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Jax Daily Record Friday, Jan. 5, 201808:15 AM EST

Tight industrial market drives speculative projects

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Vacancy rate below 5 percent and rising rental rates attract attention.

In a tight Northeast Florida industrial market, more than 1.5 million square feet of industrial space is proposed in north and west Jacksonville, two of the primary areas for

distribution centers.

Industrial vacancy rates dropped below 5 percent. Analysts say strong economic growth, especially with e-commerce businesses, will continue to support speculative warehouse construction.

Also, at an estimated $50 a square feet, the projects represent an investment topping $75 million. 

No tenants are confirmed, although it’s likely that some construction won’t start until a lease is signed.

Luke Pope, senior vice president with the JLL real estate group, said Jacksonville’s Westside is one of the tightest industrial submarkets in the Southeast. 

He said the vacancy rate for any industrial product constructed in the last 30 years on the Westside is less than 2 percent and most of that can be attributed to Hillwood’s most recent speculative facility at Cecil Commerce Center. 

Hillwood, the master developer at the city-owned Cecil Commerce Center, completed a 407,435-square-foot speculative warehouse.

The city’s unidentified “Project Volt” intends to lease it as well as another large warehouse in North Jacksonville, further tightening the market.

There definitely is room for more.

“This combination of increased demand and lack of new construction has naturally led us to where we are now,” said Pope, who specializes in supply chain and logistics solutions.

“It is hard to find a market anywhere of this size that is at this stage of the development cycle. Rental rates are trending up to a point where speculative projects pencil out and developers are taking notice,” he said.

Analyst research shows average rental rates are rising for industrial properties. 

For example, Cushman & Wakefield reported the third-quarter average asking rental rate rose from $4.34 per square foot in 2016 to $4.98 in 2017.

Two proposed at 200,000 square feet or more

Among the latest projects to surface, developers plan two warehouses topping 200,000 square feet each.

The St. Johns River Water Management District is reviewing plans for each – one for Johnson Development Associates Inc. and another for Jackson-Shaw.

The district said it will issue a permit for Johnson Development Associates Inc. of Spartanburg, South Carolina.

The 230,000-square-foot project is proposed on 18 acres at 9779 Pritchard Road in Westlake Industrial Park. A grading and drainage plan shows a specific 226,740-square-foot concrete and steel building.

Johnson Development applied for a modification to an environmental resource permit for what it calls the Westlake Industrial Park II warehouse. Adkinson Engineering is the engineering consultant.

Johnson Development owns the property through Jacksonville Industrial Properties 80 LLC. 

The proposed site is next to the 546,000-square-foot Westlake Industrial Park I that Johnson Development built in 2008-09 and sold in 2013 to Exeter Property Group of Pennsylvania for almost $26.5 million. It is leased to Georgia-Pacific.

Josh Jones, director of real estate, said Johnson Development is working on designs and seeking permits so it can evaluate whether it wants to proceed with construction.

“At this point it would be speculative and we are not certain that the numbers work to justify it yet,” he said.

He said Johnson Development would like a single tenant but the building could be used for multiple tenants.

“The recent market activity in Jacksonville has indicated that it’s at least worth considering speculative development,” Jones said.

“But the numbers are going to have to make sense and we are analyzing market conditions and construction costs and what the return will be,” he said.

Jones anticipates it will be 30 to 60 days for that analysis. “After that we will have a better feel for whether or not we will move forward,” he said.

In the Jacksonville International Tradeport in North Jacksonville, Dallas-based Jackson-Shaw proposes a 200,000-square-foot warehouse on 16.25 acres at Airport Road and International Airport Boulevard.

Michele Wheeler, president and COO of Jackson-Shaw, said construction is expected to begin this month on the speculative multitenant building with a projected eight-month construction timeline.

Rick Haskew with Haskew Co. Inc. is the applicant. AVA Engineers Inc. is the civil engineer. The city also is reviewing plans.

Jackson-Shaw is a veteran North Jacksonville industrial developer

It developed Creekside at Jacksonville International Tradeport, comprising three buildings totaling 334,000 square feet on 25 acres, and developed a 127,000-square-foot building for Ecolab. 

Last year, Jackson-Shaw completed two buildings – International 3 and 4 – comprising 178,000 square feet. One was leased for an Ecolab expansion and the other to Benco Dental Supply Co.

As of December 2016, Jackson-Shaw said it had four tracts for build-to-suit opportunities.

In addition to the tracts planned for International 3 and 4, it had parcels of 15.6 and 7.7 acres.

Six more already under review

Among other projects that previously surfaced:

In North Jacksonville, the Water Management District and the city are reviewing plans for Industrial Park Investments Inc. to build a 140,790-square-foot distribution center.

Daniel Webb, president of Orlando-based Industrial Park Investments, said in October the company intended to start construction in the first quarter on the speculative center at 10531 Busch Drive N. at Imeson International Industrial Park.

The project is planned on about 11 acres at Busch Drive and Whittaker Road. EnVision Design + Engineering LLC is the agent and civil engineer.

Plans filed with the city show the building has 36 loading dock bays, 159 automobile parking spaces and 45 trailer parking spaces.

The city is reviewing a permit application for the project at a construction cost of $4.4 million.

Plans show a potential building expansion.

Not far from Imeson, developer Bill Spinner, through Port Jax II LLC, bought 8.91 acres in the summer for construction of a 120,000-square-foot industrial building at 10350 Alta Drive near his group’s 500,000-square-foot Port Jax Trade Center.

Spinner said he plans to complete the structure in the first quarter for lease.  It will be built and marketed initially as a build-to-suit. If no anchor tenant initially signs, it will be marketed as a speculative structure.

Spinner also plans to develop an 80,000-square-foot building at 10751 Alta Drive, which will be the final bulk-size building in Port Jax Trade Center.

In West Jacksonville, Pattillo Industrial Real Estate said in October it expected to start construction on a $10 million speculative warehouse at Westside Industrial Park.

The 240,000-square-foot project is planned at 6282 Imeson Road. Plans initially were approved in August 2016 but no permits were sought. Pattillo expanded the size of the project and wants to start work upon permitting.

Pattillo Senior Vice President Peter Anderson said the market is positive “and we have had good activity on the few properties we have available.”

Pattillo also is considering a 163,000-square-foot warehouse on 13.6 acres in NorthPoint Industrial Park.

Stone Mountain Industrial Park Inc., affiliated with Pattillo, proposes the NorthPoint building, which is shown in plans as Building 12A, on 13.6 acres at New Berlin Road and Port Jacksonville Parkway.

A site plan filed with the city Concurrency Management System Office shows a potential 54,000-square-foot expansion.

In Northwest Jacksonville, Lake Washington Partners proposes to develop a large cross-dock facility along New Kings Road. 

The city issued a Concurrency Reservation Certificate for Lake Washington Partners to develop a 373,650-square-foot center at 10940 New Kings Road, north of Interstate 295. 

As of early December, there was no executed lease for the center.

Lake Washington Partners, based near Seattle, bought the land in 2012. 

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