IRR-Birmingham Mid-Year Viewpoint 2015 Local Market Report - Office
The Birmingham office market is oriented primarily to the local economy. Demand from large out-of-state users or large-scale corporate relocations have simply not gained traction in the Birmingham market. Due to the limited amount of white collar employment growth that has taken place in recent years along with some cutbacks and consolidation, net absorption for office space across the region has been negative in recent years. This trend finally changed at the end of 2014, when all submarkets finished the year with a positive annual absorption that is expected to continue. The market as a whole has reached a 90% occupancy level, though rental rates have remained relatively flat. All submarkets are starting to see things return to normal for the first time since the recession.
The CBD office market for Class A space is fairly tight, but rental rates are not high enough to justify any significant new construction (i.e., large projects) anytime soon. However, the highly successful development of Railroad Park in 2010, coupled with the opening of Regions Field baseball stadium in 2013 have breathed new life into downtown, sparking the development of several new restaurants, music venues, multifamily developments, and the renovation/rehabilitation of older office buildings in the downtown area that were previously considered to be functionally obsolete.
In the suburbs, net absorption has returned to positive levels after experiencing negative absorption over the previous few years. The "prime" suburban markets are very healthy for both Class A and B space and there should be some new projects in the next few years. There were also 17 Class A office buildings sold in 2014 totaling nearly $280 million dollars to mostly out-of-state investors. This type of investment has not been seen in the Birmingham market since prior to the recession. The Midtown submarket of Birmingham boasts one of the highest occupancy rates in the Southeast, and with a relatively limited amount of inventory and few development sites, occupancy should remain strong with increasing rental rates. The Midtown office market is expected to see some new construction in upcoming years, fueled primarily by its convenient location in close proximity to the CBD and the higher-end residential suburbs where key decision makers are located. The suburban submarket is predicted to have a strong year in 2015 with the relocation of a large hospital, Trinity Medical, to the Highway 280/Interstate 459 submarket. Overall, the office market is in the recovery phase of the market cycle, and should show continued steady declines in vacancy rates, coupled with increases in rental rates and a relatively low amount of new construction, with the exception of redevelopment projects downtown and perhaps a few new developments in “prime” suburban locations.
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IRR Mid-Year Viewpoint 2015 comprises a National Overview report and 300+ two-page Local Market Reports for all key property types as well as additional resources, including metrics methodology, graphs, and tables; these free reports may be downloaded from IRR’s site here.