Alabama’s residential real estate market is hot. We get that. It’s in all the news. What has not made headlines is the commercial property market. Headlines or not, though, it, too, is cooking. At times, it’s been a slow sizzle after defrosting, nevertheless, business tracts are heating up.
Thanks in part to COVID-19 “Safer at Home” mandates, spurring home sales through the residential roof, commercial properties yielded in the publicity battle. But it did not languish.
Just ask the experts as we did. All are cautiously optimistic.
In the commercial business — coronavirus world, Alabama has advantages. “We did not take the COVID hits that larger markets did,” says Carter Burwell, executive vice president at JLL’s Birmingham location. “The giant towers of New York or San Francisco, for example, were completely shut down. Here in our urban and secondary markets, though we also have skyscrapers, we have many two-story buildings and smaller markets. They were not crippled, unlike those towers of larger cities.”
But the virus did not leave Alabama unscathed. “Yes, the residential market has been on fire for the past several years,” Burwell continues. “Residential peaked up during the pandemic but commercial took a hit, a step backwards because of COVID — except for the industrial sector which accelerated.”
He noted that all commercial sectors rebounded but the delta variant slowed it. “The hospitality sector was hit hardest,” Burwell says. “Also, business travel was picking up steam but stalled a bit, because of the delta variant.”
Will Barrois, vice president and regional manager at the Mobile branch of Stirling Properties, adds this about today’s market, “Certain sectors are very strong — maybe not on the level of the residential feeding frenzy you are hearing about — but COVID accelerated lots of trends we saw for years.”
Some trends were bad, he says, like the demise of some malls and mall tenants. And businesses that were slow or unwilling to change outdated practices are struggling today.
“But there are winners too,” he says. “Grocery, certain shopping centers, QSRs (quick service restaurants), last mile industrial distribution facilities, urgent care and medical clinics are performing well.” The Walmarts and Targets of the world with their aggressive online presence and drive-up delivery services: “They’re on fire,” Barrois says.
Stuart Norton, data analytics coordinator at the Alabama Center for Real Estate, an agency of the University of Alabama, adds that the state’s commercial real estate markets were always active, even during the pandemic. “Sales slowed a bit, but leasing remains active with a good bit of properties available at the moment, especially in downtowns.”
The business barometer begins in downtown Alabama. “It is positive seeing our biggest cities continue developing these areas,” adds Norton. “There is something about downtown — meeting friends, entertainment, the proximity to everything, and its character.” He believes that vibrant downtowns have a ripple effect on both commercial and residential growth.
But Norton and others acknowledge, be it urban or suburban, commercial real estate changed during COVID-19 and those alterations are in place forever. Successful developers and investors must accept it.
Burwell says, “My advice for developers is to demo ‘old choppy space.’ Landlords marketing a property should spend money to tear out old spaces, especially in anything 15 years or older, so prospective tenants can see the potential. Workspaces need to be more open with more glass walls.
“We are seeing floor plans and design changes that change the density — less people per square foot.” The days of everyone having a private office may soon disappear.
No one interviewed noticed an exodus of employees in search of greener — COVID-19 friendlier — pastures. But all recognize the pandemic changed commercial real estate forever.
“Most anything considered essential during the pandemic is still in high demand,” says Barrois. “The low-rise, and suburban/garden office buildings, with walk-up parking and lots of green spaces and minimum of touch points will continue to be desirable for employees.”
He adds that office workers want closer proximity to home, better access to kids in school and easy access in and out of the downtown environment.
All believe that, at least in some degree, working from home is the new reality. It is not the enemy. On the contrary, home office and commercial office settings can complement each other.
“Companies are further embracing remote work from home offices and/or adopting hybrid work schedules,” says Burwell. “For example, an employee may work three days at the office, two at home. But that doesn’t mean that people do not need offices. Floor plans and designs are changing. It results in a less dense office without having to relocate.” But there are caveats to the working from home world.
“Sure, employees working from home have significant benefits but also challenges,” warns Barrois. New employees working off-site can’t benefit from the mentoring of seasoned veterans. Also training opportunities are compromised.
“We also miss out on water cooler talk,” adds Barrois. “People need to be around other people.”
He cautions, “If employees are going to leave the comfort of their houses — and they need to — and come back to work, they want a nice, safe, comfortable, upscale environment to work in.” Successful developers will build accordingly.
Marketing commercial real estate — retail, industrial or office space — is a new frontier. “It is all about the amenities a specific property or area offers,” says Stuart Norton. “Tenants value walkability, especially those in the downtown market. The last 10 to 15 years have seen impressive revitalizations of downtowns across the state. Birmingham, Huntsville, Montgomery and Mobile have all seen significant growth in cultural/entertainment venues in their central business districts.
“Often, tenants are looking to change their office environments through open floor plans or innovative designs, especially in historic buildings.”
Selling commercial real estate today is the same as yesterday, the experts agree. You still need to know your market and provide what it wants; to make sure what you are putting out there is the highest quality from a professional standpoint.
“Make sure it looks good,” says Barrois. “Accentuate what you have to offer. For example, Mobile has great rail service and a shipping port. This is huge for the likes of an Amazon.com, Walmart processing center or industrial complexes.
“We have seen a huge shift to online marketing, excellent photography, drone footage,” he adds. “Assimilating data most effectively and data analytics has changed. It no longer is sticking a ‘For Rent’ sign in front of a building and waiting for a phone call. This is a very competitive business.”
Carter Burwell agrees: “Person-to-person contact will always be valuable in our business but embracing technology is a must.”
And all three are optimistic about commercial markets in Alabama. A lot of people want to live here and are coming in from other states. And, for the most part, to live in Alabama means to work in Alabama.
Emmett Burnett and Joe De Sciose are freelance contributors to Business Alabama. Burnett is based in Satsuma and De Sciose is in Birmingham.
This article appears in the November 2021 issue of Business Alabama.