Retailers, restaurants, shopping centers, warehouses, apartments — especially apartments, it seems — and even some office buildings are coming out of the ground in Northeast Florida.
In 2016, groundwork was laid for much of what you will see opened and operating by the end of this year.
“Nearly all the relevant economic indicators are favorable,” said Colliers International Northeast Florida in its year-end 2016 Investment Research & Forecast Report.
Those indicators, such as job and population growth, drive the economy and the need for commercial real estate development and investment.
They remained strong last year and area real estate companies largely see a healthy 2017.
In fact, Colliers found those indicators were on par or better than the last peak in 2008, before the economic crisis and the Great Recession of 2007-09 fully settled in.
But is that cause for alarm? With 90 consecutive months of growth, Colliers reminds us the U.S. economy has experienced an expansion that is two years longer than the average since World War II.
Colliers said some economists warn “the end is near.”
But Colliers disagrees. It contends new development will be highly disciplined and localized, driven by tenant demand.
“We are expecting a strong 2017,” it said.
Other local commercial estate firms said much the same in their 2016 reports.
Avison Young, CBRE, Cushman & Wakefield, JLL, NAI Hallmark Partners and other companies measure their data differently, but all found large pockets of strength and opportunity in Northeast Florida.
Vacancy rate: 9.4 to 16.1 percent
Average rent: $18.63 to $20.29 a square foot
Office market: ‘Positive momentum’
Office rents are up, vacancies are down, more space is being leased than vacated and little new office space is on the horizon.
That’s how the Northeast Florida office market ended 2016, which could lead to several scenarios: even higher rents, tighter vacancies and the movement of users to older Class B and C buildings and to the vacancies on the Downtown Northbank.
“Improving market fundamentals, increased development activity, healthy investment velocity and stable employment growth all bode well for the Jacksonville market,” wrote CBRE in its fourth-quarter MarketView.
The six real estate firms that provided fourth-quarter and year-end office reports measure the market differently but found the same trends.
Office-vacancy rates ranged from 9.4 to 16.1 percent while average asking rents were $18.63 to $20.29 a square foot, and higher for Class A space.
JLL reports Class A space is experiencing “an all-time high” asking rate at $22.16 a square foot, up from the historical $19 to almost $21.
The highest vacancies generally were found on the Downtown Northbank and in Arlington and North Jacksonville. The lowest were on the Southbank and parts of Southside and Mandarin.
The reports cited job growth as the primary reason for the increased absorption of office space.
Driving up rents is the lack of space in sought-after markets as well as the growing dearth of big blocks of space for large tenants.
That will drive tenants to look around, including Downtown, as a viable area to expand, wrote Cushman & Wakefield in its MarketBeat report.
JLL noted total vacancy is the lowest it has been since the early 2000s.
It said there are only five blocks of at least 100,000 square feet in Jacksonville and some that lack enough parking for some tenant requirements.
“Landlords expect tenants to take more of those blocks off the market in the coming year as companies out of state look to target business friendly locations with strong employee bases, such as Jacksonville,” it wrote in its Office Insight report.
That lack of large space and the lack of new development in the most sought-after submarkets will allow landlords to be aggressive in rents this year, it said.
Avison Young and other firms agreed the two major office construction projects anticipated by VanTrust Real Estate LLC — the 164,000-square-foot Town Center One along Gate Parkway and a park of 675,000 square feet of space planned in Nocatee — are the first large office structures on the horizon that might offer speculative space.
Among the largest new leases of the year were Aetna’s decision to leave Downtown for Gramercy Woods in Southside and Ernst & Young’s choice of Flagler Center in Southside for a relocation from some space Downtown and for new employees.
Leases anticipated for 2017 include CSX’s potential move of 550 employees to the Bank of America Tower Downtown from Southpoint.
Investors also continued to buy properties, including the sale of Deerwood North and South and JTB Center in the Southside, and an owner in Riverplace Tower on the Southbank took full control of it.
That means buyers find value in the income-producing properties.
CBRE anticipates “positive momentum” in the current first quarter, “leaving Jacksonville well-positioned for a strong start to the year.”
Vacancy rate: 4.9-7 percent
Average warehouse rent: $4-$4.26 per square foot
Industrial market: Continues to improve
Amazon.com dominated 2016 for industrial real estate activity in Jacksonville as the Seattle-based e-commerce retailer announced two large fulfillment centers and filed plans for a smaller delivery center.
The fulfillment centers in Northwest and West Jacksonville are expected to open this year.
Also making news were plans by United Parcel Service Inc. and BMW of North America LLC for Westside Industrial Park expansion as well as speculative space planned near Jacksonville International Airport by Jackson-Shaw.
Colliers called the industrial warehouse market’s 4.9 percent vacancy rate for the year “a number we have not seen since 2005.”
Five commercial real-estate firms that created industrial year-end reports generally found lower vacancy rates and higher rental rates at year-end.
Vacancy rates ranged from 4.9-7 percent and average warehouse rents closely matched at $4-$4.26 per square foot.
CBRE reported warehouse distribution, flexible-use and research and development properties all experienced vacancy declines, while manufacturing vacancy was flat at 3.8 percent.
“Employment projections continue to bode well for the Jacksonville industrial market as industrial users still seek expansion space,” it said.
Investors also played a role in the market. Acquisition of the Alta Lakes Commerce Center and a building in Flagler Center “turned DRA Advisors into a substantial owner” in the market with almost 933,000 square feet of space, said JLL, calling it the biggest industrial deal of the year.
JLL predicts a pick-up in industrial development, citing the tightness of the market for large blocks of space at least 100,000 square feet.
“This has allowed landlords of larger spaces to push rents and make speculative development an attractive option for developers,” it said.
Vacancy rate: 5.3 percent
Average rent: $12.61 per square foot
Retail market: Connecting with customers
Northeast Florida’s retail landscape will change dramatically with Ikea, Town Center Promenade, The Strand and The Crossing at Town Center and Durbin Pavilion, among the many other new and expanding shopping centers, stores and markets.
Also think of individual momentum by Wawa, Daily’s, Gate Petroleum Co., Aldi, Earth Fare, Ollie’s, Publix Super Markets and the dozens of other restaurants and retailers, including car washes, popping up across the landscape.
Many of those retailers and developments will open this year or are under construction.
In the meantime, the area’s shopping centers and general retail buildings ended 2016 at a vacancy rate of 5.3 percent, according to NAI Hallmark Partners.
In its fourth-quarter Jacksonville Retail Market Overview, the company said conditions improved slightly as vacancies in various forms of shopping centers dropped from 5.5 percent in the third quarter.
Overall average rental rates ended the year at $12.61 per square foot, unchanged from the prior quarter, although they are down slightly from the year before.
NAI Hallmark Partners found the highest overall retail vacancy rate was 9.9 percent on the Northbank and the lowest rates were in St. Johns and Baker counties and in Southside and at the Beaches, all between 3 and 4 percent.
Carrie Smith, regional manager partner of the Franklin Street real estate company, said the biggest impact her group sees in the market will be the amount of retail space that will hit Jacksonville in 2017.
In addition, Smith said boutique retailing from independent clothing shops to specialized fitness retailers is thriving and she expects to see more personalized neighborhood shopping and service businesses.
Connections with customers are changing how retailing works. “It’s undeniable now, that as a retailer you have to have a model that connects customers from a variety of different channels, that luckily for us in commercial real estate, does include having a storefront,” Smith said.
Smith, talking about the tenant side of the deals, said national chains and local mom-and-pop clothing stores are connecting through various media channels to bring customers into the stores.
Not only that, large internet companies like Amazon now are looking for storefronts.
Whitney Butler Kantor, Franklin Street’s director of retail leasing, represents landlords and shopping center owners.
She predicts several trends, including the reuse of historic buildings and community and business movements to spark more shopping and restaurants in neighborhoods.
Also, the lack of retail construction the past few years created a shortage of space in some markets, leading retailers to use non-traditional locations, such as former vacant or abandoned buildings or smaller centers. The trend will continue, she said.
Across the country, some landlords with large vacant buildings are turning to another option — food halls and markets, which bring in chefs, produce sellers and artisanal food.
Those concepts “are finding their way into cities with strong foodie cultures like Jacksonville,” Kantor said.
Vacancy rate: 5.1 percent
Average rent: 97.5 cents per square foot
Average rent: $954
Multifamily market: Performing at high level
Yes, there are a lot of apartments proposed or under construction.
Over the last six months of the year, construction began on 2,125 apartment units in the area. Another 1,200 were proposed.
Those are in addition to the 2,400 new units added over the past 18 months.
Colliers reported those numbers in its year-end Multifamily Research & Forecast Report.
It found that 14 multifamily projects were under construction across seven submarkets, with the heaviest concentration in the South, Baymeadows and North submarkets.
The reason, said Colliers, is jobs.
More than 22,000 area jobs were created last year, it said, citing the financial services, health care, logistics, and construction and insurance industries as growth drivers. The area’s unemployment rate was 4.7 percent at the time the report was written.
As with the industrial report, Amazon.com was called out as a big factor because of the 2,700 full-time positions to be created this year by the two centers, in addition to seasonal work.
Colliers listed other expanding companies, such as Topgolf and Formativ Health that are adding jobs.
By year-end, the overall area vacancy rate was 5.1 percent, the average rent was just under $1 per square foot and average monthly rental rate was $954, Colliers said.
Its data shows a little more than 72,300 apartment units in the area.
More are anticipated. Colliers listed 10 properties in which land changed hands to develop more than 2,700 apartment units.
Developed communities are selling, too. From January through December 2016, Colliers tracked the sale of 59 apartment projects for $1.1 billion. The 13,592 units sold for an average of more than $81,000 each,
Of those sales, 39 were older Class C complexes, while 14 were Class B and six were the newer Class A.
Rental rates varied, with the highest average at $1.29 per square foot — or $1,290 monthly for a 1,000-square-foot apartment — in the central portion of the area that includes Downtown and Brooklyn.
Average rates topped $1 a square foot in the Beaches, Southeast and Baymeadows markets, too. The lowest were in West Jacksonville, Arlington, North Jacksonville and Orange Park.
Rents were up an average of 3.3 percent in 2016 and Colliers predicts they will continue to rise over the next 18 months by 3 to 4 percent, “well above the Southeast average.”
“The Jacksonville multifamily sector continues to perform at a high level from a core fundamentals perspective,” Colliers wrote.
Investment market: Economic stimulants
Investors paid more than $2 billion for commercial real estate in 2016, with more than half in the second half of the year.
Colliers’s Investment Research & Forecast Report said the TPG Capital purchase of Parkway Properties’ local office portfolio and DRA Advisors’ acquisition of Cabot Properties’ industrial assets played a large role in that.
Colliers found during the second half, apartment and multifamily sales accounted for the largest percent of investment dollars with about $572 million in sales — after about $438 million in the first half.
Office sales realized the largest gain in the second half, with about $380 million in sales, about four times that in the first half.
The shopping center segment slowed, while single-tenant leased properties rose significantly.
Hospitality experienced fewer sales and industrial transactions were “the tale of the two extremes” with a few small warehouses and two large transactions.
Jacksonville remains attractive along with other second- and third-tier markets to investors as the nation’s major markets present record-high prices and financing challenges, Colliers reported.
The firm said it expects a strong market in 2017, led by consumer optimism and local economic stimulants such as Amazon and Ikea.
It’s not your imagination.