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Birmingham CRE: A Reflection on 2018 and What to Expect in 2019

UAB area

By Philip Currie, Callan Sherrod and Jake Taylor

A Reflection on 2018

From large office building trades to a growing shift in client priorities and new areas of development, 2018 was an active year for Birmingham’s commercial real estate industry. As we enter the new year, it is important to reflect on the success and trends of 2018 in preparation for the opportunities that are set to develop in 2019. In this blog, we take a closer look at activity in the Highway 280 Corridor as well as the Midtown, Downtown and 280/459 submarkets. We also discuss our clients’ shifting priorities and trends.

Highway 280 Corridor

Along the Highway 280 corridor, there were a few bright spots, as RxBenefits continued its rapid growth at the Colonnade. Additionally, McLeod Software relocated to MeadowBrook 100 and FIS took a large block of space in Inverness Center North. Even with these large transactions, this submarket still has several empty buildings that would work well for a large owner-occupant.

Midtown

The Midtown submarket remained strong, as there were several leases that kept the occupancy rate north of 90 percent. Our team was excited to work with Huie Fernambucq & Stewart on its relocation to Pump House Plaza. The firm took approximately 27,000 square feet and will join First US Bank in a highly visible location. Milo’s Tea moving its corporate offices to Lakeshore Park Plaza was another positive in backfilling one of the few larger vacancies in this submarket. Our team also worked with CommerceOne Bank to open an office at SouthBridge. CommerceOne is Birmingham’s first de novo bank to open in over 10 years.

Downtown

As for the downtown office market, we have been closely monitoring the multitude of consolidation and relocation announcements that have impacted the downtown occupancy rates. Our team was involved with one of the bigger transactions in the Central Business District, as Shipt signed a new lease at what is currently the Wells Fargo Tower, where it will serve as an anchor tenant by occupying 60,000 square feet of space. The Wells Fargo Tower will be renamed Shipt Tower in 2020. This news comes as a result of Shipt’s decision to maintain and expand its Birmingham headquarters following the company’s $550 million acquisition by Target, which projects to add 881 jobs to the Birmingham market. This marks a big step forward for not only Birmingham’s downtown office market, but also for the city as a whole in showcasing a homegrown startup that continues to have monumental success.

The biggest opportunity for the downtown market is to have Birmingham’s growing tech scene continue its positive trajectory, as this mix of tenants really enjoys the vibe in the city center. In particular, the areas around Railroad Park seem to offer the look and feel that the modern tenant desires. However, the city needs to be active in ensuring that adequate parking solutions exist to sustain growth.

280/459 Submarket

In addition to this steady leasing activity, multiple large office buildings traded hands throughout the year, particularly in the 280/459 submarket. In July, three buildings totaling 400,000 square feet associated with the Colonnade were sold, which included the buildings at 3500, 3700 and 3800 Colonnade Parkway. With a purchase price of $65 million, this was big news for a well-known portfolio right at the 280/459 intersection. The 65,000-square-foot Bruno Capital Building transaction also represented a large office trade in the 280/459 submarket. We also saw a continued shift in clients’ priorities when searching for new office space.

Tenant Priorities & Trends

In addition to the focus on price per square foot, tenants are prioritizing a growing desire for offices that maximize efficiencies. As companies across Birmingham recognize the importance of prioritizing recruitment and talent retention, offices that offer an employee-friendly layout, helpful amenities and optimal locations are increasingly desirable places to work.

These trends are particularly apparent in the office and mixed-use redevelopments of the downtown and Southside submarkets. High-profile projects from this past year include the redevelopment of 2200 Magnolia, which Retail Specialists occupies in over 17,000 square feet, as well as the Denham building, a new mixed-use project that will bring office, retail and multi-family space to the Parkside District near Regions Field. We will continue to monitor the progress of these projects and anticipate the announcements of new projects this coming year.

What to Expect in 2019

Heading into 2019, we continue to predict leasing opportunities for tenants along the Highway 280 corridor and the Central Business District. As we look to backfill the large vacancies, it will be important to identify businesses that are looking to expand or relocate to Birmingham. We also predict the possibility of a slowdown in the sales of large office buildings due to rising interest rates. We’ll continue to keep our eyes on construction costs – not just on new development, but on interior buildouts as well, as high tenant improvement dollars will continue to affect deal terms.

We’re confident that submarkets across Birmingham will continue revitalizing and experiencing the strong benefits from federal and state programs, like historic tax credits and Opportunity Zones. Opportunity Zones are especially exciting, as the initiative will impact much of downtown Birmingham and is set to reach full implementation this year.

Beyond the Opportunity Zones designation, downtown Birmingham is also enjoying a period of steady owner-occupant building sales and prices. These trends, along with the continuation of historic tax credits used towards redevelopments and renovations, point to a positive year for this area of the city.