SOUTHEAST SNAPSHOT, MAY 2007

Jacksonville Industrial Market

After years of moderately-paced growth, Jacksonville’s industrial real estate market now is poised for stronger activity as the city awaits the anticipated ripple effect from the development of a new 130-acre container terminal for Mitsui O.S.K. Lines (MOL) on Jacksonville Port Authority property. MOL is the first carrier to provide direct container cargo service between Jacksonville and Asia. Set to open in 2008, the terminal is expected to create several thousand new jobs and drive demand for new warehouse and distribution facilities.

 The Jacksonville industrial market now totals more than 100 million square feet of space, as reported by the CoStar Group, with most of that devoted to warehouse product. Only 7 million square feet is designated as flex space. More than 35 million square feet of the total inventory is owner-occupied.

The vacancy rate in Jacksonville warehouses continues to improve. Warehouse vacancy rates were 4.7 percent at the end of first quarter of this year, down from 5.1 percent at the end of last year. This continues a gradual trend in decline in vacancy rates that begin in early 2001 when they hit approximately 10 percent.

Improvement in the city’s warehouse vacancy rate from year end can be partially attributed to a modest number of new buildings coming online during the first quarter of this year. Only 64,633 square feet was delivered during the quarter, well below Jacksonville’s historical average.

But the pace of new construction, again thanks to the arrival of the new MOL terminal, is picking up. Currently 1.7 million square feet of space is under construction and is expected to be complete within the next 12 months.

Also, during the first quarter of the year, net absorption was 406,526 square feet – consistent with the near term historical average.

Warehouse rental rates in new construction have slowly improved to the $4 to $4.25 per square foot range for large users and almost $5 for smaller tenants according to a recent survey conducted by NAI Realvest. These rates, some of the lowest in Florida, will come under pressure and most likely rise because of limited supply and increasing development costs, especially for land and construction.

A recent lease by National Distribution Centers LP for 222,075 square feet with Majestic Realty, near the Jacksonville International Airport, is representative of the emerging trend of larger users in the marketplace. Prospects in excess of 100,000 square feet are becoming more frequent and are beginning to replace the more traditional 30,000- to 50,000-square-foot user. 

Developers such as Pattillo Construction, with established industrial parks and a construction pipeline, are well-positioned to meet the growing demand of this larger tenant market.  With two blocks of available space in excess of 100,000 square feet in Westside Industrial Park and 400,000 square feet available this year in Northpoint, Pattillo is one of the few landlords able to satisfy large facility requirements in the near term. Available inventory, a development pipeline, and fully entitled sites will be determining factors in capturing early demand from the opening of the MOL Terminal.

Conversely, industrial REITS and super-regional development companies are scouring the northside submarket near the JaxPort facilities and the traditional Interstate 10 corridor to the west attempting to identify developable land for industrial use. Though well-capitalized and capable, these firms are facing a dwindling supply and rising cost of industrial land for new development. Competition from residential use and environmental considerations such as wetlands are limiting factors in the availability of industrial land in the preferred submarkets.

Texas-based Jackson-Shaw, developer of Jacksonville International Tradeport, recently announced the pending acquisition of 1,225 acres of land for speculative industrial development along I-10 in Baker County, just west of Jacksonville. Though it will require years of pre-development, this project could anchor the I-10 corridor in the future and signify the expansion of our industrial base over a much larger geographic area.

Trends of strong demand, increased prospect size, and soon to be rising rental rates in Jacksonville, should encourage existing landlords. While developers within established parks, though poised to benefit from the demand generated by MOL, are wary of overbuilding. Meanwhile, real estate companies just entering the Jacksonville market must be willing to expand their search for developable land and be willing to accept a long-term investment strategy.

— Bill Mason is senior vice president of NAI Realvest in Jacksonville, Florida


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