Examining Trends in Commercial Real Estate in Northwest Alabama

As part of his efforts to better understand the regional economy, Atlanta Fed president Raphael Bostic regularly visits areas within the Sixth District each year to get a firsthand look at the economic drivers, local commerce, and factors influencing the workforce and the area's well-being. On August 12-14, Bostic and other Atlanta Fed officials visited Red Bay, Alabama, home of major employers to the area such as Tiffin Motor Homes and Sunshine Mills. These companies in Red Bay, a town of just over 3,100 residents, produce items including luxury RVs and premium dog food and treats for distribution to consumers all over the United States.

Nestled in the northwest part of the state near the Mississippi border, Red Bay is in Franklin County and one of seven counties in northern Alabama that are home to more populous areas like Huntsville, Decatur, and Florence. Each county has its own distinctions and dynamics, and the Atlanta Fed's Commercial Real Estate Market Index (CREMI) tool can offer insights and note trends occurring within the local commercial real estate (CRE) markets and how they compare to other markets around the country. Because CREMI covers metro areas only, we will examine results for Red Bay's neighboring metros: the Huntsville, Decatur, and Florence markets. (CREMI covers 390 metro areas and adjacent areas, which is why the markets in this article were selected.)

CREMI is standardized so that the long-term average CRE performance is centered at zero. Values above zero indicate a market that is stronger compared to its long-term average (a positive performance indicator) for that core-based statistical area, or CBSA. Conversely, values below zero indicate a market that is weaker compared to its long-term average (a negative performance indicator). The farther market trends are from zero, the stronger or weaker they are. Refer to the methodology to learn more about the index.

Office

Located on the Tennessee border and known for its close ties to aerospace and defense industries, Huntsville has witnessed a surge in population growth. From 2008 to 2023, Huntsville saw its population grow 23.7 percent, compared to 9.7 percent for the United States over the same period, according to data from the Chicago Fed. The city also has a growing technological presence and is home to Toyota and Mazda-Toyota manufacturing plants-all of which are positive factors for the overall health of the CRE local market, including office.

Huntsville and neighboring Decatur have closely tracked the CREMI index trends during the last four years (see figure 1). From 2021 to 2022, both markets tracked above their respective long-term average CREMI scores for office, indicating relative strength. Low interest rates and increasing net operating income buoyed the index score. But starting in 2023, interest rates increased rapidly, vacancies increased as companies leased less space at renewals due to hybrid work, and inflationary pressures dragged down net operating income (NOI), a significant driver for the CREMI index. These national trends dragged these markets to their long-term average index score of zero: Huntsville in first quarter 2023 and Decatur in first quarter 2024.

Figure 1: Northwest Alabama's CRE Market

Note: Data are from the third quarter of 2020 through the second quarter of 2025.
Source: Atlanta Fed's Commercial Real Estate Market Index

Both markets have tracked below their long-term average since 2024 with Huntsville hitting a trough in first quarter 2025 of -1.9 (almost two standard deviations below its long-term average). However for second quarter 2025, both markets have improved. CREMI score -1.5 for Huntsville and -0.7 for Decatur. At the macro level, this may reflect a shift to more in-person work from hybrid arrangements and some moderation in interest rates.

Some of this divergence between markets over the last 2 ½ years can be attributed to 650,000 and 590,000 square feet of office space in Huntsville hitting the market in 2020 and 2023 respectively (see figure 2). This influx of space has dragged on occupancy rates as the market slowly absorbed the space; Huntsville's office occupancy rate declined from a peak in the second quarter of 2020 of 95.3 percent to 89.3 percent in the first quarter of 2025, according to data from CoStar.

Figure 2: Office Market Completions in Huntsville

Source: Costar

Huntsville's and Decatur's office market is largely owner-occupied. However, there is a growing amount of non-owner-occupied space serving the aerospace, defense contracting, and growing technology sectors. Of note, hybrid spaces (modern-warehouse) to serve these industries have gained traction. Although these owner-occupied property types traditionally provide security and greater likelihood of payments, the diverging CREMI trends and overall direction of office nationwide bear close monitoring.

Retail

Turning to other areas within the "seven counties," Florence-Muscle Shoals, Alabama (population 155,000) sit in the most northwestern part of the state. Straddling Lauderdale and Colbert counties and known as "the Shoals," it is home to the University of North Alabama (UNA), which saw strong growth over the past few years. Enrollment in the fall of 2024 at UNA was 10,600 graduate and undergraduate students, representing 50 percent growth over the last ten years. The university has added programs in high-tech fields and nursing, invested in scholarships and financial aid, provided research and support for economic development in the community, and increased its athletics profile by recently moving to Division I, where it competes in the Atlantic Sun and United Athletics conferences. Accompanying its enrollment growth, there have been infrastructure improvements, including a new stadium and math building; new housing (including an honors college dorm and new residential living around campus); and an increased campus spirit in the community.

UNA's positive momentum supports one of the CREMI indicators in retail CRE. Figure 3 shows the CREMI score of 1.76 for retail for the second quarter of 2025 in the map view, and figure 4 displays a look back at a 10-year CREMI retail score highlighting Florence-Muscle Shoals. We selected the 10-year horizon corresponding with the strong enrollment growth for UNA. In eight of the 10 years, the retail CREMI score for Florence-Muscle Shoals was positive, with strong momentum exceeding the CREMI median for the last three.

Figure 3: Retail Strength in Florence-Muscle Shoals (Q2 2025 CREMI Score)

Note: Data are from the second quarter of 2025.
Source: Atlanta Fed's Commercial Real Estate Market Index

Figure 4: Retail CRE Strength Trend in Florence-Muscle Shoals

Note: Data are from the first quarter of 2015 through the second quarter of 2025.
Source: Atlanta Fed's Commercial Real Estate Market Index

The index shows the positive momentum in Florence-Muscle Shoals, particularly over the last four years. Raleigh Green, vice president at Bank Independent in Sheffield, Alabama, elaborated on causes for this strong performance. "Increased enrollment leads to an increased need for retail, and we see these higher-than-average trends commonly in college towns," he said. "Additionally, for many people who live in less populated areas of Alabama, Mississippi, and Tennessee, Florence/Muscle Shoals is the best place to go shopping, as it has many larger retailers that do not have a presence in smaller areas. Lastly, while both Decatur and Florence/Muscle Shoals are home to popular lake destinations, Florence/Muscle Shoals is closer to the Tennessee and Mississippi borders, allowing it to capture residents of those states for tourism easier than Decatur. These tourists further feed into their retail market."

We encourage you to explore CREMI and its sector trends for hospitality, industrial, multifamily, office, and retail by CBSA. You can compare markets by CBSA and state like we did in figure 1 or property types by market as demonstrated in figure 4.

If you note any interesting trends or areas you would like for us to cover, email us at [email protected].

You can subscribe to receive CREMI updates, and follow the Atlanta Fed on LinkedIn for periodic CREMI posts like this one. Click here to read more about President Bostic's visit to Red Bay.

By John Douglas, director of supervisory outreach in the Atlanta Fed's Supervision and Regulation Division. Douglas gives special thanks to Bank Independent and the Alabama State Banking Department for their contributions to this article.