Commercial real estate: Vacancies up, but so are rents

Commercial real estate second-quarter reports offer insight into the Northeast Florida market.

Imeson Landing Business Park is one of many industrial developments new to Northeast Florida. Vacancy rates in the region increased from 3.8% to 4.8% in the second quarter, NAI Hallmark said in its quarterly report.
Imeson Landing Business Park is one of many industrial developments new to Northeast Florida. Vacancy rates in the region increased from 3.8% to 4.8% in the second quarter, NAI Hallmark said in its quarterly report.
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Commercial real estate firms in the Jacksonville area are finding that high office vacancy rates are flat or slightly lower and that low industrial rates are slightly higher as of the end of the second quarter, June 30.

Retail vacancies are up, too.

And so are rents.

The economy, higher interest rate trends, fluctuating inflation, low unemployment rates, consumer demand and office users’ work-from-home status are factors.

In its second-quarter market report, the CBRE commercial real estate company said the consensus of economists was that the second half of 2023 would bring the U.S. to the brink – or even over the edge – into recession.

But a resilient consumer and labor market and higher GDP growth challenge that.

“Beneath this veneer of health lies a fragile economy, which will probably lapse into recession,” it said, but later than expected.

The chief concerns are tightening credit conditions and inflation.

It said the long-expected slowdown in the U.S. economy “is still on track, but will start in earnest at the end of Q3 and last through to the end of the Q1 2024 by which time inflation will have slowed up and rates will be falling.”

CBRE, Cushman & Wakefield, NAI Hallmark and Ciminelli Real Estate Services of Florida provided second-quarter market reports, or a preliminary look, as of July 7. Other companies will be reporting their research soon.

Office: Leasing activity flat or down from last year

The real estate companies found the overall office vacancy rate to be in a range of about 14% to about 19%, depending on how they measure it.

Downtown, the rate ranged from about 10% to 24%, again depending on measurement. 

In the suburbs, the rate ranged from 12% to 17.3%.

The firms found the overall rate trend to be flat or down.

CBRE said the “headwinds” of inflation, fears of recession and hybrid schedules of employees working from home slowed demand for office space during the first half of the year.

Leasing activity is down with vacancy flat compared with the year before, it reported.

It said space need decisions by major office users are expected to fluctuate, while proposed apartment, retail, hotel and office developments around the central business district “could provide optimism and renewed interest in the area.”

CBRE reported that the average space size for new leases and expansions during the first half was 6,484 square feet.

“Demand should continue increasing during 2023 with more than 710,000 square feet of tenants in the market looking for space,” CBRE said.

Rental rates rose for Class A and Class B space.

NAI Hallmark found that second-quarter demand continued to be driven primarily by quality and timing.

Some users are “looking for readily available turn-key options as a result of having immediate space needs or delaying long-term strategies due to the residual effects of the work from home movement,” said Patrick Carney, NAI Hallmark vice president and office specialist.

Industrial: Vacancy rate rises as new space comes online

The industrial vacancy rate ranged from 3.1% to 6%

The Jacksonville industrial market has had “extremely low” vacancy rates the past several years, but the second quarter saw “a significant uptick to 4.8% from 3.8% the quarter prior,” NAI Hallmark reported from its findings.

Rental rates continued to rise.

“The Jacksonville industrial market ended the quarter with strong fundamentals,” wrote CBRE.

“With strong demand, asking rent appreciation and robust population growth, developers and tenants have leveraged the strength of the local economy.”

About 5.1 million square feet of speculative projects are under construction as developers attempt to keep up with demand.

CBRE said the industrial rate rose to 5.8% because more than 3.8 million square feet of space was completed in the first half of the year, “allowing out of market tenants options to lease immediately rather than looking at build-to-suit options.”

The company found that the average size of new leased space was almost 59,000 square feet and leasing activity was up almost 8% from the year before.

CBRE said several large tenants are seeking more than 300,000 square feet of space each at newly completed or soon-to-be-completed buildings.

“Tenant demand is expected to remain strong through the year,” it wrote.

NAI Hallmark Senior Associate Camden Padgett said industrial tenants have been slower to sign leases “given macro-economic uncertainties.”

But he does not see a negative impact.

“Jacksonville is still a prime market for industrial users,” he said.

“With nearly 5 million square feet under construction and more soon to break ground, Jacksonville’s industrial market is poised to grow and attract strong businesses from throughout the country.”

Retail: Vacancy up slightly, but market is ‘resilient’

NAI Hallmark found the retail vacancy rate at 4.45% as of June 30, up from 4.33% in the first quarter and 3.97% in mid-2022.

Rents were up, too.

“The Jacksonville retail market has remained resilient through difficult economic conditions,” NAI Hallmark wrote.

The lowest vacancy rates among larger submarkets were 2.3% on the Downtown Southbank, 2.8% on the Southside, 3.3% at the Beaches, 3.4% in San Marco; and 3.5% in Riverside.

Among other areas, the higher rates were 5.4% on the Downtown Northbank; 5.8% in Mandarin; 6.3% in Butler/Baymeadows; and 7.9% in Arlington.



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