Jacksonville’s office, industrial and retail markets continued responding to the effects of the COVID-19 pandemic at year-end that had sidelined some of the industries since the shutdowns in March. Some sectors fared better than others.
Office tenants generally were at the mercy of COVID-19 in the last quarter of 2020, making their leasing decisions during the uncertainty of when vaccines would return a sense of normalcy and allow them to settle into a more predictable use of space.
Overall vacancy rates were slightly higher from midyear, as were average rental rates, although prices fluctuate depending on the area.
Employers sent many workers home to work remotely after the pandemic shutdowns in March.
“The Jacksonville office market has not fluctuated much since the end of the first quarter,” wrote CBRE in its Q4 2020 Marketview report.
“Tenants continue a wait and see approach until they decide what their office space needs will be going forward.”
Colliers International said in its Q4 2020 Market Snapshot that the office market has been challenging for most of 2020. “Almost every tenant in the market is reevaluating its space needs and some are eliminating their offices completely,” it said.
That led to some large tenants, such as Florida Blue, State Farm and OneCall, to vacate some of their office space and make it available for sublease.
“It is still too early to determine the long-term impact on the office market,” said NAI Hallmark in its Q4 2020 Market Report.
Some tenants did move and expand, such as Freedom Mortgage and The CSI Companies, and there are a few speculative office buildings on the market.
Cushman & Wakefield said in its Q4 Marketbeat that leasing activity slowed in the last half, while new leasing activity focused on older Class B buildings.
Avison Young said in its Office Market Report that new developments are expected to focus on flexible design to incorporate wellness and/or provide a mixed-use element to create a “livable” workspace.
And a bright spot: “Large blocks could service corporate relocations as companies migrate to Florida from high-tax states,” said JLL in its Q4 2020 Office Insight.
Average industrial vacancy rates generally tightened in Northeast Florida from midyear, although some areas experienced increases as more warehouses and distribution centers opened.
That caused average lease rates to drop as well, although those have been rising in recent years.
“Jacksonville’s industrial market finished 2020 much the same way it started the year: with tremendous demand, limited supply of modern space and high rents,” said Colliers International in its Q4 2020 Market Snapshot.
Cushman & Wakefield said in its Q4 2020 Marketbeat that as a major distribution hub, the bulk of the area’s new leasing was in warehouse-distribution.
“In 2020, Jacksonville remained a hot build-to-suit market for e-commerce companies that wanted a location that could service Florida as well as parts of the Southeast,” it said.
Most of the new leasing and construction are in North Jacksonville, which led to one of the higher vacancy rates as new warehouses hit the market, it said.
CBRE said in its Q4 2020 Marketview report that more than 2.2 million square feet of new construction was completed in 2020. It also said that of the 4 million square feet of speculative constructions completed since 2019, more than 3 million has been leased.
Big tenants include Amazon.com, Ulta Beauty, Margo State Line and Samsonite.
More tenants are on the way. “A diverse set of tenants continues to show interest in the market for its connectivity to the southeast United States, active shipping port and relative discount to other markets,” said JLL in its Q4 Industrial Insight.
NAI Hallmark said in its Q4 2020 Industrial Market Report that while most recent projects focused on single-tenant, big-box buildings, there is a lack of supply for small-bay warehouses.
“Small scale development is very limited,” Colliers said of 20,000-50,000-square-foot spaces.
Retailing’s future looks better now than it did in March, although the average vacancy rate is higher than it was midyear.
March was when COVID-19 shut down the economy, hitting the retail industry particularly hard with mandated safety protocols in the face-to-face part of the industry.
“We went into 2020 seeing some of the highest rents, new construction starts, and sales volumes by retailers, anticipating 2020 being a banner year for the industry,” said Carrie Smith, managing director of retail for Franklin Street.
“And things were looking that way until March, when there was a literal stop on deals for a couple of months.”
The deals are picking up.
“Jacksonville’s retail market is showing signs of life that (belie) the headline numbers,” said Colliers International in its Q4 Market Snapshot.
Colliers said quick-service restaurants, grocers and automotive, gas and boutique fitness users are active.
Their common thread is sales growth and capitalization, meaning owners are taking the opportunity to expand their market shares.
NAI Hallmark said in its Q4 2020 Market Report that Dollar General and hardware stores, such as Ace Hardware, have been expanding.
Smith believes the closed Stein Mart stores are in strong retail areas and could become supermarkets, home improvement stores, home décor retailers and fitness centers.
Larger boxes, like closed J.C. Penney Co. and Sears stores, typically are in malls and could be taken down for development of apartments, town houses or office use; reused as e-commerce distribution centers; or backfilled with one or two retailers like Target.
Rooms To Go bought the former Toys R Us property in The Markets at Town Center.
The commercial real estate reports said Northeast Florida’s strongest geographic retail markets are the St. Johns Town Center, Beaches, San Marco, Riverside/Brooklyn and Oakleaf areas and Northern St. Johns County, including World Golf Village, Beachwalk and RiverTown.
“North St. Johns County remains heavily sought after for almost all retailers and restaurants,” Smith said.
Colliers forecasts increased leasing interest.
“Retailer fallout from the pandemic is not likely over as many are still relying on assistance programs and reserves,” it said.
However, “leasing activity should continue to accelerate into the summer, returning to a more normal leasing environment in the second half of the year.”
