CITY HIGHLIGHT, DECEMBER 2004

JACKSONVILLE ATTRACTS NEW BUSINESSES

Jacksonville, Florida’s metropolitan statistical area, which includes Duval, St. Johns, Clay and Nassau counties, has a population of more than 1.2 million. Expansion Management Magazine has consistently ranked Jacksonville in the top 10 of its survey of “Hottest Cities” in America for business relocation or expansion. Jacksonville ranked Number 1 on this list in 1999, 2002 and 2003.

Office

The city of Jacksonville has taken a proactive role in the city’s overall growth and development by establishing economic incentive programs to help support multiple commercial and residential projects. Attracting more people to live downtown is a major goal for civic leaders. Developers are currently preparing for several new residential projects in the downtown area, providing a key component in the renewed strength of downtown as a place to live and work.

Jacksonville is continuing to grow in every direction, offering many opportunities for investors. The prime growth area for office construction is still along Southside’s Butler Boulevard corridor, extending southward toward St. Johns County. However, other adequate development sites exist elsewhere in Jacksonville.

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 rank highly for businesses to relocate or expand.

Jacksonville’s office market has fared better in many respects over most regional and comparable markets. Nevertheless, the turnaround from the downturn has been slow. Speculative construction has been at a low level and it is projected to remain so until occupancy increases in the Class A office market. At present, there remain few build-to-suit projects under construction. Most build-to-suit projects in Jacksonville are tenant-driven, multi-tenant buildings, resulting in additional user space coming on line upon completion of these projects.

Of Jacksonville’s 34.5 million square feet of office space, roughly 10 million square feet is owner occupied, leaving 24.5 million square feet of rentable building area. The average asking rent in Jacksonville for Class A office space is $19.83 per square foot, while Class B and C is quoted at $15.49 per square foot. The bulk of deals occurring in the market is relatively small, in the 2,000- to 10,000-square-foot range, but bigger deals are also appearing.

Consensus has it that the Jacksonville office market has stabilized. Minimal new hire or little corporate expansion will likely continue for the next 6 to 9 months before the beginning of an upward trend. It is still considered a tenant’s market; however, landlords are beginning to limit rent concessions while attempting to improve their income stream. Any significant increase in rents is not expected until next year. Absorption will eventually improve with a stronger job market.

— Louis Galant, director of research, and Jenna Kirk, assistant director of research, Colliers Dickinson

Retail

The population of Jacksonville metro has experienced 9 percent growth since 2000, now approaching 1.2 million. The retail prognosis is promising, with another 10 percent increase forecast by 2009 to 1.3 million residents — nearly one-third of whom will be in the prime 25 to 44 age bracket.

The Baymeadows/Avenues submarket has performed exceptionally well during the first half of 2004, with the strongest rent rates ($21.42) and second-highest occupancies (97.3 percent). The market overall posted average rents of $14.99 per square foot with occupancy of 93.24 percent. Baymeadows/Avenues is bolstered by the super-regional Avenues Mall, which underwent major renovations in preparation for Super Bowl XXXIX. New to the submarket is The Sembler Company’s 109,000-square-foot Southside Shoppes, featuring Best Buy and Sports Authority, among other retailers, and the first phase of the Shoppes at Bartram Park, anchored by Publix.

West Beaches continues strong occupancy (98.8 percent), sparked largely by limited inventory of 1.2 million square feet. However, new development is on the horizon with Wal-Mart Supercenter and SuperTarget coming to the area. Significant new development also is planned for the Regency submarket at the Gate Petroleum Company’s Kendall Town Center, complete with multifamily, retail, offices and hotels. Phase I, anchored by a 208,000-square-foot Wal-Mart Supercenter opening this spring, is slated to be built out in 6 to 8 years.

As of October 2004, the Jacksonville retail market had sparked more investor interest than all of last year. Seven strip center transactions took place through June 2004, compared with just one during the first 6 months of 2003. Additionally, the retail market this year is expected to nearly double its total volume from 2003.

Overall, the Jacksonville retail market is in good shape. More than 75 percent of the market has occupancies in excess of 93 percent, and residents can expect more than 3 million square feet of new retail space over the next 3 years, involving such major names as Wal-Mart, SuperTarget, Lowes, Best Buy and Cost Plus World Market.

— John Crossman, senior vice president, director of retail investment services, Trammell Crow Company

Multifamily

Multifamily trends in the greater Jacksonville area include an increase in apartment/condominium conversion projects such as River Reach Apartments on San Jose Boulevard, which AIMCO is selling to an unnamed developer. As of July 2004, occupancy was at approximately 92 percent, which is strong overall, although an almost 2 percent decrease from last year.

Demand for housing in Southpoint on Jacksonville’s Southside, home to the majority of new development in North Florida, has increased to the extent that two new developments are on line from two different developers. Pulte Homes is bringing forth Ironwood, a 570-unit project on Gate Parkway West, and Summit Contractors started construction in late June on a 350-unit, 14-building apartment complex on the same road, which is located just off J. Turner Butler Boulevard, a major beaches artery.

While the majority of the multifamily development is on the Southside of Jacksonville, following the growth of office developments such as Southpoint Business Park and Deerwood Center, the Better Jacksonville Plan — a $2.2 billion comprehensive growth management strategy for infrastructure, roads and other targeted areas of concern — has had the effect of rejuvenating many other areas of the city such as east and west Jacksonville, which could reap investment rewards in the future due to overbuilding on the southside and the lack of incentive dollars in that area. A prime example of these “niche” plays is an Atlanta developer bringing forward a $32 million, 400-unit apartment complex in the Regency area of greater Arlington in northeast Jacksonville.

Jacksonville is seen nationwide as stable, but very much on the radar screen of many national companies, as demonstrated by more than 100 purchases of multifamily properties in 2001 and 2002. With interest rates at the lowest in recent memory and the city hosting the Super Bowl in just a few months, look for Jacksonville to continue to compete for a greater share of the “Sunbelt” investment dollars pouring into the Southeast.

— Sidney Jones, CCIM, vice president and multifamily specialist,
Coldwell Banker Commercial-Nicholson Williams Realty

Industrial

Through three quarters of 2004, Jacksonville’s industrial market has outperformed North Florida’s two other major areas — Orlando and Tampa. Adjusting for market size, Jacksonville clearly emerges as the leader among positive absorption, declining vacancy rates and increasing rent rates.

Warehouse/distribution activity continues to be healthy, posting 12 months of positive absorption buoyed by the outstanding performance of the Southside and West Side submarkets, where more than 168,000 and 298,000 square feet, respectively, was absorbed. Key recent transactions include Kraft Foods North America Inc., which leased 183,500 square feet in West Side Industrial Park #4 as a Maxwell House Coffee distribution center. Transamerica Auto Parts leased 81,000 square feet in Tradeport Distribution Center VIII, bringing building occupancy to 73 percent; Decker Inc. leased 11801 Grand Central Pkwy., a 168,210-square-foot distribution building with 4,000 square feet of office space; and 8691 Western Way, a 53,300-square-foot warehouse built in 1975, sold for $2.4 million in July.

No major lease-only projects are planned in 2005, and only one (Beachwood Commerce Center — delivery in early 2005) currently is under construction. Time will tell what impact emerging warehouse condo construction may have on future development of (and occupancy of existing) lease-only, multi-tenant properties in Jacksonville. By year’s end, there will be some 74,000 square feet of industrial condo space available in the Southside submarket, while another 57,000+ square feet is about to be completed in West Side.

The overall asking rent for warehouse/distribution space is nearing $4 per square foot, up $0.60 from a year ago. Rents are up in every industrial submarket, with average rents ranging from a low of $2.95 per square foot in Clay County to $5.49 in Butler/ Baymeadows. Direct vacancy has reached its lowest level in 2.5 years, finishing the third quarter at 16.6 percent. As previously noted, it remains to be seen how the delivery of warehouse condos will impact that in the long run. However, with new construction of lease-only multi-tenant buildings at a virtual standstill, the upward pattern that began during the previous four quarters should continue into the near future.

— Brad Chrischilles, senior vice president – brokerage and Jacksonville director, Trammell Crow Company

©2004 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.