2012 - egs commercial real estate, inc. · notably in major metropolitan areas such as birmingham,...

2012Annual Market Report

“If everyone is moving forward together,

then success takes care of itself.”

- Henry Ford

Brookwood Women’s Medical Center

Table of ContentsState of the Market 2

Cushman & Wakefield Alliance 3

Office Market Overview 4

Industrial Market Overview 6

Retail Market Overview 8

Annual Market Report | 2012

1

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.

State of the Market 2012

2

Children’s Hospital Photo Courtesy of The Birmingham News

C&W Offices

C&W Alliance OfficesAS OF OCTOBER 2011

OR

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OKAR

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MSAL GA

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IN

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NY VTME

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RICT

NJDE

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AlabamaBirminghamArizonaPhoenixTempeTucson

CaliforniaCarlsbadInland EmpireL.A. L.A. South BayL.A. WestMarin/Sonoma CtyOaklandOrange CountySacramento San Diego - Downtown San Diego - EastgateSan FranciscoSilicon ValleyWalnut Creek

ColoradoColorado SpringsDenver

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District of ColumbiaWashington, D.C.

Florida Ft. LauderdaleFt. MyersJacksonvilleMiami OrlandoPalm Beach Gardens Tampa

GeorgiaAtlantaSavannah

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New York AlbanyBinghamtonBuffaloCorning/ElmiraHudson ValleyIslandiaIthacaMelville, LIN.Y. Downtown N.Y. MidtownRochesterSyracuse (2)UticaWatertownWestchester County

North CarolinaCharlotteRaleigh/CaryRaleigh/Durham

OhioCincinnatiClevelandColumbusToledo

OklahomaOklahoma CityTulsa

OregonPortland

PennsylvaniaPhiladelphiaPhiladelphia SuburbanPittsburgh

Puerto RicoSan Juan

Rhode IslandProvidence

South Carolina Charleston Greenville/Spartanburg

Tennessee ChattanoogaKnoxvilleMemphisNashville

Texas AustinDallas HoustonSan Antonio

Utah Clearfield/OgdenPark City Provo/OremSalt Lake CitySt. George

VirginiaFredericksburgLynchburgMcLeanNewport NewsNorfolk/Virginia BeachRichmondRoanoke

WashingtonBellevue Seattle

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114 Offices Nationwide

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.

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.

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.

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.

ArgentinaAustraliaAustriaBelgiumBrazilCanadaChannel IslandsChile

ChinaCzech Republic DenmarkEnglandFinlandFranceGermanyGreece

KuwaitLatviaLebanonLithuaniaLuxembourgMalaysiaMexicoThe Netherlands

Northern IrelandNorwayPolandPortugalRomaniaRussiaSingaporeSlovakia

South AfricaSpainSwedenSwitzerlandThailandTurkeyUnited Arab EmiratesUnited States

Hong KongHungaryIndiaIreland IsraelItalyJapanKorea

3

Photo Courtesy of The Birmingham News

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 2010. 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 2010.

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 2011.

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.

$17.00

$17.50

$18.00

$18.50

$19.00

$19.50

$20.00

0

250,000

500,000

750,000

1,000,000

1,250,000

1,500,000

1,750,000

2,000,000

2,250,000

2007 2008 2009 2010 2011

Birmingham Office MarketOverall Market Trends

Direct Available Space Sublease Space

0%

2%

4%

6%

8%

10%

12%

14%

16%

2007 2008 2009 2010 2011

Birmingham Office MarketVacancy Trending

CBD Midtown Suburban Total Market

$14.00$15.00$16.00$17.00$18.00$19.00$20.00$21.00$22.00

2007 2008 2009 2010 2011

Birmingham Office MarketDirect Rental Rates

Class A Class B Total Market

$17.00

$17.50

$18.00

$18.50

$19.00

$19.50

$20.00

0

250,000

500,000

750,000

1,000,000

1,250,000

1,500,000

1,750,000

2,000,000

2,250,000

2007 2008 2009 2010 2011



0%

2%

4%

6%

8%

10%

12%

14%

16%

2007 2008 2009 2010 2011



$14.00$15.00$16.00$17.00$18.00$19.00$20.00$21.00$22.00

2007 2008 2009 2010 2011



$17.00

$17.50

$18.00

$18.50

$19.00

$19.50

$20.00

0

250,000

500,000

750,000

1,000,000

1,250,000

1,500,000

1,750,000

2,000,000

2,250,000

2007 2008 2009 2010 2011



0%

2%

4%

6%

8%

10%

12%

14%

16%

2007 2008 2009 2010 2011



$14.00$15.00$16.00$17.00$18.00$19.00$20.00$21.00$22.00

2007 2008 2009 2010 2011



Office Market | 2012

4

Birmingham’s suburban submarkets, which include 280/Southern, Hoover/Riverchase, and Vulcan/Oxmoor, had

only modest changes in occupancy levels from 2010. 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 2010. Occupancy for the Hoover/Riverchase submarket remained virtually unchanged at

82.6%, up from 82.5% at the end of 2010. 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 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 2010. 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 2010. 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 5,165,764 651,952 87.4% (286,458) 124,234 $20.34 Midtown 4,005,209 346,911 91.3% (52,088) 23,386 $20.10 280/Southern 5,444,559 683,900 87.4% (113,889) 503,061 $20.73 Hoover/Riverchase 1,961,284 341,487 82.6% 2,157 5,512 $16.76 Vulcan/Oxmoor 823,591 138,815 83.1% 63,740 2,400 $13.80 TOTAL 17,400,407 2,163,065 87.6% (386,538) 658,593 $19.44 *Rental rates reflect $psf/year full service

MARKET SNAPSHOT

2011 Change from

2010 CBD Direct Vacancy

12.6%

Non-CBD Direct Vacancy

12.4%

CBD Class A Direct Avg. Rental Rate

$20.48

Non-CBD Class A Direct Avg. Rental Rate

$21.04

OFFICE SUBMARKET STATISTICS




Sublease SF

Average Weighted

Rental Rate* CBD 5,165,764 651,952 87.4% (286,458) 124,234 $20.34 Midtown 4,005,209 346,911 91.3% (52,088) 23,386 $20.10 280/Southern 5,444,559 683,900 87.4% (113,889) 503,061 $20.73 Hoover/Riverchase 1,961,284 341,487 82.6% 2,157 5,512 $16.76 Vulcan/Oxmoor 823,591 138,815 83.1% 63,740 2,400 $13.80 TOTAL 17,400,407 2,163,065 87.6% (386,538) 658,593 $19.44 *Rental rates reflect $psf/year full service

MARKET SNAPSHOT

2011 Change from

2010 CBD Direct Vacancy

12.6%

Non-CBD Direct Vacancy

12.4%

CBD Class A Direct Avg. Rental Rate

$20.48

Non-CBD Class A Direct Avg. Rental Rate

$21.04

Office Market (continued)

5

The Luckie Building

Industrial Market | 2012

The Birmingham industrial market experienced a significant increase in activity during 2011. 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 2010. The year-end direct occupancy rate for 2011 was 84.0%, up from 78.9% at the

end of 2010. 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 2010.

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 2010. Direct occupancy for the Southwestern

submarket increased to 80.0% in 2011, a dramatic increase from 62.7%

at year-end 2010. 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. -300,000-200,000-100,000

0100,000200,000300,000400,000500,000600,000700,000800,000

2007 2008 2009 2010 2011

Birmingham Industrial MarketAbsorption by Property Type

Bulk Distribution Office/Warehouse Service Center

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

2007 2008 2009 2010 2011

Birmingham Industrial MarketVacancy Trending


70%

18%

12%

Birmingham Industrial MarketAvailable Space by Property Type


-300,000-200,000-100,000

0100,000200,000300,000400,000500,000600,000700,000800,000

2007 2008 2009 2010 2011



0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

2007 2008 2009 2010 2011



70%

18%

12%



6

Shelby West Commerce Center

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 2010. Direct occupancy for the Southern submarket

increased to 86.1%, up from 80.5% at year-end 2010. 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

2012. 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 2012.

MARKET SNAPSHOT

2011 Change from

2010

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

INDUSTRIAL SUBMARKET STATISTICS




Sublease SF

Average Weighted

Rental Rate* Central 4,197,328 578,027 86.2% 80,226 6,400 $3.79 Eastern 1,247,100 244,377 80.4% (17,995) 0 $3.68 Oxmoor Valley 2,666,564 465,317 82.5% 57,873 80,199 $5.67 Southern 3,947,937 548,893 86.1% 219,763 590,016 $4.87 Southwestern 2,248,677 449,135 80.0% 390,260 0 $3.86 TOTAL 14,307,606 2,285,749 84.0% 730,127 676,615 $4.44 *Rental rates reflect $psf/year

INDUSTRIAL SUBMARKET STATISTICS




Sublease SF

Average Weighted

Rental Rate* Central 4,197,328 586,777 86.0% 71,476 6,400 $3.78 Eastern 1,247,100 244,377 80.4% (17,995) 0 $3.68 Oxmoor Valley 2,666,564 465,317 82.5% 57,873 80,199 $5.67 Southern 3,947,937 548,893 86.1% 219,763 590,016 $4.87 Southwestern 2,248,677 449,135 80.0% 390,260 0 $3.86 TOTAL 14,307,606 2,294,499 84.0% 721,377 676,615 $4.43 *Rental rates reflect $psf/year

MARKET SNAPSHOT

2011 Change from

2010

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

-300,000-200,000-100,000

0100,000200,000300,000400,000500,000600,000700,000800,000

2007 2008 2009 2010 2011



0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

2007 2008 2009 2010 2011



70%

18%

12%


Bulk Distribution Office/Warehouse Service Center 7

Occupancy remained flat across Birmingham’s retail market in 2011, a trend that is likely to continue in 2012. 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 2010. Although occupancy rates shifted across each submarket, the total occupancy rate for

2011 remained unchanged from 87.6% in 2010. Average weighted rental rates declined from $15.77 per square foot

(psf) in 2010 to $15.27 psf in 2011.

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 2010. 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 2010. 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.

$12.00$12.50$13.00$13.50$14.00$14.50$15.00$15.50$16.00$16.50

2,400,000

2,500,000

2,600,000

2,700,000

2,800,000

2,900,000

3,000,000

3,100,000

3,200,000

2007 2008 2009 2010 2011

Birmingham Retail Market Available Space vs. Rental Rates

Available Space Rental Rate

(500,000)

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

2007 2008 2009 2010 2011

Birmingham Retail Market Available Space vs. Absorption

Available Space Absorption

0.0%

3.0%

6.0%

9.0%

12.0%

15.0%

18.0%

2007 2008 2009 2010 2011

Birmingham Retail Market Vacancy Trending by Property Type

Unanchored & Specialty Neighborhood

Community & Power Regional & Super Regional

$12.00$12.50$13.00$13.50$14.00$14.50$15.00$15.50$16.00$16.50

2,400,000

2,500,000

2,600,000

2,700,000

2,800,000

2,900,000

3,000,000

3,100,000

3,200,000

2007 2008 2009 2010 2011



0.0%

3.0%

6.0%

9.0%

12.0%

15.0%

18.0%

2007 2008 2009 2010 2011




-500,000

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

2007 2008 2009 2010 2011



$12.00$12.50$13.00$13.50$14.00$14.50$15.00$15.50$16.00$16.50

2,400,000

2,500,000

2,600,000

2,700,000

2,800,000

2,900,000

3,000,000

3,100,000

3,200,000

2007 2008 2009 2010 2011



(500,000)

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

2007 2008 2009 2010 2011



0.0%

3.0%

6.0%

9.0%

12.0%

15.0%

18.0%

2007 2008 2009 2010 2011




Retail Market | 2012

8

The Highway 280 and Hoover/Riverchase submarkets also had an increase in occupancy levels in 2011. 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 2010. 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.

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 2010. Occupancy for the Western submarket

was 83.3%, a decline from 86.2% at year-end 2010. 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 Market (continued)

RETAIL SUBMARKET STATISTICS



Absorption

Average Weighted

Rental Rates* Central 3,520,737 417,019 88.2% (29,437) $13.66 Eastern 3,763,468 529,383 85.9% (52,195) $9.81 Eastwood/Irondale 1,648,783 204,173 87.6% 8,458 $11.15 Highway 280 3,326,398 411,065 87.6% 18,128 $19.24 Highway 31 South 1,873,837 100,617 94.6% 1,829 $12.38 Hoover/Riverchase 4,908,643 510,519 89.6% 4,066 $31.75 Northern 2,018,126 297,272 85.3% (1,874) $8.81 Western 3,162,117 529,632 83.3% (93,013) $9.57 TOTAL 24,222,109 2,999,680 87.6% (144,038) $15.27

*Rental rates reflect $psf/year

MARKET SNAPSHOT

2011 Change from

2010 Direct Vacancy

12.4%

Unanchored & Specialty Avg. Rental Rate

$11.85

Neighborhood Avg. Rental Rate

$10.32

Community & Power Avg. Rental Rate

$12.68

Regional & Super Regional Avg. Rental Rate

$32.55

RETAIL SUBMARKET STATISTICS



Absorption

Average Weighted

Rental Rates* Central 3,520,737 417,019 88.2% (29,437) $13.66 Eastern 3,763,468 529,383 85.9% (52,195) $9.81 Eastwood/Irondale 1,648,783 204,173 87.6% 8,458 $11.15 Highway 280 3,326,398 411,065 87.6% 18,128 $19.24 Highway 31 South 1,873,837 100,617 94.6% 1,829 $12.38 Hoover/Riverchase 4,908,643 510,519 89.6% 4,066 $31.75 Northern 2,018,126 297,272 85.3% (1,874) $8.81 Western 3,162,117 529,632 83.3% (93,013) $9.57 TOTAL 24,222,109 2,999,680 87.6% (144,038) $15.27

*Rental rates reflect $psf/year

MARKET SNAPSHOT

2011 Change from

2010 Direct Vacancy

12.4%

Unanchored & Specialty Avg. Rental Rate

$11.85

Neighborhood Avg. Rental Rate

$10.32

Community & Power Avg. Rental Rate

$12.68

Regional & Super Regional Avg. Rental Rate

$32.55

9

Target - Colonial Promenade at Fultondale

505 20th Street North, Suite 700

Birmingham, Alabama 35203

Main: (205) 939-4440

www.egsinc.com

2012 - egs commercial real estate, inc. · notably in major metropolitan areas such as birmingham,...

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