BIRMINGHAM, ALABAMA — Looking back over the year, Birmingham-area office building brokers said their market has seen steady improvement with fewer vacancies and higher rents.
Although new office construction is at a standstill, relocations and expansions are expected to grow through next year, said Dan Lovell, director of Graham & Co.’s office division.
“It’s not 2009, which is a saying we have around our office. That’s a good thing,” Lovell said. “I predict it’ll be a very active 2012.”
Since the fourth quarter of 2010, the overall metro area vacancy rate has steadily dropped 1.6 percentage points to 13.3 percent in the third quarter of 2011 from 14.9 percent, according to the latest report by real estate trends researcher Xceligent.
Meanwhile, the area’s average asking lease rate was at $18.03 per square foot in the third quarter, which is the highest it’s been since the fourth quarter of 2010, the report says.
While the numbers aren’t nearly as good as the pre-recession numbers, Meredith Ray Calhoun, vice president of brokerage and corporate oversight for Corporate Realty, said there was a “lot of opportunity” in the Birmingham office market, especially for smaller tenants.
“It’s a great time for buyers to get out and expand, relocate or renovate because landlords are getting creative,” she said.
Sorrell Chew of Liberty Park’s Richey Management Co. said the market was slightly better this year than he would have predicted, and he expected to see modest activity in 2012.
“It’s not going to be gangbusters, but it’ll be slightly better,” he said of next year.
As the market heals, Chew said he expects competition to heat up as landlords grow more aggressive in marketing their properties and offering concessions.
Perhaps the best example of a landlord getting “creative” is the Regions Plaza, where the Federal Emergency Management Agency rented 140,000 square feet after the April 27 tornadoes.
The 613,746-square-foot Plaza, which was purchased for a discounted $5 million in March by West Second Street Associates, has 114,520 square feet available for lease, or 18.6 percent of the building.
But FEMA is winding down its Birmingham operations now, and will likely be out of the plaza within six months, Calhoun said. Just in the third quarter, the Plaza released 89,615 square feet of sublease space into the market.
The FEMA lease is skewing the overall vacancy rate of the central business district, which saw its first improvement this year to 12.9 percent in the third quarter, down from 17.2 percent in the fourth quarter of 2010.
Despite the numbers, Calhoun said she saw the CBD as an opportunity zone.
“There’s definitely activity,” she said. “It’s not dead – just really steady movement.”
The strongest market for the office sector is Midtown, which includes Homewood and Mountain Brook. It has consistently had the lowest vacancy rate in recent years, at about 7.2 percent in the third quarter of 2011.
In the third quarter, several companies signed leases for large blocks of space, including BASS LLC, which leased 15,662 square feet in the Colonial Center at Blue Lake in the 280/459 district for a new headquarters, according to Xceligent.
Also in that district, home and crafts publisher Hoffman Media continued its expansion, taking 21,769 square feet at 1900 International Park in the third quarter, the research firm said.
On the brokerage side of the industry, Xceligent reported several major transactions in the third quarter.
AREA Property Partners sold the city’s tallest building, Wells Fargo Tower, to an affiliate of Commonwealth REIT for $68.5 million in August.
Also, Legal Properties-Birmingham LLC – an entity registered to Dothan real estate investor Chase Givens – purchased the 43,581-square-foot class-C Farley Building downtown in the CBD from Farley Properties LLC in July, according to public records.
Counting sales and leases, the Birmingham metro area saw 63,864 square feet absorbed in the third quarter, bringing year-to-date positive absorption up to 295,579 square feet. That leaves 2.4 million square feet of the 17.8 million surveyed by Xceligent vacant.