Published: Tuesday, July 20, 2010, 5:30 AM
Michael Tomberlin -- The Birmingham News (AL.com)
Birmingham's office and industrial buildings finished the second quarter with more space being leased than vacated, a positive sign that an economic recovery could be hitting home in commercial real estate.
However, sublease space remained a drag on the metro area's industrial and office space in the second quarter, slowing the recovery in the two important real estate sectors.
Still, industry observers are taking note of the 20,580 square feet net gain in office occupancy and 24,970 square feet net gain in industrial occupancy for the quarter as a significant sign.
"For the first time, there was some positive absorption," said Bill Pradat, president at EGS. "While it wasn't a large amount of square footage, it was positive."
Despite filling some vacancies in both during the quarter those numbers hide the large amount of space that existing tenants are trying to lease to someone else, often at deep discounts.
Birmingham ended the quarter with an occupancy rate of 90.3 percent overall in the office market and 80.5 percent in the industrial market, however, neither number includes sublease space which is technically leased but is on the market by the tenants.
In the industrial market, for instance, another 60,000 square feet of sublease space during the quarter brought the total industrial sublease space in Birmingham to 675,032 and would drop the overall occupancy to 75.8 percent if it was included. When you add in the sublease space on the office side, the occupancy drops from 90.3 percent to just over 85 percent.
The good news:
But the quarter did bring some good news with several significant leases, including:
>> TSF Sportswear LLC leased 66,000 square feet in Oxmoor South Industrial Park.
>> Triton Stone leased 50,000 square feet in the Continental Gin building.
>> Magma Granite Corp. leased 21,400 square feet at 1301 First Ave. South.
>> Dynamic Tower Services leased 6,975 square feet in Cahaba Valley Business Park.
>> SNL Distribution Services leased 5,000 square feet in the Birmingham Food Terminal.
>> Synovus Mortgage leased 31,874 square feet in Lakeshore Park Plaza.
>> Capital Strategies Group leased 9,729 square feet in the Shades Cahaba office building.
>> HP Hotels Management leased 5,032 square feet in Chase Corporate Center.
>> Fuston, Petway & French leased 4,080 square feet in the Luckie Building.
The quarter also saw some property sales, include Nextran's $1.16 million purchase of a 31,000-square-foot building at 3101 Messer-Airport Highway, Infinity Property & Casualty Corp.'s $16.1 million purchase of the 111,600-square-foot former Vesta Insurance building and NuTech Medical's $3.7 million purchase of the 28,000-square-foot McCrory Building Co. building.
In the office market, second quarter occupancy rates ran as high as 94.1 percent in the Midtown area that includes Homewood, Mountain Brook and Vestavia Hills to a low of 79.4 percent in the Hoover/Riverchase area. Birmingham office rental rates for top tier space averaged $21.18 per square foot per year, with Midtown fetching the highest average of $22.12 per square foot per year and Hoover Riverchase the lowest at $18.90 per square foot per year.
On the industrial side, the eastern part of the market that includes the Pinson, Roebuck, Trussville, Leeds and Moody areas had the highest occupancy rate of 86.6 percent while the southwestern part of the market with areas such as Hueytown, Bessemer and McCalla had the lowest with 64.3 percent.
Pradat said while brokers always hope for a large headquarters or some other sizable user to come in and take large chunks of the empty space, the reality is that in the current economy, small and incremental deals will likely be the norm in the near future.
"No wow! deal has popped up in recent memory," he said.
Pradat said that this point in 2010 is a marked improvement over where things were a year ago. "There is certainly improved activity," Pradat said. "It's better than this time last year."
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