by Mike Sharkey
Staff Writer
Top 10 |
El Paso, Tex.
Fresno, Calif.
Bakersfield, Calif.
Los Angeles
Norfolk, Va.
Orange County, Calif.
Birmingham
Honolulu
Miami
New York City
Bottom 10
New Orleans
Stamford, Conn.
Jacksonville
Columbus, Ohio
Las Vegas
Raleigh, N.C.
Dallas
Pittsburgh
Hartford, Conn.
Austin, Tex.The latest report from Moody’s Investors Services shows Jacksonville has one of the worst performing central business districts for commercial real estate in the country. With a score of 26 out of a possible 100, Jacksonville ranks ahead of only Dallas (which scored a 1) and Hartford, Conn. (which scored a 14). Even more disturbing may be Jacksonville’s overall score of 41, giving the city a ranking of 66 out of 68 cities, ahead of only Stamford, Conn. (39) and New Orleans (6).
The report is Moody’s quarterly Red-Yellow-Green report and the current data is from the third quarter of 2004.
According to the 32-page report, the ratings gauge “the well being of markets for commercial real estate that supports commercial mortgage backed securities.”
There are seven criteria used to calculate a city’s score: multifamily housing, retail, central business district, suburban office space, industrial space, limited-service hotels and full-service hotels.
The quarterly report’s findings don’t surprise Jim Citrano, president of CB Richard Ellis, but he said the report must be evaluated from more than one angle.
“We had our best year ever in 2004,” said Citrano, adding that the current situation in the Jacksonville CBD is really a matter of perspective. “If you own a building, it’s not a good market. There is a lack of rent growth and a lack of job growth downtown.”
Moody’s is a leading provider of independent credit ratings, research and financial information to capital markets all over the world with offices in New York, Tokyo, London, Hong Kong, Paris and Sydney. The company has been in existence since 1900 and focuses on corporate finance, baking, managed funds and risk management.
Bob Rhodes, chairman of the Downtown Development Authority and an attorney with Foley & Lardner, said he sees downtown in a different light. Despite the numbers, Rhodes believes there are plenty of reasons to look on the bright side.
“There is certainly a basis optimism and there are steps in place for improvement,” said Rhodes, who is also a member of the Jacksonville Economic Development Commission. “The parking situation is being addressed and two near garages will be open soon. Buildings are being completed that preempted downtown parking.
“The JEDC is working on a strategic plan that provides incentives to areas in the downtown core. These things send a signal to those looking to build or operate downtown that this is where our priorities are.”
Rhodes also said the recent Super Bowl will eventually pay off. However, he noted that some of the expected influx to downtown will actually come from right here in Jacksonville.
“During Super Bowl, we reintroduced the people of Jacksonville to downtown,”said Rhodes. “There is a lot of buzz outside of Jacksonville, but lots of people were exposed to downtown who hadn’t come downtown or paid attention to downtown in a long time. There is more internal buzz about downtown within Jacksonville than outside. There are many businesses that have rediscovered downtown Jacksonville.”
Sally Gordon, vice president and senior credit officer for Moody’s, said the report is an assessment of a city’s overall residential and commercial real estate health. The rating derived by Moody’s allows investors to better evaluate cities and whether or not they are currently a good investment. In Jacksonville’s case, the biggest issue is that the vacancy rate exceeds demand, a trend that has been going on for a few years.
“In Jacksonville, the vacancy rate in the CBD has increased over the past year 5 percent to 20.7 percent,” explained Gordon. “That’s one of the largest increases in the country.”
It could be worse, says Gordon. Dallas ranks last with a vacancy rate in its CBD of 32.5 percent and is the only CBD district in the country with a vacancy rate above 30 percent.
The local numbers, both downtown and in the outlying business districts, support the Moody’s report contention that consumer real estate-driven properties, such as apartments and shopping centers, are thriving across the country while corporate-driven segments, such as office and industrial, continue to lag. This is certainly evident in Jacksonville where the new St. Johns Town Center opened over the weekend in an area of Jacksonville that has seen a virtual explosion of residential growth over the past five years.
Gordon said the biggest obstacle facing downtown Jacksonville is one of the basic theorems of economics: right now, the supply of available commercial office space exceeds demand. Unfortunately, until a few major corporations either move to downtown Jacksonville or open substantial branch offices in the CBD, that trend may continue for years.
The problem, said Gordon, is that property values are still going up which is forcing property owners to raise rents in order to pay property taxes. Those higher rents, conversely, are forcing companies to look outside the CBD for office space and available parking for both employees and customers, hence the growth of areas such as Southpoint and the glut of commercial space downtown.
Citrano says the Super Bowl will surely have a positive affect, but the true benefits may not be seen for a few years. Like many others, Citrano believes the game exposed the city to a percentage of the population that didn’t know Jacksonville is a viable commercial market with affordable housing, a thriving port, a strong job market and terrific natural amenities.
“The Super Bowl changed all that, but the affect comes in time,” said Citrano. “The real estate clock moves at a slower rate than you think. The industrial market is good and growing; the commercial market is not. Rent growth and vacancies are both lagging and they could be better.”
Gordon said, ironically, that growth across the entire Jacksonville commercial market will actually benefit downtown. As companies relocate to or expand in Jacksonville, they will look at any and all available commercial property. As outlying offices fill, companies will look once again at the central business district.
Also, Gordon explained the report is not necessarily a report card on a city’s commercial property health (although it could certainly be used as one,) but rather a tool that investors can use to gauge the current or potential success of a city’s CBD.
“This is an informational report meant to contribute to transparency in the bond market,” said Gordon, adding that low scores simply indicate a market may merit a closer look. “Cities that score low should make sure they have their ducks in a row and that there’s information available about its commercial properties.”
Citrano said the Jacksonville CBD may appear to be growing, but there are still issues negatively affecting actual growth.
“Downtown is not growing like we want it to. A couple of catalysts haven’t happened and the institutional market is slipping away,” he said. “Things have to be put in place and that doesn’t just mean incentives.”
According to Citrano, one of those “things” is a long-term parking plan that benefits both businesses and the general public.
“The big issue keeping downtown from growing is the lack of a parking plan that makes sense,” said Citrano. “It’s not economically viable to run a parking operation. Parking should be a for-profit venture and right now it’s a losing proposition.”