By Karen Brune Mathis, [email protected]
If the commercial real estate market is strengthening, the economy is, too.
Based on third-quarter reports from area real estate firms, Northeast Florida’s business climate was doing well as of Sept. 30.
In some cases, very well.
Office vacancies fell to record lows in some areas and overall to their lowest since this time in 2008, as the recession was really setting in.
Industrial vacancies dropped to their lowest levels since 2008, too. So did retail vacancies.
The changes reflect an improving area economy experiencing job growth and lower unemployment, although one of the reports cites statewide feelings of “cautious optimism” and uncertainty in the face of international instability.
Still, the area commercial real estate markets are looking better than many have in years.
“As economic conditions improve across the country, business confidence and hiring have increased significantly over the past year,” reports JLL, known also as Jones Lang LaSalle.
Notably, JLL added, “the trend of downsizing has finally ceased.”
JLL made news last month with its representation of the owners of the Prominence office park in a lease transaction involving Southeastern Grocers.
The grocery chain is relocating its headquarters to the Baymeadows office park, a 160,000-square-foot deal that wasn’t part of the third-quarter reports.
JLL, the CBRE firm, Cushman & Wakefield and Colliers International have been releasing third-quarter market research for the office, industrial, retail and multifamily markets. Some haven’t released all of their reports.
Office vacancy rates fell overall to 9.9 to 19.3 percent. The firms define and measure the markets differently, but all agree the market is healthier.
The vacancy rate Downtown in the Central Business District remained higher than in the suburbs, ranging from 16.5 percent to 23.2 percent in the JLL, Cushman & Wakefield and CBRE reports.
The Mandarin and East Butler areas continued to post low vacancy rates, while Arlington and North Jacksonville remained higher.
Cushman & Wakefield said year-to-date leasing was on track to surpass 2014 and referred to several large tenants being signed in the Central Business District. One of the largest, Citizens Property Insurance Corp., has been moving employees into the EverBank Center.
JLL saw the majority of leasing activity evenly split between the Butler Boulevard and Central Business District submarkets.
JLL said with a lack of new office construction and continued demand, rental rates are increasing, although they remain low compared to other areas in Florida and the Southeast.
The market’s looking even better for the rest of the year and into 2016.
The company expects more businesses to move into the area. “Multiple companies new to Jacksonville are rumored to be looking for space,” it said, meaning the rest of 2015 and next year will be busy for landlords.
JLL said Jacksonville remains a popular location for Fortune 1000 companies considering moving their back-office locations “to a business-friendly tax environment with a strong workforce to choose from.”
Cushman & Wakefield reported heading into the fourth quarter, interest in Jacksonville’s office market should increase from local tenant expansions and companies from outside of the region.
It said while higher vacancies and competitive rental rates compared with other Southeast markets can be a challenge to landlords, they are “a huge selling point for the market.”
That, it said, puts “Jacksonville near the top of any major office relocation options.”
Industrial vacancy rates dropped overall to 7.6 to 9.2 percent.
CBRE said vacancy among industrial properties fell to the lowest level since the fourth quarter of 2008, with the largest drops in St. Johns County and North Jacksonville.
The largest industrial submarket, West Jacksonville, experienced some of the lowest vacancies, from 4 to 5.6 percent. North Jacksonville, another large submarket, was the highest from 14.5 to 20 percent.
Cushman & Wakefield’s MarketBeat report said the vacancy rate dropped below 9 percent for the first time since before the recession.
CBRE said as the industrial market continues to tighten, the rise in leasing rates will accelerate in some submarkets.
Unlike the office market, several large industrial developments are under construction, including a large speculative building at Westside Industrial Park.
CBRE also expects more development. It said 15 are being tracked that would add almost 4 million square feet of space. Of those, nine are planned in West Jacksonville and six are in North Jacksonville.
“Although muted in some respects, the Jacksonville industrial market has remained on a positive trajectory in 2015,” said CBRE.
Vacancy in the retail market fell to an overall 6.8 to 9.2 percent, reported CBRE, with a high of 12.2 percent in Regency and a low of 3 percent in St. Augustine.
“Stability is the story for the Jacksonville retail market,” said CBRE.
It said the third quarter was the 14th consecutive quarter of positive net absorption, meaning more space was leased than vacated.
The most positive activity came in Westside and Regency, it said. In Regency, a new health club contributed to the absorption.
“As landlords continue to fight for foot traffic, fitness centers provide the steady stream that they need to support center growth,” CBRE said.
CBRE, the only firm to release a retail research report so far, said as the Jacksonville retail market continues to tighten, several submarkets will accelerate their rental rate increases.
Meanwhile, development of retail space has remained relatively unchanged, although “several planned projects should prove to turn this tide.”
Brooklyn Station on Riverside will complete a building and land sales are pending at St. Johns Town Center for large mixed-use projects.
CBRE also said several large retailers new to Jacksonville will break ground, especially IKEA and Topgolf, both near St. Johns Town Center. Brokers have said IKEA will draw more attention to the area’s retail market.
CBRE said as market fundamentals continue to improve, “cautious optimism is bound to give way to a bullish outlook for the Jacksonville retail market.”