SOUTHEAST SNAPSHOT, FEBRUARY 2005

Birmingham Industrial Market

Sonny Culp Graham & Company Inc.

2004 was the “comeback year” for Birmingham, Alabama’s industrial market, as occupancies rose after the multi-tenant bulk distribution market experienced consecutive occupancy declines in 2002 and 2003 at 84 percent and 80 percent, respectively. The same October 2004 snapshot yielded an 87 percent figure and a record absorption of 1.04 million square feet. Multi-tenant absorption in a good year is historically around 300,000 square feet. The increase is attributed to a general market rebound combined with well-timed absorption of new speculative deliveries.

The mature Central and Oxmoor submarkets predictably began to backfill post-September 11 vacancies consisting of subleases, second generation space, and Class B/C industrial space. Rental rates and occupancy levels should continue to trend upward in 2005. The combined Central and Oxmoor bulk multi-tenant markets (5.72 million square feet) are currently 86 percent occupied. Limited land supply is the main barrier to new construction in these submarkets, so rehab projects are more the norm for developer opportunity. One 2004 Central market redevelopment of a 40-year-old industrial facility newly leased for 15 years to GCR Tire Centers sold for a sub-8 cap rate. In the Oxmoor area, recent leases were signed with Lazy Boy (33,000 square feet), PODS (33,000 square feet) and Armstrong Relocation (60,000 square feet), among others.

New industrial development is primarily occurring in the outlying Eastern and Southern submarkets where site availability and access are more conducive. The most active development in 2004 was the Jefferson Metropolitan Industrial Park, located on the west side toward Mercedes-Benz. The 300,300-square-foot first phase of Graham & Company’s development was delivered in June at 40 percent pre-leased and is now fully leased to Mercedes supplier Decoma (120,000 square feet) and D&K Healthcare (180,000 square feet). The 240,000-square-foot second phase was delivered in December and is also fully leased to OfficeMax (180,000 square feet) and Plastipak (60,000 square feet) for support space to substantial facilities located in the same park. Perhaps the most notable news in this submarket is that in late 2005 Mercedes will vacate 525,000 square feet at Perimeter Industrial Park and move to a similar sized build-to-suit across from the plant itself in Vance, Alabama. The vacancy effect will not impact the market until January 2006. Graham & Company is serving as developer of the new Mercedes facility. Not all was rosy on the spec development side. An Interstate 20 corridor project, Moody Commerce Park, continues with 130,000 of 182,000 square feet vacant after a late 2003 delivery. Disappointingly, there has not been metro area industrial activity associated with the recent Honda plant expansion in Talladega County. The combined South and East bulk multi-tenant markets (3.42 million square feet) are currently 91 percent occupied.

Except for the mentioned Mercedes project, no build-to-suit activity is projected in the first quarter of 2005. Industrial user activity continues to be spurred by low interest rates and will continue to give the industrial market velocity in terms of brokerage activity and general expansion. The most notable user news is that Del Monte will dispose of a high-quality, rail-served distribution facility of 293,000 square feet when the food giant relocates to Atlanta this March. The outlook for 2005 is for a continued rebound in existing vacancies with absorption levels falling back into historical trends. A 2005 speculative building may be initiated by Graham & Company on existing building pads as dictated by market conditions.

— Sonny Culp, Graham & Company Inc.

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