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Reporter's notebook: Birmingham metro-area industrial real estate has fewer vacancies

The Birmingham News - January 15, 2012

The Birmingham area's industrial real estate market has clawed its way back to pre-recession occupancy levels with prospects of getting better, while its office and retail segments continue to try to break the grip the sluggish economy has had on the market.

Year-end figures compiled by EGS Commercial Real Estate suggest the industrial market seems to have found a cure for its vacancy ills faster than the other two sectors.

Industrial space was 84 percent occupied in the metro area at the end of 2011, according to EGS's market report. That's up from 78.9 percent last year and the highest point since before the recession's impact began to be reflected in the real estate market.

"The biggest thing was how the southwestern market healed," said Mark Byers, head of the industrial division at EGS. "It just took a couple of nice-sized deals for it to happen."

Byers said it's encouraging to see how one or two big deals can take chunks of space off the market and quickly boost occupancy levels for an entire market.

It's going to take more of that to spur new development, though.

"I think the market is going to have to get a lot tighter before you see new construction, unless it's a build-to-suit," Byers said.

With a number of Mercedes-Benz suppliers looking around the market, the distribution sector expected to get a bump with the opening of the Norfolk-Southern rail hub, and companies having put off expansion for as long as they can, fortunes could change quickly, Byers said.

Overall, the market's rented industrial space filled 730,127 square feet more space than it vacated during the year, led by a 390,260 square-foot net gain of leased space in the southwest part of the metro area (which includes Bessemer, McCalla and Hueytown). The only part of the metro area that had a net loss in leased industrial space for the year was the eastern market (Trussville, Leeds, Center Point).

Industrial rental rates averaged between $3.68 per square foot in the eastern market to $5.67 per square foot in the Oxmoor Valley at year's end.

The retail market, meanwhile, ended the year exactly where it started it with an occupancy of 87.6 percent. Only the retail centers on the U.S. 31 South corridor (Pelham, Alabaster and parts of Hoover) broke the 90 percent mark with an occupancy of 94.6 percent at year's end. The western section of the metro area (Bessemer, McCalla) finished with the lowest occupancy rate of 83.3 percent.

Rental rates for retail space at year's end averaged between $8.81 per square foot in the northern market (Gardendale, Fultondale, Adamsville, Graysville) to a high of $31.75 per square foot in the Hoover-Riverchase market.

After ending 2010 on the verge of breaking the 90 percent occupancy barrier, the metro area's multi-tenant office market took a small step backwards in 2011, finishing the year 87.6 percent occupied. Weakest was the 82.6 percent occupancy in the Hoover-Riverchase market, while strongest was the midtown area (Birmingham, Homewood, Vestavia Hills, Hoover, Mountain Brook) at 91.3 percent occupancy.

Office rental rates finished the year averaging a low of $13.80 per square foot in the Vulcan-Oxmoor area to a high of $20.73 per square foot in the U.S. 280-southern market.

Read the full story on the Birmingham News' website.

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