Huntsville Commercial Real Estate from the Experts Q2 2018
Markets: Huntsville-Madison County
Industrial - Bart Smith, Graham and Co.
Vacancy remained steady in the second quarter with overall rates remaining below 9 percent. Two large facilities, the former Navistar and Qualitest buildings, account for 73 percent of the overall vacancy. National industrial vacancy is the lowest since 2001 and has now dropped for 26 consecutive quarters since peaking in 2010.
Several construction projects are underway for smaller industrial buildings ranging from 5,000 to 15,000 square feet. A shortage of available space exists in the 20,000 to 50,000 square foot range, leading some companies to lease space in older buildings normally not under consideration.
Rental rates have begun to increase in the Huntsville market and this trend will continue, especially with new construction. Cost for new construction has increased, and owners and developers will ask tenants to help offset the increase by paying higher rents. Rates increased nationwide to $6.92 per square foot as industrial remains the hot sector.
The Huntsville market had a positive absorption of 326,000 sf in 2017, marking the sixth year in a row of positive absorption. Over 2.5 million square feet have been absorbed in the market since 2012.
Land prices remain stable in the Huntsville market with most industrial sites priced near the $40,000 to $45,000 per acre range. The Huntsville area has a large amount of flat, buildable land so prices should remain stable as there is not a scarcity of great locations.
Two transactions of note occurred in the second quarter:
- The 51,105 square foot Nektar Therapeutics building on Discovery Drive in CRP West was purchased by LSinc, who will occupy the building once the necessary improvements are made to the facility.
- The 46,864 square foot 4950 Gilmer Drive building was sold to a local investment group. The building is located in CRP East and will be available for lease.
Multifamily - Andy Agee, SVN:
The Huntsville, Alabama, apartment market continues to experience the type of renaissance that should be expected from an area that is seeing unprecedented historic growth. Rents have increased an impressive 5+ percent across the area, year over year, where the national average is closer to 3 percent. The mixed use and retail construction boom in Huntsville and Madison promises only more jobs, and this in addition to recent large job announcements by Toyota/Mazda, BAE, and even tech giant Facebook will lead to exponentially more apartment dwellers in the coming years. With rising rents and soaring occupancy, times were very good for Huntsville apartment owners in the second quarter of 2018, and promise to be so for many quarters and years to come. For the ‘Rocket City’, the sky is truly the limit for apartment owners.
As I’ve pointed out previously, multifamily investors from around this globe continue to make persistent efforts to enter the North Alabama market, arguably the strongest tertiary growth market in the Southeast United States. This feat that has become increasingly challenging, as sales volume slows a bit, and sellers choose to ‘sit tight’ to see just how high this market will rise. Huntsville leads the way as a top tertiary market, with sustained job and population growth and a strong positive economic outlook. Unlike larger markets around the U.S. where quality, reasonably priced inventory is difficult to identify, Huntsville offers a safe and somewhat more reasonably priced opportunity in the multifamily sector with big upside.
In Q2 we've seen relatively small deal flow:
- Hillside: a 224-unit, 1985 garden style apartment complex located near the intersection of Sparkman and University Drive(s), sold in June for $8.0 million, for what amounts to a 4 percent CAP rate on actual numbers. The new owners, a private group out of Tampa, Florida, plan a $8,000+/unit renovation of both this property and Twickenham Village Apartments, the second property in this portfolio purchase.
- Twickenham Village, mentioned above, is a 152-unit, 1986 built complex located near the intersection of Sparkman and University Drive(s), sold in June for $6.3 million, for what amounts to a 4.5 percent CAP rate on actual numbers.
- Bluebird Apartments: a 44-unit, 1979 built, in Decatur, traded for $1,350,000, or $30,681/unit.
Office - James Lomax, COPT:
Huntsville, Alabama is a unique office market in the thick of national defense world. For a long time and still, Huntsville has been seen favorable to many defense contractors and government providers based upon the location and proximity to Redstone Arsenal, as well as the economics that allow for low wrap rates. It is a huge win for the local area to be close to the source of budgeting for agencies such as the Marshall Space Flight Center and the Missile Defense Agency. Over 40,000 employees work on Redstone, and while the arsenal is an army installation, it truly is a federal instillation. Over sixteen federal budgets are directly managed out of Redstone Arsenal. Huntsville has had unprecedented success in the recent years, but Redstone remains the economic engine of the area, and that is going to continue to be the trend. The supported budgeting efforts for national defense coming from the Executive Branch has anecdotally been tied to major recent announcements in our office market.
Two major office announcements include:
- BAE Systems announced an 83,000 square foot manufacturing and office facility to be built at the corner of Old Madison Pike and Jan Davis Drive. Samples Properties shall be the developer.
- Radiance Technologies announced a 100,000 square foot facility to be built on Bob Heath Drive. Triad Properties shall be the developer.
As Redstone Arsenal continues to grow steam with the talks of FBI relocation and “Space Force”, the excitement continues to mount for office product users and owners in the Research Park area.
Outside of Redstone Arsenal, the evidence is showing that our market is growing and demand is increasing. Announcements like the Facebook data center and the Toyota/Mazda plant will increase viability of Huntsville as an office location for other major companies throughout the United States. Downtown vacancy rate remains very low, mirroring the demand.
To meet demand, new office product is expected in the near future:
- 127 Holmes, a mixed-use project downtown featuring Moe’s BBQ and Retaggio Italian, will have 7307 square feet of office space above retail. The building is expected to be delivered in October of this year.
- 225 Holmes downtown is expected to be under construction in near future as demand increases for downtown office space. This building will contain +/-45,000 square feet of dedicated office space across from Below The Radar and the Historic Times Building on Holmes Ave.
- The MidCity project, which recently announced Dave & Busters and High Point Climbing to go along with the entertainment option of TopGolf, will be delivering tech office, likely to be 200,000+ square feet as a mix of build to suit and above-retail.
- Redstone Gateway project delivering two new office buildings totaling 80,000 square feet this month.
- Town Madison project, which announced a baseball stadium and Margaritaville hotel, is expected to deliver 200,000+ Square feet of office product on a build to suit basis.
Retail - Anusha Alapati, Crunkelton Commercial Real Estate:
The overall vacancy rate remains steady with a slight increase from 4.3 to 4.4 percent from Q1. Although retail development has slightly declined nationally, Huntsville’s market is still very strong with over a million square feet under construction. Huntsville’s strong demographics have encouraged developers to expand the city's retail footprint by almost 15 percent over the cycle. It’s exciting to note that much of this growth comes from introducing unique retail concepts to the Huntsville market. For instance, Huntsville is seeing more diversity within its food scene. New retail elements are coming by popular demand, such as Huntsville’s first rooftop bar, several food halls, and a boutique hotel in the downtown core.
- The historic 106 Jefferson Street is being redeveloped to house Downtown Huntsville’s first full-service boutique hotel. The former Hale Brother’s Furniture site will soon be the location of 106 Jefferson Hotel, A Curio Collection by Hilton. The hotel will feature 117 guest rooms, a full-service restaurant, and a rooftop bar.
- A new to Alabama boutique pet store, PetWants, will be opening at The Avenue in August.
- Publix at Redstone Square opened on July 11. Shoppes at Redstone Square will also include Mangia’s, Luxury Nail Spa, Great Clips, and a private dental practice.
- Aldi announced plans to open its fourth grocery store next to Academy Sports on Memorial Parkway. The 21,600 square foot store will be open November 2018.
- CityCentre’s new restaurant, Gemini Kitchen + Cocktails, will occupy the restaurant space underneath the AC Hotel by Marriott in Downtown Huntsville. The restaurant is slated to open by late fall 2018.
- MidCity announced two celebrity-driven restaurants, Wahlburgers and Rascal Flatts Restaurant, as well as the first hotel at MidCity, Marriott’s Aloft Hotel.
- Salons by JC opened at Merchants Walk in June.
- The Cuban Café will be opening this fall at Promenade Point in the Madison/Huntsville area.
- Another Broken Egg leased the former Chocolate Martini Bar space at Twickenham Square. They will be opening this fall.
- HotBuys, a furniture store chain out of Georgia, leased 12,805 square feet at Hunnington Center on South Parkway. This was a large absorption for the South Huntsville retail market.
Translating it to Alabama