SOUTHEAST SNAPSHOT, MAY 2010

Jacksonville Industrial Market

The Jacksonville industrial market has seen 1.38 million square feet added in 2009. Vacancy stands at approximately 7.42 million square feet out of the market’s total square footage of 70.72 million. In 2009, we showed a positive absorption of 709,000 square feet. Rents slid slightly over the last two years to $4.06 per square foot. Some companies have been contracting, which has caused them to have leased space that is under-utilized. The speed of the market recovery will determine when and where these tenants move to and at what price. Market pressure has pushed tenants from Class A space. There now is an abundance of distribution space in the neighborhood of the port area, where significant Jacksonville Port Authority expansion activities were slowed by the recession. Facilities there remain available for leasing, which has occurred on a limited basis.

The good news is that the Jacksonville Port Authority has reported an increase in overall cargo — from 700,000 to 750,000 containers. However, the port’s auto cargo has decreased from 650,000 in 2008 to 420,000 in 2009, but it is slowly recovering. The primary export market for the Jacksonville Port is Puerto Rico, and the primary importer is Colombia. We are seeing new activity with Mitsui, which is currently bringing in two ships regularly and recently added a third ship on a weekly basis serving Vietnam, Singapore and South China— all new markets for the port. The Mitsui expansion should increase to five ships weekly over the next year or two, and additional carriers will arrive at the port through the Suez Canal.

Moving from sea to air, the Jacksonville Airport Authority has filled all of the existing buildings in the Airport area of Cecil Commerce Center. A new Interstate 10 link is now open and creating a fresh and attractive window to the park. Development land also has received infrastructure, preliminary site work, and it is ready for use. Recent new arrivals include Boeing, which has a military aircraft refitting facility; Bridgestone Tires; and Saft, which has received a major grant and is building a facility to produce lithium ion batteries.

This good news at Cecil Commerce Center is muted by the high level of frustration among owners, developers and brokers regarding the response to the RFP issued by the Jacksonville EDC and the subsequent selection of Hillwood, a well-respected Texas developer. The problems pointed out are those timing and value. The industrial community believes the improvements and the synergy of investments in the Cecil Commerce Center are not being recognized for their value. The numbers that are being negotiated based on unrecognized improvements in a very down market. Why do a long-term deal on a down-market basis? This has left many veterans very frustrated with the City and its Authorities.

In the broader market, Bob Buckmaster from Prudential Commercial Realty reports buying activity and traffic have picked up. The keys to landing this activity are SBA loans for user-occupants, and seller financing. Still, many sellers are not realistic the amount of property available in the market, which is affecting their perception of pricing. In these situations, creative ways to reduce risk and close the gap are helpful to both sides. Bob Selton of Colliers and other agents are reporting good activity in the leasing area. If you are a tenant looking at the market today, you should find a good agent who will guide you through all steps of the leasing process, including finding available listings, researching market data, establishing leasing criteria and sorting through the best alternatives based on these criteria. An agent can make sure the facility accommodates you now and is best for your business over the next 3 to 5 years.

Jacksonville is still a good market due to its excellent marketing by the Chamber of Commerce and Aviation Authority; as well as its multi-modal infrastructure, which includes three major railroads, the I-10 and I-95 Interstate corridors, and the surrounding beltway systems. Jacksonville will continue to work its way out of the recession and will probably the lead the recovery in Florida. With 8.5 to 9.3 percent vacancy rates and some positive activity underway, things are brighter for the industrial sector. The keys to market improvement will be the speed of recovery and whether tenants at the end of leases will renew or relocate elsewhere in the market. It is a great time for landlords to be proactive and for tenants to seek the right property on the right terms.

— James F. Morgan,  CCIM, is a managing director with Sperry Van Ness- Investec Services in Jacksonville.

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