Jacksonville’s metropolitan statistical area (MSA) contains 2,674 square miles. With an MSA population of more than 1.1 million, which represents a 21.4 percent increase from 1990, Jacksonville is the 14th largest incorporated U.S. city by population. The city has been ranked Number 1 for relocation and expansion in 2002; this is the second time in 4 years Jacksonville has received this recognition.

Customers capitalize on Jacksonville’s location at the intersection of three interstate highways (I-10, I-95 and I-75) and three Class I rail lines (CSX, FEC and Norfolk Southern). More than 100 trucking and drayage firms operate in and around Jacksonville’s ports.

Jacksonville operates three marine terminals that encompass more than 1,000 acres of land. They handled a record 7.5 million tons of cargo in 2000 and 6.8 million in 2001, including a record number of vehicles (more than 530,000). The Port Authority has 14 container cranes, on-dock refrigerated and freezer warehousing and Foreign Trade Zone status.

Jacksonville’s International Airport Foreign Trade Zone (FTZ) has 143 acres for use on demand and experienced FTZ operators. It is located at the crossroads of two major interstates, I-10 and I-95, and is within an 8-hour truck drive of 33 million consumers.

As of September 2002, the nation’s unemployment rate was 5.6 percent; Jacksonville remained below this average at 4.9 percent. The city’s civilian labor force numbers more than 585,000. In addition, Jacksonville also maintains a strong military workforce at the Jacksonville Naval Air Station and the Mayport Naval Base.

The city of Jacksonville has taken a proactive approach to overall economic growth and development. It has established multiple objectives to improve and maintain the quality of life and work in Jacksonville. One such objective is to recruit five corporate headquarters annually. The city has also implemented and approved economic incentive programs to help support multiple commercial and residential projects.

Retail

Jacksonville’s retail market remains highly productive. Despite economic concerns, the Jacksonville market continues to be a viable market for real estate investment opportunities as well as general retail business aimed at serving the prime growth areas. The healthy Jacksonville housing and multifamily markets are helping to fuel continued growth and stability in the commercial retail sectors.

Surveying shopping centers of 40,000 square feet and larger, Jacksonville maintains over 23 million square feet of retail center space. The average range for asking lease rates of large anchor space is $3.50 to $12 per square foot per year; second generation space will fall in at the lower asking rate and new build-to-suit space will fall in at $8 to $12 per square foot per year. Lease rates range from $6 to $30 per square foot per year for adjacent retail users, with an average common area maintenance expense of $2.65 per square foot per year. The average lease rate for this space falls in at just over $12.40 per square foot per year.

Currently, the percentage of vacant anchor space is 10.46 and the percentage of vacant local space is 13.44. In 1995, the overall vacancy rate was 15.8 percent; currently it is 11.4 percent, which shows Jacksonville’s retail market stability, regardless of any seasonal or national trends. There is more than 1 million square feet currently permitted or under construction, which has been the average for the past three quarters, and over 4 million square feet planned for development.

Defying national trends, the area is still hot with residential growth. Multifamily and single-family subdivision developments, along with new build-to-suit office developments and hotel growth, are sprouting up all over Jacksonville. The residential developments are the precursors to retail growth. As developers count the rooftops they will serve, it is easy to justify the need for new retail development.
Big plans are still moving forward for a few retail projects exceeding 1 million square feet in Jacksonville. St. John Town Center, the $60 million Southside project by Ben Carter Properties and Simon Property Group, has been moving forward in development. The 1.2 million-square-foot retail project will contain at least four large, upscale anchor tenants, which would include such retailers as Nordstrom, Lord & Taylor, Saks Fifth Avenue or Neiman Marcus. Located in the northwest corner of J. Turner Butler Boulevard and St. Johns Bluff Road (SR 9A), the project is planned to include multiple restaurants, Class A office space and a 250-room hotel. The scheduled completion date has been projected for March 2004. The deal closing is projected to take place by the end of the year. This project will probably break ground before comparable projects such as Freedom Commerce Center.

The Goodman Company’s Freedom Commerce Center, located approximately 5 miles from St. John Town Center in the Baymeadows Area, is another large project. It also consists of retail, office and hotel space along with residential units. The development may be similar to an Expo Design Center rather than an upscale tenant mall. It will contain 1.2 million square feet of retail space. BJ’s Wholesale Club and Wal-Mart are the likely anchors for the project, which is also projected to have a 2004 opening.

The area has multiple expansions and newcomer openings from retail anchors such as Target, Lowe’s, Home Depot, Stein Mart, Beall’s and Wal-Mart; grocery anchors include Publix, Winn-Dixie, Food Lion and Albertson’s. The market also has warehouse discount club stores: BJ’s, Costco and Sam’s Club are located in the market, and BJ’s is looking to expand.

Other retailers making their mark in Jacksonville are Bed Bath and Beyond, Walgreens, Starbucks and Dollar Tree; CVS/pharmacy is entering the market with three to four locations, two of which are under construction in the Arlington area. Restaurant openings this year include Zaxby’s, Carabba’s Italian Grill, Sonic, KFC, Ryan’s Steakhouse, Chick-fil-A, Wendy’s and Perkins Family Restaurant. Future additions to the area will include Bob Evans Restaurant, Cracker Barrel and O’Charley’s Restaurant. Sonic is also planning six additional locations for this year, one being a conversion of a Schlotzsky’s Deli.

Overall, the Baymeadows/Avenues and Southside areas of Jacksonville have the majority of the planned retail development and new construction; these are prime growth areas. Northside, Orange Park and the Westside areas, including the Westside’s redevelopment project at Cecil Field, are also seeing their share of growth. The Westside’s Brandon Chaffee Roadway project will have a major impact on this area’s development projects by providing a major infrastructure to support the Cecil Field developments and planned residential communities from Clay County to I-10.

Industrial

The Jacksonville industrial market has grown more than 25 percent since 1995. Jacksonville, with its current 81 million square feet of industrial properties, has lower vacancy rates compared to many other regional markets. Broken down, the market is 65 percent distribution/warehouse, 30 percent manufacturing and 5 percent flex space.

Vacancy rates in the warehouse market moved up from around 6 percent in 1999 to 6.9 percent in 2000. 2001 rates ended at 8.4 percent and currently the rate resides at 8.87 percent including sublease space.
An overall stabilized vacancy was projected at the beginning of the year to fall in at 8 to 8.5 percent. At year-end 2000, average asking rates and effective industrial rents were $3.90, up 3.9 percent from a year earlier. Current triple-net asking rates fall in at $3.65 per square foot overall for warehouse space, but deal rates on first generation space can been seen for less than this average rate. Rental rates are expected to increase slightly at an average rate of 2 percent per year for the next few years.

Flex space rates have stabilized at $9.06 per square foot; last quarter saw rates of $9.17 per square foot. The majority of the nearly 3 million square feet of existing space is located in the Southside area.
What softening in the overall market that occurred is temporary, and Jacksonville will continue to have a healthy industrial market. Jacksonville is in the position of continued growth and expansion. Construction has seen an increase as investors and developers look to expand their presence in Jacksonville.

Absorption overall has been positive for this quarter.

Utility costs in Jacksonville are lower than the national average. This impacts manufacturing facilities and other 24-hour facilities. Speculative building has slowed but will continue in the Westside and Southside areas. Multiple projects are pending for speculative space in the Westside area.

St. Johns County has its fair share of industrial potential. ConAgra has moved into a 400,000-square-foot distribution center at St. Augustine Industrial Park, located in the southwest quadrant of I-95 and State Road 207.

Northpoint is a 362-acre Northside project by Stone Mountain Industrial Park Inc. that consist of warehouse and residential components. With permitting complete, inlay of infrastructure should begin by early 2003. At maturity, the total project should consist of 3 million square feet of industrial buildings.

Westside projects include Pattillo’s 154,000-square-foot facility in the Westside Industrial Park with other speculative construction pending, including 440,000 square feet in the same location. Pattillo is also seeking city approval for a multi-structure 1.08 million-square-foot warehouse facility called Beaver Street Industrial Park between Chaffee and Jones roads, near I-10. Southeast Toyota Distributors’ project is a 311,000-square-foot processing facility located at the Westlake Industrial Park. W.W. Granger will soon begin construction on a 230,000-square-foot distribution center also in Westside Industrial Park. Westside Industrial Park will also welcome BMW and its 136,000-square-foot facility.

Perimeter West Industrial Park is planned on a 163-acre site. Currently, a 135,360-square-foot building exists, located at I-295 and Pritchard. Infoguard recently leased 90,000 square feet at this location. Park North is another project pending; located near I-295 and U.S. 1, it will include 330,000 square feet of industrial space and 55,000 square feet of commercial space.

Pilot Pen Corporation is constructing a distribution center of 230,000 square feet at EastPark in the Southside area. The second phase of construction for EastPark is pending. When complete, it will yield 282,000 square feet.

Envirosafe Technologies is another Southside project including two buildings, each 26,400 square feet, off St. Johns Industrial Parkway. Multiple projects exist in the Southside area, but of smaller size.

Office

Jacksonville’s office market, as with many markets, has seen a downturn, but signs of stability are emerging. For the current quarter, construction is down as speculative construction is on hold. Several build-to-suit projects have been completed recently, and a few are in the construction phase. All totaled, the market size will increase by 500,000 square feet in Class A office space. The build-to-suit projects are multi-tenant buildings; some additional user space is coming on-line as occupancy takes place.

Out of Jacksonville’s 33 million square feet of office space, roughly 10 million square feet is owner-occupied space, leaving 23 million square feet with an overall vacancy rate of 17.11 percent, including sublease space. This rate is just below what was a 4-year increase and in-line with 2001, which saw a fourth quarter high of 17.1 percent.

Sublease space has been reduced to approximately 175,000 square feet, which translates into a 1 percent increase in total vacancy. Sublease space has decreased at a steady rate, which indicates the market is stabilizing. The majority of deals are smaller, between 2,000 and 10,000 square feet.

Even though the market has seen deals ranging from 2,000 to 160,000 square feet, the leases that have taken place in Class A space carried an overall absorption to negative 120,000 square feet for this quarter. Terms of leases in the area are normally based on a 5-year average, though 3-, 7- and 10-year leases are not uncommon.

Much of the activity in past two quarters has been government-generated in the central business district (CBD) and Southside submarkets, including the Corp of Engineers’ lease of 160,000 square feet at 701 San Marco Boulevard, filling the space created by Aetna Insurance Company’s departure, and the IRS’s lease of 87,000 square feet at 550 Water Street, formerly CSX space, with an additional 50,000-square-foot GSA lease at Mid-Town Center. Other notable deals included Option One leasing 69,000 square feet in Gran Park of Deerwood North and Verizon Wireless taking 25,000 square feet in the Channel 25 building.

In the CBD, vacancy of Class A space has increased slightly from 11.11 to 11.77 percent for the third quarter, with average asking rates at $19.50 per square foot. Construction has begun on the St. Joe Company’s new headquarters at 841 Riverside Avenue. The 140,000-square-foot, Class A building is underway; St. Joe will occupy the top floor and lease out the remaining space. This is the first Class A building to be built in the CBD since the Bank of America building in 1990.

Vacancy of suburban Class A office space is 18 percent with an average asking rate between $18 and $19 per square foot. New projects include Water View Office Park behind the new TNT building that will result in 170,000 square feet in two buildings.

The general consensus is that the softening downward turn is stabilizing. Also, with minimal new hires or little corporate expansion, the market will likely continue to remain flat for the next 6 to 9 months before an upward trend will begin. It is still considered to be a tenants’ market with aggressive lease rates being offered, higher than normal tenant improvements dollars being allotted and free rent offered as a signing bonus.

The cost of office land in Jacksonville area is between $5 and $8 per square foot. There exists over 5.5 million square feet of entitled rights for office construction and over 11 million square feet in pending or recently approved developments of regional impact.

Multifamily

Jacksonville’s multifamily market is showing growth in construction. Between January and September of this year, 98 new building permits have been issued in city limits, not including Jacksonville’s MSA. These permits account for 2,342 new units valued at more than $85 million.

Multiple other projects are pending through planned unit developments and DRIs. The Southside area is expanding the fastest with all types of development. This area alone could account for 3,000 new units to move to construction phase once planning, permitting and contracts fall into place.

Lower interest rates are promoting home ownership, but Jacksonville residents still enjoy the apartment community lifestyle. The occupancy rates have slightly decreased to just above 93 percent, but one must factor in the new units that have come on-line and the migration of apartment dwellers to the new complexes.

The average rental rates in Jacksonville are around $690 and in newer complexes, average asking rates are between $800 and $1,000.

Multifamily communities selling for $1 million or more have accounted for more than $68 million in sales since the first of the year. The average selling price for these deals averages out to approximately $35,000 per unit. The total number of units sold was more than 2,400; the average size of the complexes is 175 units each. The largest deal was for The Glades, a 360-unit complex, built in 1985, which sold for $14.8 million.

Jacksonville is becoming a major city on everyone’s map. It has multiple assets and is diverse in many aspects of its economic, social and geographical environment. There are many concrete reasons that Jacksonville continues to be ranked the Number 1 place in 2002 to relocate or expand.

Douglas Blair is research director for Colliers Dickinson in Jacksonville, Florida.


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