Huntsville Retail Update
Anusha Alapati, Crunkleton Commercial Real Estate
The 2017 retail market for Huntsville remained strong despite concern for the retail market nationally. The overall vacancy rate decreased from 5.2 percent to 4.6 percent in 2017. Asking rates increased with new space on the market, an estimated 120,000 square feet of new construction was under development in 3Q17. With Huntsville being the fastest growing city in Alabama, many new retailers are still looking to enter the market and take advantage of the opportunities that growth offers.
Mixed-use and adaptive-reuse developments are the trend in Huntsville, as they are throughout the nation, with several of these type projects currently underway. Several properties are being repurposed for multiple uses, specifically in the downtown area. To combat the struggle of big-box retail, developers are focused on creating a one-of- a-kind experience. Huntsville’s strong retail market is proof that brick-and-mortar is not going away, but is simply changing to meet the market. Retail is changing from big-box style stores to smaller stores with a higher emphasis on creating an experience for the customer.
Nationally, strong Black Friday sales were a positive sign for brick-and-mortar locations and indicate the need for a physical location. According to International Council of Shopping Centers (ICSC), retailers with a brick-and-mortar presence captured approximately 75 percent of all sales over Thanksgiving weekend.
Retail Updates:
- The historic Martin Stove building located on Governors Drive is being redeveloped into a mixed-use development called Stovehouse. The 160,000 square foot development will feature office space, restaurants, an urban food garden, event space, and a music venue. The complex will have office tenants moving in by the end of the year, and businesses open to the public by Fall 2018.
- 127 Holmes, a new mixed use development in downtown Huntsville, announced its third tenant, Moe’s Original BBQ. The 22,000 square foot development, featuring a rooftop patio, is slated to open end of Summer 2018.
- Madison City Council approved a development agreement that would bring a mixed-use multifamily development to downtown. The development will have 140-160 loft-style units plus 10,000 square feet of retail space. The project will be very similar to The Avenue in downtown Huntsville and is expected to be a catalyst for economic growth in downtown Madison.
- The corridor between Governors and Airport Road is continuing to develop with the development Times Plaza, a mixed-use development with 50,000 square feet of office and 30,000 square feet of retail, and Merchants Walk, a retail development anchored by Ulta and Chuy’s.
- Topgolf at MidCity is on track to open in the next few weeks. RCP Companies said they will have more exciting announcements on MidCity very soon.
Huntsville Office Update
James Lomax, Colliers International
Within the office sector, 2017 showed stark improvement over the previous year. While momentum was surging with a higher volume of lease deals in 2016, 2017 has shown much larger tenants in the Huntsville market, including some major relocations with more coming soon.
Politics aside, the consensus among the office community has been that the election of President Donald Trump in 2016 has been a boom for the defense industry as expectations are high and contracts are expected to continue to flow to fund many of the business sectors related to defense that thrive in the Huntsville metro area.
That encouragement has led to excitement in 2017 and more defense industry related players have been less hesitant than they were in the past to consider expansions and relocations to higher class facilities, and it has shown within the statistics.
- Downtown land prices are hovering in the $35- $40 per square foot range and the desire for land and redevelopment seems to be increasing.
- Major projects such as Mid-City, Town Madison, and Constellation are expected to add hundreds of thousands of square feet of modern office space to the Huntsville Metro area.
- Much like the national trend, class A office space has seen a decline in vacancy and also a rise in rental rates.
- Additions like Jeff Bezos-owned Blue Origin and expansions by companies like Aerojet Rocketdyne and Parsons have enthused office building owners.
While rents are rising and vacancy is declining, appetite for office development, while enticing, is still not as rampant in Huntsville as in other markets. However, anecdotal evidence indicates that more activity is prevalent, the size of the activity is larger and the momentum of 2017 should carry into a strong 2018.
Huntsville Industrial Update
Bart Smith, Graham and Company
Vacancy for Huntsville’s industrial market continued to decline in 2017 and marks the 7th consecutive year of decreased availability. The overall vacancy rate now stands at 6.40% compared to 6.86% in 2016. The largest block of space available is the 660,000 former Navistar plan in the Jetplex Market.
Overall market rates
Single tenant – 5%
Multi-tenant – 12%
The Huntsville market experienced positive absorption again in 2017 for the 5th year in a row. Over 2.3 million square feet have been absorbed in the market since 2012. Activity was strong across all three markets and is predicted to remain healthy in 2018. The overall vacancy rate per area is as follows:
Jetplex – 9.27%
Central/North Huntsville – 5.34%
Chase – 0%
Industrial building supply is not keeping pace with the healthy demand from supply-chain and distribution users, creating rent increases across most of the nation. Rents for industrial space have begun to increase locally and are forecasted to increase again in 2018.
Three announcements in 2017 will have a positive impact on Huntsville’s industrial market for many years in the future:
- BOCAR announced plans to build a $15 million plant in Huntsville/Limestone County that will employ over 300 people.
- Blue Origin will build a 400,000 square foot plant in Cummings Research Park that will be used to construct rocket engines.
- Aerojet Rocketdyne announced to build a 135,000 square foot building in North Huntsville. The company is looking to add 70 jobs to the Huntsville market.
Huntsville Multifamily Update
Andrew Agee, SVN Commercial Real Estate
In 2017 the Huntsville, Alabama apartment market enjoyed strong fundamentals, as multifamily investors from around the globe made efforts to enter the North Alabama market looking for a reasonable yield in a strong growth market. This feat that has become increasingly challenging in larger markets where sales volume decreased in 2017, as yield shrunk to below many investor’s appetite, particularly the highly leveraged investor.
In 2017, and likely continuing into 2018, smaller second tier and tertiary markets that have sustained job and population growth and offer a positive outlook like Huntsville are seeing opportunistic apartments investors knocking on the door. Unlike larger markets around the U.S., Huntsville offers a safe and somewhat more reasonably priced opportunity.
In 2017, a flood of new buyers put upward pressure on prices and promises to continue to do so over the coming 12-24 months. With new construction slowing in the area (2017 saw the least new deliveries in 5 years), new money rehabilitating older product, rents have increased between 3-3.5% this year. This trend should continue across the board over the coming quarters providing appreciable value to apartment assets in North Alabama.
Over the past few months we have seen relatively stable deals with no way to realizable upside without significant capital improvements trade as low as a 5.7% CAP rate. There have been a record number of sales activity over the past few months; below are a few:
- Silver Stone Apartments: a 104-unit, 1979 garden style apartment complex located on Triana Boulevard in Southwest Huntsville, sold in November for a 6.5% CAP rate based on in-place financials. The new owner plans to continue to raise rents and increase revenue through additional charges such as utilities.
- Reserve at Fairway Hills: a 180-unit, 1982 build, located off of Golf Road in Southwest Huntsville, sold for $50,000/unit, along with 194 units in Hunters Ridge Apartment complex, which sold for $38,000/unit in February.
- Park Place Apartments: a 231-unit, 1964 build, located on Golf Road in Southwest Huntsville, sold for $5,050,000 in September. The sale was part of a five-property portfolio in Huntsville and Birmingham with a total sales price of $17 million. The property was purchased for renovations and was a non-performing asset at the time of acquisition.
- Coventry Apartments: a 100-unit, 1977 build, located on Sparkman Drive in Northwest Huntsville, sold for $42,000/unit, $4,200,000. LNR, a special servicer, had owned the property for over two years, and went through the Auction Website Ten-X to sale the property to an individual out of Nashville.
- Belmont Hill: a 181-unit, 2005 build, located on Martin Road in West Huntsville, sold for $59,000/unit, $10,750,000, in March. The property was originally developed as a tax credit property; the previous owner had converted the deal to a conventional property and had renovated about 80% of the interiors and exteriors, including extensive work to the clubhouse.
