SOUTHEAST SNAPSHOT, OCTOBER 2006

Jackson, Mississippi Office Market

The downtown Jackson office market has been primarily driven by expansions of large law firms and relocations of small businesses from other cities. The downtown office occupancy rate has hovered around 90 percent since 2003. The state of Mississippi has been consolidating employees into downtown Jackson and building grand civic architecture to house them. A new archives and history building has opened along with a new home for the Public Employees Retirement System. A new Supreme Court building that compliments the Capitol Building and a renovation of the Sillers State Office Building are both nearing completion. Ground was broken in August for a new Federal Courthouse and Office Building. A new Mississippi History Museum is also being planned.

In the past 2 years, four properties have been renovated and repositioned in the market. The two former Skytel headquarters buildings were renovated and a 517-space parking garage was added. This 266,000-square-foot property now exceeds 90 percent occupancy due to an aggressive leasing strategy by Parkway Properties. The former Magnolia Federal Bank Building was purchased by State Street Group from Regions Bank. Following extensive exterior changes, the six-story building was successfully leased to 96 percent occupancy.

Electric 308 represents a superb historic restoration project. Duckworth Realty renovated the building and added a small addition. This mixed-use project now provides more than 80,000 square feet of commercial space occupied by Entergy Mississippi and JBHM Architects as well as 14 luxury apartment units. The Plaza building followed a similar model. Peters Real Estate acquired the building following a foreclosure, built 15 apartments in the upper three floors and fully leased the remainder of the building as office space with three restaurants on the ground floor.

A trend in smaller, owner-occupied projects has also emerged downtown. IMS Engineering, Tatum & Wade, and Harrison Flowers have purchased and renovated vacant buildings for their offices.

Four new office buildings have been proposed downtown. These proposals are in response to multiple large tenants indicating that they would be interested in remaining in the downtown submarket, but only if they have new Class A office space. As decisions are made by these tenants, only one of these proposals will likely come to fruition in the short term. However, most prospective developers are bullish on the market as it relates to new product for the long term.

Tourism and convention facilities are driving decisions as well. Sixteen new restaurants have recently opened bringing the total number of dining options in the core of downtown to 40. The 74,000-square-foot Telecommunications Conference and Training Center has opened as Phase I of the larger Capital City Convention Center. Phase II will begin construction this fall followed by work on the Farish Street entertainment district.

Average rental rates in downtown for Class A office space are around $17.25. However, new building rents will soon push that figure higher. New building rates in the submarket are likely to range from $21 to $27 per square foot.

Downtown Jackson has been extremely fortunate when it comes to vacancy rates. After suffering a few defections of brokerage companies to suburban submarkets, most of the space has been rapidly absorbed by expansions and new businesses to the Jackson market. The downtown submarket consistently fluctuates between 88 and 92 percent with the market being just below 90 percent occupied today. This number will change during the next 2 years. New product being built downtown will take tenants out of existing buildings and other companies will be relocating into single-tenant properties outside the area. When the shakeup is complete, downtown will likely have more occupied space than it does today, but it will come at the expense of older buildings.

Many see this as an opportunity. Downtown Jackson has had limited properties with large blocks of contiguous space to market to new prospects. Area economic development professionals are looking forward to entertaining companies searching for Mississippi addresses. Jackson has been actively trying to reposition downtown Jackson as a neighborhood and an entertainment destination. This has been done in partnership with many of the existing downtown firms in order to create an environment more conducive to their needs. As well, companies that have traditionally been priced out of the market may now start to see opportunities in buildings that have lost tenants to new construction.

— John Lawrence is president of Downtown Jackson Partners in Jackson, Mississippi. 

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