Commercial Development Outlook: Retail ‘likely to be among the hardest hit’ by pandemic

Big-box retailers have been closing in recent months.

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Jacksonville’s industrial, office and retail markets are experiencing the effects of the COVID-19 pandemic that led to shutdowns, capacity restrictions and other effects. Some sectors fared better than others. Here is what CBRE, Colliers International, Cushman & Wakefield,
JLL, NAI Hallmark and Newmark Phoenix Realty Group are saying about the market as of the second quarter of 2020.

NAI Hallmark reported that after compressing through mid-2019, retail vacancy “ticked upward” and likely will continue to do so.

“The sector is likely to be among the hardest hit by the coronavirus pandemic, and with the heightened level of development, this will likely translate to higher vacancies in the coming quarters,” the commercial real estate firm reported.

Big-box retailers have been closing in recent months, some because of Chapter 11 bankruptcy reorganization, others to cut expenses.

J.C. Penney Co., Sears, Pier 1, Books-A-Million, the Disney store, Save-A-Lot, Earth Fare and Lucky’s Market are some of the national retail stores that closed some area stores in the first half of the year or plan to do so.

Meanwhile, retail construction has rebounded in recent years with about 1 million square feet under construction, NAI Hallmark reported.

“This represents 1% of the market’s existing inventory, which is twice the proportionate level of construction being seen at the national level,” it said.

NAI Hallmark said the level of construction represents a continued slowing of retail development in Jacksonville.

“After about 1.5 million SF (square feet) delivered in both 2017 and 2018, just over 1.4 million SF delivered in 2019 and 2020 is expected to see a five-year low of about 900,000 SF,” it said.

In Duval County, retail vacancy rates ranged from a low of 3.4% in Riverside, 3.5% in Butler-Baymeadows and 3.6% at the Beaches to 10.1% on the Downtown Northbank.

NAI Hallmark said rent gains were outperforming the national average for more than five years before dropping off early in 2020. 

The annual growth is about 1%, although the average rent is up 20% over the past five years, higher than the national gain.

The highest rental rates are more than $25 a square foot in Butler-Baymeadows and $23 at the Beaches.

Together, those two markets account for 11% of the existing retail stock.

The second-quarter vacancy rate of 4.3% is down from 4.5% in the first quarter but up from 4% in the second quarter of 2019.