CITY HIGHLIGHT, DECEMBER 2006

JACKSONVILLE CITY HIGHLIGHTS
Hobart Joost, Jr., Gary Montour and Christopher Yeagle

Jacksonville Industrial Market

Jacksonville is poised for its biggest industrial boom in decades. The development of Mitsui O.S.K.’s $200 million container terminal at Jax Port, which will serve as the company’s direct East Coast-Asian hub, is expected to create an unprecedented demand for industrial distribution product. Once the facility is complete in spring 2008, Colliers Dickinson estimates that Jacksonville may be approximately 4 million square feet short of industrial space.

Central Business District

The existing downtown inventory is dominated by warehouse/storage and port related uses in the Talleyrand area along the St. Johns River. The Talleyrand Marine Terminal is the economic engine that drives most of the industrial activity in this submarket. In addition, a number of warehouses are situated along rail lines coming into the port and others are positioned along major roadways for truck distribution. Due to the lack of developable land, new industrial construction is rare in this submarket; however, a notable exception is the recent completion of ICS Logistics’ 553,000-square-foot warehouse center at the Talleyrand Marine Terminal. As one of the largest dry warehouse port facilities under one roof on the East Coast, it further enhances the market appeal of the downtown industrial district.

The lack of new product and the demand for industrial space in proximity to the port will keep vacancy rates low; however, occupancies for existing rental buildings can vary depending on age and condition.

Northside

In recent years, the majority of the Northside’s industrial activity has been taking place at the Jacksonville International Tradeport, the Imeson International Industrial Park and the Northpoint Industrial Park.

The construction of Mitsui O.S.K.’s $200 million, 158-acre container handling facility at Jax Port’s Dames Point Terminal will provide direct cargo ship service between Jacksonville and Asia, establishing the city as a first-tier national port and generating further industrial development of the Northside. In addition, due to its solid infrastructure with easy access to I-95, I-10, I-295, the Jacksonville International Airport, the Dames Point marine terminals and superb rail connections via CSX, Norfolk Southern and Florida East Coast rail, the Northside will continue to experience long-term industrial demand, particularly for distribution space. As this viable area continues to prosper, rents  will rise as vacancy declines and new construction is quickly absorbed.

Westside

Situated at the junction of I-10, I-295 and I-95, the Westside, Jacksonville’s largest industrial submarket, features a top-notch road and rail system, making it a particularly attractive area for large distributors and manufacturers. WesJax, the older industrial district of the urban core area west of downtown, will continue to retain its appeal due to its proximity to existing infrastructure and labor availability. In recent years, industrial growth has shifted further west toward the I-295 corridor where two of the city’s largest developing business parks, Westside Industrial Park and Westlake Industrial Park, are found. There are also a number of smaller and newer projects in the vicinity that can accommodate the industrial user.

Southside

The majority of Jacksonville’s overall residential and office growth continues to be on the Southside. The Southside industrial submarket consists of more than 17.11 million square feet of warehouse space and 3.94 million square feet of flex space. It also boasts the highest concentration of planned and existing flex projects in the Jacksonville area.

— Hobart Joost, Jr. is a senior vice president with Jacksonville, Florida-based Colliers Dickinson.

Jacksonville Retail Market

The Jacksonville metropolitan area, which includes Duval, St. Johns, Clay, Nassau, and Baker counties, is home to more than 1.24 million people with an estimated 72 people per day are moving to the area. By 2010, the Jacksonville MSA population is projected to increase to around 1.37 million people. Due to strong residential growth, Jacksonville’s overall retail occupancy rate is likely to remain at around 95 percent, and cap rates are expected to hold in the 8 percent to 8.5 percent range.

 As residential growth surges, retail development is never far behind. St. Johns Town Center, Jacksonville’s first lifestyle center, opened fully leased in 2005 at J. Turner Butler Boulevard and St. Johns Bluff Road. First phase development included 1.1 million square feet of approximately 130 stores and restaurants. St. Johns Town Center successfully combined high- and low-end retailers to cover a wide range of consumer needs, making it one of the top retail centers in the nation. Phase 2 is already preleased and Phase 3 is currently on the drawing board.

Construction is ongoing at River City Marketplace, an eventual 1.3 million-square-foot regional retail center at Interstate 95 and Duval Road. In November, 600,000 square feet in Phase 1 opened, and included several stores such as Wal-Mart, Lowe’s Home Improvement, Best Buy, PetSmart, Bed Bath & Beyond, a 13-screen Wallace Theatre and Old Navy.

Whole Foods Market, the nation’s largest natural food store chain, has announced a 2008 opening of its first supermarket in Jacksonville. The new store, located in the Mandarin Landing Shopping center at I-95 and San Jose Boulevard, is expected to have a regional impact on the already competitive grocery market.

Wal-Mart has bought four sites for supercenter development at Philips Highway south of Emerson Street, Blanding Boulevard and Branan Field Road, 6767 103rd Street and River City Marketplace. Wal-Mart also has two other stores in the permitting phase that should be announced soon.

Lowe’s Home Improvement Warehouse, The Home Depot and Target have new projects at Blanding Boulevard/Branan Field Road, The Shoppes at Amelia Concourse, River City Marketplace, Philips Highway near Baymeadows Road, Oakleaf Plantation, Argyle Forest and Old Middleburg Road, and Avenues Walk.

Rated one of the best cities to live in, Jacksonville should continue to see a healthy amount of retail growth.

— Gary Montour is a senior vice president with Jacksonville, Florida-based Colliers Dickinson.

Jacksonville Multifamily Market

The last 9 months have presented several new challenges to the multifamily market in northeast Florida. Currently, the commercial real estate statewide has been crippled by skyrocketing insurance premiums, significantly declining appetites for condominium conversions and the evaporation of South Florida exchange buyers. While the majority of the market’s reaction has been hesitant and uncertain, some investors have been able to adapt and capitalize on newly created opportunities.

During the first quarter of this year, owners of multifamily assets saw insurance premiums double to quadruple with the majority of this increase due to windstorm coverage. Typical insurance rates now run from approximately $550 per unit per year on Class C assets to upwards (and higher) than $1,500 per unit per year on Class A assets. Only institutional grade owners, with large geographically diversified portfolios, appear to have weathered this crisis with minimal changes.

Condo conversions in northeast Florida have slowed significantly, particularly on older Class B and C assets. Many conversions that got their start late last year and early this year faltered during the spring and summer. Projects that are in the sales phase are getting creative to attract buyers; many are offering significant free upgrades, advertising lease-to-own options, or lowering their pricing significantly to gain the necessary momentum required to close a project out.

South Florida buyers once overwhelmed the northeast Florida market but disappeared overnight as their own markets experienced a lull. This change affected Class C multifamily assets the most, as these south Florida buyers were most often trading up in units in an effort to protect significant gains from being taxed. Acquisitions of  A- and B+ assets remained strong with market rate buyers seeking to reposition properties to fill the void created by luxury rentals that went to condo.

The rental market in northeast Florida tightened during the first quarter of this year and has remained strong through the remainder of the year. Virtually all owners have had to pass on some of their increased insurance premiums while absorbing the remainder. A minority of owners were able to profit in this rising insurance market due to in place policies that did not renew until late in the year.

Despite the setbacks in the overall Florida market during this year, the outlook for northeast Florida looks promising for next year. The area continues to attract quality economic development and boasts an unemployment rate well below the national average. Buyers and sellers will be looking forward to the insurance rate adjustments scheduled to post in January and, barring similar increases, most current owners will survive. Sales velocity should increase as buyers ease back into the market and look for new development to continue to sprout up all across Jacksonville.

— Christopher Yeagle is a Florida broker/investment advisor in the Jacksonville, Florida, office of Southeast Apartment Partners.

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