhood Avg. Rental Rate Community & Power Avg. Rental Rate Regional & Super Regional Avg. Rental Rate MARKET SNAPSHOT Change from % $11.85 $10.32 $12.68 $32.55 The largest decline in occupancy for Birmingham s retail market during 2011 occurred in the Eastern and Western submarkets. Occupancy for the Eastern submarket was 85.9%, a decrease from 87.3% at the end of Occupancy for the Western submarket was 83.3%, a decline from 86.2% at year-end Several empty big box spaces located throughout these two submarkets have contributed to the decline. Birmingham is still considered an appealing market for new retail development, particularly along the U.S. Highway 31 South and U.S. Highway 280 corridors. As Birmingham s job growth continues on an upward trend in 2011, we anticipate that Birmingham s retail sector will benefit from increased demand, as national retailers continue to drive activity and store closures diminish. Construction activity will continue to lag through 2012, while overall leasing activity should continue to improve. RETAIL SUBMARKET STATISTICS Submarket Total SF Direct Available SF % Occupied YTD Absorption Average Weighted Rental Rates * Central 3,520, , % (29,437) $13.66 Eastern 3,763, , % (52,195) $9.81 Eastwood/Irondale 1,648, , % 8,458 $11.15 Highway 280 3,326, , % 18,128 $19.24 Highway 31 South 1,873, , % 1,829 $12.38 Hoover/Riverchase 4,908, , % 4,066 $31.75 Northern 2,018, , % (1,874) $8.81 Western 3,162, , % (93,013) $9.57 TOTAL 24,222,109 2,999, % (144,038) $15.27 * Rental rates reflect $psf/year 9

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