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Alabama’s Industrial Market Lures More REITs

CoStar Market Insights: Growing Investment from International Firms Leads REITs to Take a Fresh Look at Alabama’s Industrial Market
July 11, 2018
Rendering of the 362,942-square-foot distribution building at 6735 Trippel Rd. in Theodore, AL
Credit: MSA

Alabama’s aggressive plan to bring high-profile tenants into the state might just be paying off, and public investors are taking notice.

The Alabama Department of Commerce has made one thing clear: the state wants jobs. As one of only a handful of states that has yet to reach prerecession gross employment levels, Alabama has been creating large incentives programs in an effort to bring big-name tenants to the state. Many of these incentives focus on lowering the tax burden for companies investing in Alabama. These incentives include a 3 percent refund on payroll expenses or issuing a tax credit for 1.5 percent of the cost of a capital expenditure within the state.

The incentives have convinced many international manufacturers to move into Alabama. Since 2010, Hyundai, Toyota, Mercedes-Benz, and Honda all opened new factories in the state. With these automotive manufacturers partially relying on smaller firms for parts and materials, the introduction of these headline tenants has also provided some stability to the entire industrial sector. Development has been strong as well, with almost 15 million square feet of industrial space delivering in the state since 2010.

It is a combination of these factors that has gained the attention of public investment funds and REITs alike. Prior to 2010, REITs/Public funds were involved in a relatively small amount of transactions. However since 2010, that percentage has grown to almost 25 percent of total sales volume. It appears the industrial market in Alabama is now being viewed as a favorable bet among public investors.

See CoStar COMPS #4343835.

Sold in June 2018, the newly constructed 362,942-square-foot warehouse in outlying Mobile County was sold to Monmouth, a public REIT, for $33.69 million. The space is occupied by Amazon until 2028. A combination of these factors helped the property achieve a $93 per square foot price tag, which is more than double the metro’s average.

See CoStar COMPS #4321599.

W.P. Carey, another REIT, purchased a 962,000-square-foot manufacturing building in Bessemer for more than $86 million in June 2018. The space, occupied by U.S. Pipe since 2007, achieved nearly $90 per square foot, blowing away the Birmingham metropolitan area average of about $22.

As investors attempt to find that magic combination of low risk, high return for their shareholders, Alabama’s steadily increasing portfolio of national tenants has REITs allocating money to the area, driving up pricing across the board.

CoStar Market Insights provides a snapshot of recent real estate trends. The CoStar Market Analytics team monitors commercial and multifamily real estate across 390 metro areas, with a granular understanding of the projects, players and economic trends that move these markets.

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