SOUTHEAST SNAPSHOT, MAY 2008

Jacksonville Industrial Market

Jacksonville continues to redefine itself as a top tier distribution hub for the Southeast, despite the slowing national economy and housing market correction that swept across Florida last year. Asking rental rates are mostly stable across the board, remaining well above the $4.50 per square foot mark achieved in 2005. Vacancy rates remain under 5 percent and absorption for the first quarter was 724,282 square feet, even as deal velocity slowed when companies put expansion plans on hold. In Jacksonville, companies continue to lease space, build their own buildings or purchase existing buildings with an eye on rising development costs and the increasing benefits of the location. The intersection of highways, rail, air and sea ports allow products to be distributed to every major city in the Southeast. The expansion of the port to include service to the Far East, which complements its main shipping lines to Latin America and the Caribbean, will be a boon for the city as a whole and the industrial market in particular. Investors have already taken notice. There was not much product that hit the market last year, but those that did were heavily bid on. 

More distribution companies are expanding or opening facilities in Jacksonville and discovering what locals have known all along, Jacksonville is ideal for distribution. JAXPORT, the full-service trade seaport, is expanding its operations and adding new trade lanes. Japanese shipping company Mitsui O.S.K. Lines is building a container terminal in Jacksonville to offer East Coast service to Asia, and this has spurned great interest in industrial space. Another carrier, Korean-based Hanjin, is negotiating to build its own terminal to offer a similar Far East service. With the addition of these two carriers, Jacksonville has a direct link to China, Japan and the Korean Peninsula. As a result, the amount of containerized cargo is expected to triple by the year 2011. “Jacksonville has  the  transportation infrastructure to allow products to move from the manufacturer to the end user. Now the city has the opportunity to become the second-largest container port on the East Coast,” says Terrell R. Quarterman, first vice president of CB Richard Ellis in Jacksonville. “This will create thousands of warehousing and light assembly jobs and have a tremendous impact on the local economy.”

The port’s expansion and new service lines contribute to the increase in attention national industrial developers are paying to Jacksonville. Many developers entered the market and bought large pieces of industrial land to develop into industrial parks. These developers are banking on the increase in port activity translating into a need for warehouse space. The strong demand for industrial land caused prices to triple and in some cases quadruple in the past 2 years. Industrial land held onto these gains last year while other types of land were discounted significantly and residentially-zoned land rezoned for industrial use. National developers Hillwood Investment Properties, Pro-Logis, Cabot Properties, Trammell Crow Company and Johnson Development closed on large parcels in the past year. Plans for new industrial parks include warehouse buildings ranging in size from 100,000 square feet to 1 million square feet.

While across the country the industrial market activity may look like it slowed down, this cannot be said for Jacksonville. The lack of quality product to be absorbed has been minimal, and Jacksonville is now seeing a development cycle for new industrial buildings. The industrial vacancy has remained close to 5 percent for the past seven quarters and Class A product tends to lease quickly. Only older functionally-obsolete buildings sit idle. “The Jacksonville industrial market is poised to grow by 50 million square feet during the next 10 years, as long as the city continues to provide the critical infrastructure needed for today’s supply chain,” Quarterman says. “Typical asking rental rates for large Class A warehouse space top the $4 per square foot, triple net mark  and rates closer to the port are nearer to $5 per square foot.”

This year the real story is the more than 4 million square feet of build-to-suit projects under construction, including projects for national tenants such as Bridgestone/Firestone, Sears, Samsonite, Unilever and Volkswagen of North America. Along with the build-to-suits, there is more than 2.9 million square feet of speculative warehouse development under construction by developers, including Hillwood Investment Properties, Majestic Realty Co., Pattillo Construction, Jackson-Shaw, Graham & Company, Johnson Development and Pro-Logis. With higher land prices and construction costs, rental rates are at all time highs. 

Companies increasingly look to Jacksonville as an East Coast distribution alternative, since every major market in the Southeast can be reached within an eight-hour drive. Because of this and the port expansion, Jacksonville is emerging as one of the major players in the supply chain network for the southeastern part of the United States.

— Jeffrey H. Nelson is a senior associate at CB Richard Ellis in Jacksonville, Florida.

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