Office Demand Slumps in Birmingham, But Rents, Economic Indicators Show Promise

There isn't a lot of demand currently in Birmingham, Alabama's office sector. The full year 2024 left 300,000 square feet of negative absorption on the market, with -48,121 square feet of that added in the final three months, a report from Colliers finds. In contrast, the category ended the fourth quarter of 2023 with positive net absorption of 175,308 square feet.

Vacancies ended the year elevated at 20.69 percent compared to 18.84 at the end of 2023. That's above not only the 10-year city average but above the national office median of 13.9 percent. Colliers said the struggles came as companies continue to adapt to hybrid work.

To make matters worse, construction has gone up to 181,000 units during the fourth quarter, up from 100,000 from the same period a year ago.

However, it wasn't all bad news for the market. The one core fundamental that showed improvement was asking lease rents, which went from $22.38 per square foot to $23.12 per square foot. The Midtown submarket commanded the highest rents at $27.22 per square foot, with Vulcan/ Oxmoor owning the lowest, at $17.09 per square foot.

Also, the underlying numbers in Birmingham were solid. Colliers said unemployment hit a low of 2.89 percent in the region, while metro jobs grew by 1.52 percent in 2024. Plus, the population grew by 0.73 percent, while real GDP increased by 2.13 percent.

Colliers said those results support "long-term economic stability," but it did not provide much of a short-term outlook for the multifamily space in the city.

"Birmingham’s relatively stable rent growth and modest new supply provide some insulation against broader market volatility.," Colliers wrote.

"With a cautious approach to new development and a measured rent growth trajectory, Birmingham’s office market is navigating a period of transition, driven by ongoing shifts in work habits and evolving tenant preferences."