SOUTHEAST SNAPSHOT, FEBRUARY 2007

Jacksonville, Florida Retail Market

Jacksonville’s population growth and expanding economy have proven to rival other Florida metros. Retailers are looking to capture a share of the estimated 5.4 percent growth in retail sales this year, one of the highest rates in the nation. In St. Johns County, an area experiencing significant residential growth, retail construction is highlighted by the St. Johns Town Center. Completion of the 180,000-square-foot high-end second phase this fall is expected to attract national brands, including potential tenants Macy’s and Nordstrom. Development and investment opportunities have been further heightened by the recent refusal of local voters to return Cecil Field in the Southwest Duval/Northern Clay submarket to military use. This 23,000-acre site will now be accessible to private development, spurring accelerated residential, retail and commercial construction. Growth in Jacksonville will also be supported by infrastructure improvements, including the completion of the Interstate 295 loop in early 2009.

Overall, the retail inventory is forecast to increase by 3.5 percent this year with the addition of 2 million square feet of new space. Last year, developers delivered 2.8 million square feet. As a result, retail vacancy is forecast to edge higher due to 3 consecutive years of healthy construction. Overall, the vacancy rate is expected to increase 30 basis points to 7.3 percent this year, following an 80 basis point climb last year. Despite the upturn in vacancy, demand for retail space in the bustling Jacksonville market will push the average asking rent to 4.2 percent. By year’s end, the asking rent is expected to hit $16.03 per square foot. Owners will begin to make some progress in reducing incentives by year’s end, with effective rent growth expected to reach 4.5 percent.

Turning to the investment sales market, interest in the Jacksonville area is expected to remain steady again this year, as owners build on last year’s impressive rent gains and insurance costs become less of a barrier to closing deals. With average cap rates in the mid- to high-7 percent range, up to 50 basis points higher than other Florida markets, both local and out-of-state investors can find opportunities throughout the metro. But expect in-state buyers to drive investment activity, primarily in the suburban growth areas. Additionally, opportunities may be found in the Beaches submarket, where new legislation is helping to upgrade local infrastructure. Beyond the growing suburbs, some investors are expected to look at value-add and redevelopment deals in the city center, where condo construction is increasing population density and foot traffic. Redevelopment of the 1970s-era Mandarin Landing, for example, recently attracted the metro’s first Whole Foods grocery store, which is expected to open in 2008.

As the regional economy continues to improve, Jacksonville metro properties will attract all types of retail investors, given the sector’s solid operating fundamentals and relatively high cap rates. Furthermore, a reduction in incentives by area landlords and a substantial increase in effective rent growth will draw even more investors to one of Florida’s most promising retail markets in 2007.

— Steven M. Ekovich is vice president and regional manager of Marcus & Millichap’s Jacksonville, Florida, office.


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