Office development in Jacksonville, Florida, is currently at a standstill, according to Chip Lilley, Flagler Development Company's senior vice president and regional development manager for North and Central Florida. "Absorption turned negative last year based on the slowing economy and consolidation within the existing tenant base," he says. "Vacancy is high and there is a significant amount of sublease space on the market. In the last several months, activity in the office market has increased but new deals are being finalized at terms below landlords' original underwriting."

Lilley notes that the lack of activity has stifled speculative development, and he expects this to continue for quite some time.

"Current development is driven by pre-leasing and build-to-suits," he says. "Existing users attempting to expand are moving into pre-leased larger buildings or build-to-suits and returning substantial second-generation space to the market."

Recent major pre-leases include a 60,000-square-foot lease signed by Reynolds Smith & Hills in two buildings that total 180,000 square feet. TNT Logistics has pre-leased 60,000 square feet in a 90,000-square-foot building and St. Joe will take 35,000 square feet in a 130,000-square-foot building on Riverside Avenue.

Other recent activity has been driven by financial services and healthcare industries, according to Lilley. Option One Mortgage Corporation has signed a 69,000-square-foot lease at Gran Park at Deerwood North, on the corner of Touchton Road and Gate Parkway. Vistakon has agreed to take a large block of space in the Bank of America building on Centurion Parkway, and Allstate has signed a lease for 24,000 square feet at Gran Park Jacksonville.

The majority of new development is taking place in the southern suburban markets, particularly Deerwood and Southpoint. Lilley attributes the development in these areas to proximity to the growing southside residential base, proximity to the major transportation arteries, including Interstate 95, Butler Boulevard and Highway 9A, and prevalence of choices within master-planned office parks offering an abundance of amenities and support services.

He also notes that areas further south, such as southern Duval County and northern St. John's County, are beginning to gain momentum. "In the near term, new office development will primarily occur in the Deerwood submarket. Longer term, look for new development to travel south along Interstate 95 (Southern Duval and Northern St. John's County), as Flagler Development Company builds a new interchange at the interstate and St. Augustine Road."

He adds, "Positive gross absorption will continue to be driven by new tenants moving into Jacksonville. Net absorption will remain uncertain and perhaps anemic in the short term until the existing tenant base completes its recession-driven consolidation."

Rental rates for Class A office space can go as high as $22 per square foot in the downtown market. Butler Corridor rates are currently peaking around $19 per square foot, and Beaches rates are as high as $25 in some areas. The vacancy rate in Jacksonville is in the mid to high teens. If available sublease space is included in the calculation the rate could be as high as 20 to 25 percent.

Major developers in the Jacksonville area include Flagler Development Company, Liberty Property Trust, St. Joe Commercial, Hallmark Partners and Phillips & Company.

Chip Lilley serves as senior vice presient and regional development manager - North and Central Florida with Flagler Development Company.


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