SOUTHEAST SNAPSHOT, APRIL 2012

JACKSONVILLE INDUSTRIAL MARKET

The dust seems to be settling in northeast Florida’s industrial market after the recession. Sales are still down and asking prices continue to decline for traditional industrial properties, but institutional investors throughout the state seem to be in acquisition mode.

While investors are looking, there are not many properties for sale. Despite the fact that Jacksonville is the third largest industrial market in Florida, not many institutional-quality industrial properties come onto the market frequently.

Rental rates seem to have stabilized for quality properties and landlords are beginning to reduce the value of concessions offered to tenants.

The current overall industrial vacancy rate for northeast Florida is about 9.6 percent compared to 9.7 percent this time last year. Although this is still on the high side for our market, it is still much more favorable than Savannah, Georgia, where the reported vacancy rate is close to 16 percent. Savannah is one of the more competitive markets with Jacksonville, due to its vibrant port traffic.

Recent transactions that have helped northeast Florida maintain single-digit vacancy rates include Saddle Creek Corp.’s 213,000-square-foot lease in the former General Motors parts distribution center, which is owned by Cabot Properties and located in the Flagler Center business park in Jacksonville’s Southside submarket; Kaman Aerospace’s lease of 100,800 square feet in the Imeson Industrial Park for their government aircraft manufacturing contract; and IEM’s lease of 85,000 square feet at Eastpark Business Park; and Global Tissue’s lease of 180,000 square feet in the Eastpark Business Park.

Also, Vantem Composite Technologies leased approximately 148,000 square feet in the Northeast Florida Industrial Center, which is owned by True North Investments and located in Green Cove Springs, Florida. In addition, two potential build-to-suit projects that would total close to 1 million square feet could be announced by third quarter 2012.

Tenants still seem to be in expense-cutting mode, but the ones that see the light at the end of the tunnel through relocation or expansion are receiving great deal structures in the Jacksonville market.

Tenants that are moving seek better quality space. They are reluctant to occupy older space due to the older features in these buildings. As rental rates are at the bottom across the board, tenants that historically would lease older buildings to save a considerable amount in rent are opting to pay a little more to have modern building features such as ESFR sprinkler systems, taller clear heights, T-5 lighting and surplus trailer/container storage.

Debt placement is still a major challenge in our industrial market as lenders are still requiring a substantial amount of equity to be placed into a deal, if they will even consider the loan. We have not seen a large number of industrial properties being taken back by the lenders, or handed to a special servicer, which speaks highly for the ownership groups in our market.

Another major challenge has been funding for improvements to our port terminals. Paul Anderson is the new JaxPort CEO and he has made tremendous strides with the state and federal governments to position our port terminals for the much-needed federal funding that some of these improvements will require. The port improvements will allow for more carriers to call on northeast Florida, which will create a substantial number of jobs for our area.

When times were good, northeast Florida did not experience a tremendous amount of overbuilding in the industrial sector like Savannah, Tampa or Atlanta, and this should help our industrial market recover sooner than some of our competitive markets. Our growing port, excellent infrastructure of roads and rail, skilled labor force due in part to two military bases and local universities, and great quality of life provide Jacksonville with the capacity to attract great businesses to our area in 2012 and beyond.

— John Richardson, SIOR, is president of Jacksonville-based Grubb & Ellis/Phoenix Realty Group.

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