CITY HIGHLIGHT, DECEMBER 2005

JACKSONVILLE CITY HIGHLIGHTS
Jeff Graham, Paul Boyd, Randy McNeal, Fran Pepis

Jacksonville Industrial Market

After many years of having just a few industrial developers, new players are arriving on the Jacksonville scene.

Majestic Realty Company, based in City of Industry, California, acquired about 45 acres in Jacksonville International Tradeport. This project is located on Jacksonville's northside adjacent to the Jacksonville International Airport. Majestic has just started construction on three Class A distribution buildings totaling about 850,000 square feet. The first building will be a 318,000-square-foot cross-dock facility with a scheduled delivery of second quarter 2006.

McDonald Development, based in Atlanta, plans to enter the Jacksonville market, developing more than 1 million square feet of Class A industrial buildings. It is expected that this development will be located in the westside market near Interstate 295.

Pattillo Construction has leased two of the new speculative buildings totaling more than 250,000 square feet at its new NorthPoint Project near Blount Island Terminal on Jacksonville's northside.

East Coast deepwater ports such as Jacksonville have been receiving a lot of attention in the last 24 months. This activity has been driven by the anticipation of the ports receiving higher traffic in imports, especially from Asia and the Pacific Rim. In August, the Jacksonville Port Authority announced it was entering into a 30-year lease with Mitsui O.S.K. Lines Ltd., a Japanese-based shipping and logistics company. Mitsui plans to build a container terminal at the Blount Island Terminal, which is schedule to open in 2007.

Jacksonville's industrial market as a whole continues to grow with an inventory level of about 81 million square feet. Vacancy levels, which are at 13.9 percent, break down like this: second generation space, primarily older properties with some form of functional obsolescence, represent 11.6 percent of the total vacancy while only 2.3 percent of total vacancy or 1.9 million square feet is new or first generation space. Lease rates are trending upward, absorption continues to be positive and activity is keeping track with 2004 levels.

— Jeff Graham, SIOR, is president of King Commercial Realty / CORFAC International.

Jacksonville Multifamily Market

Last year's trend showing a growing number of apartment/condominium conversion projects in the Jacksonville area has continued through 2005. Suitable projects for conversion have become increasingly difficult to find, even though buyers' appetites remain strong. The past 2 years have both shown a net decrease in rental apartment units (new construction starts minus condominium conversions). The net loss of units is expected to repeat in 2006. Because of this supply constriction of available rentals and the continued population growth bringing an influx of new renters to Jacksonville, occupancy in the third quarter 2005 has increased to 94.9 percent (up from 92.6 percent in December 2004, according to Calex Realty Group). One such example of a southside conversion project sold this year is Tivoli at Deerwood (400 units).

With a vibrant economy in Jacksonville, ongoing construction projects for new apartment units continue, but well below the pace   in December of 2004. The slowdown can be attributed to a scarcity of suitable sites as well as the current preference among developers for condominium projects. The southside continues to attract development, such as Ryan Oaks (132 units), an affordable housing project by Vestcor on St Johns Bluff.

New projects are also underway in other areas of town. In Arlington, Ivy Place at Kendall Town (400 apartment units by Gate Development) is under construction north of the Regency Mall and will come to market in 2006.   Lake Gray Apartments, 300 units on the westside near Blanding and Interstate 295, were just completed and are already more than 90 percent occupied.

Look for several new areas to receive attention from developers in 2006. On the north side, River City Marketplace mall will open its first phase. That area is planned to eventually include 900 multifamily units. The Brentwood Park Community will bring to market 228 affordable housing apartments. On the west side, Normandy Oaks (336 units) at Normandy Boulevard and I-295 are underway and will be completed in May 2006.

The Downtown revitalization pace will quicken next year with a focus on high-rise condominium development. New to the Jacksonville market is downtown Orlando developer Cameron Kuhn, who plans a major impact on the area. Kuhn is currently in various stages of acquiring nine multi-story properties downtown targeting office, retail and condominium development. Apartment projects are also underway, such as the Strand at St. Johns. This 295-unit high-rise under construction on the Southbank is expected to be completed mid-year 2006.

Jacksonville's reputation continues to mature as an excellent multifamily investment market supported by a steady and varied economy. All signs point toward continued opportunity for growth during the coming year.

— Paul Boyd is a multifamily specialist with Coldwell Banker Commercial Nicholson Williams Realty.

Jacksonville Retail Market

The Jacksonville's retail market has never been better. Strong housing and job growth in the past several years have spurred retail growth in all of Jacksonville's submarkets and have brought in many outstanding retailers new to the area.

The most notable retail event this year has been the opening of the St. Johns Town Center, Jacksonville's first lifestyle mall. The first phase of 1.1 million square feet opened with more than 100 stores and restaurants. Forty of the retailers are new to Jacksonville, including The Cheesecake Factory, Dick's Sporting Goods, P.F. Chang's China Bistro and Maggiano's Italian Restaurant. The developers of St. Johns Town Center are Simon Property Group and Ben Carter Properties.

Kohl's came to Jacksonville this year with three department store locations: at the intersection of Kernan and Atlantic Boulevard, The Shoppes at Bartram Park, and The Crossings at Fleming Island.

A Wal-Mart Supercenter opened in Regency's Kendall Town Center early this year. Kendall Town Center is a 300-acre mixed-use development that will include 480,000 square feet of retail. In addition, Wal-Mart is building four new Supercenters. A Wal-Mart Supercenter is anchoring the first phase of Ramco-Gershenson's River City Marketplace, a 1.3 million-square-foot mixed-use development that includes 400,000 square feet of retail at Interstate 95 and Duval Road in Jacksonville's northside. Other new Wal-Mart Supercenters include Phillips Highway just south of Emerson Street, Pablo Creek West at the southwest corner of Beach and Hodges boulevards, and Blanding Boulevard at Brannan Field Road.

A SuperTarget opened in St. Johns Town Center in 2005, continuing the retailer's expansion in Jacksonville. Kimco is developing two centers to be anchored by SuperTargets: Pablo Creek East on the southside, and The Shoppes at Amelia Concourse in Fernandina. Target is also considering a new store location at Oakleaf Town Center, a Sembler & Company development planned for 850,000 square feet in the growing Fleming Island submarket.

Kimco is also developing two new sites for The Home Depot: The Shoppes at Amelia Concourse, and Plantation Crossing at Brannan Field Road and Blanding Boulevard. Plantation Crossing will comprise 350,000 square feet of retail when completed.

Lowe's Home Improvement Warehouse and BJ's Wholesale Club are opening next to each other on Phillips Highway at Baymeadows Road.

Of course, all the new big box activity spawns additional smaller retail centers, particularly for tenants that want to be in the shadow of the large retailers. Wherever vacant land can be found, or properties redeveloped, there seems to be no end in sight for the current market-driven economy in the Jacksonville area.

— Randy McNeal, CCIM, is a senior investment sales associate with Colliers Dickinson.

Jacksonville Office Market

Jacksonville's office market has fared better in many respects than most comparable markets. Nevertheless, the turnaround from the downturn has been slow. Speculative construction has been at a low level, and it's 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. Net absorption is continuing to show a positive gain for the last year in the Jacksonville office market.

At the end of the third quarter, Jacksonville's overall office vacancy rate stood at 19.7 percent. A breakdown by submarket includes 24.1 percent Downtown, 20.3 percent southside, 18 percent Butler/Baymeadows and 9.6 percent Beaches. The average quoted rental rate, for all classes, is $17.39 per square foot.

Downtown Jacksonville is experiencing a rise in investment that has been unsurpassed in recent years. From historic renovation and adaptive reuse to new construction, both the private and public sectors are investing in the Downtown area.

Attracting more people to live Downtown is a major goal for civic leaders. Some 10,000 housing units are expected to be created Downtown in the next 10 years. Developers are currently building or preparing for several new residential projects, providing a key component in the renewed strength of Downtown as a place to live and work.

Southside remains a desirable corporate address for suburban office users, with its ease of access and proximity to a large number of workers. Investor interest was apparent by the 2004 year-end sale of Midtown Centre office park. Kellogg Development Corporation is the buyer of this 42-acre, 763,000-square-foot complex, formally known as the Kroger Center. The 31-building complex is generally recognized as one of the nation's first planned office parks.

The prime growth area for office construction is still along southside's Butler Boulevard corridor, extending southward toward St. Johns County. Butler/Baymeadows continues to offer excellent potential for both office developers and investors, while suiting the needs of owner-users. A hot spot in this submarket is Flagler Center, a developing office park at Interstate 95 and St. Augustine Road.

In the Jacksonville Beach submarket, demand for office space is generally exceeding the supply. Overall vacancy is estimated as the tightest submarket vacancy rate in the Jacksonville area.

In general, production of new office supply in Jacksonville remains relatively subdued, and the long lead time for office development should provide an opportunity for a rebound in rents before the supply pipeline can respond to increasing demand. Consensus has it that Jacksonville's office market has stabilized.

— Fran Pepis is senior vice president with Colliers Dickinson.

©2005 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.