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Commercial Real Estate: Entering the post-COVID world
Jacksonville’s industrial and retail markets remained strong while the office market continued to struggle during the fourth quarter of 2021.
The metropolitan area’s unemployment rate dropped and population growth continued, both positive for commercial real estate.
When completed, the first-quarter 2022 real estate firms’ analysis likely will reflect rising inflation and interest rates.
This report is a summary of what Avison Young, CBRE, Colliers, Cushman & Wakefield, Franklin Street, JLL and The Shopping Center Group reported for the final quarter of 2021.
Hybrid workforce brings less demand
Unlike industrial space, relatively little office space is under construction and the large blocks that come open are not quickly absorbed.
Companies that converted their staffs to remote work during the pandemic are not bringing them all back, which has opened up space.
Some employers are renovating to adjust to a hybrid staff that may work in-house a few days a week and do not need a permanent desk.
Prudential, CSX Corp., RP Funding and Deutsche Bank are included in the reports as companies that gave up space. The Central Business District saw several large blocks vacated.
Avison Young reported that leasing activity was down 9.9% in 2021 from 2020, although the pace of decline is slowing.
That also influenced the rise in the average asking rental rate as higher-priced Class A space opened up, particularly Downtown. Rates rose on average about 3%.
CBRE Inc. reported that as companies completed their occupancy decisions, they often opted for shorter lease terms for increased flexibility.
Some of the vacancy was offset by several large tenants: Duos Technologies, The Energy Authority, BDO and American Challenger Bank leased offices, and CBRE says Adecco USA and Allegis Group will move into more space in the second quarter of 2022.
“Demand should increase during 2022 with over 375,000 sq. ft. of tenants in the market looking for space,” it said.
“People are growing more accustomed to the idea that COVID will be around – perhaps forever – and we need to learn how to live with it,” Colliers reported.
Colliers said most new office construction is limited to anchor tenants or owners committed to the space, such as JEA and Fidelity National Information Services Inc.
“We don’t see that changing anytime soon,” it said.
About 217,000 square feet of new office space was completed in the market in 2021, reports JLL.
JLL said the Dennis + Ives conversion in the Rail Yard District near Downtown was the first new office product added Downtown in more than 10 years.
One busy area is medical space as tenants scramble to keep up with the growing population.
The availability of space works in Jacksonville’s favor, JLL said.
“Jacksonville’s large stock of existing class A space, including its multiple brand-new buildings, positions it well for continued recovery in 2022.”
Cushman & Wakefield said the economy helped.
“The pace of growth in office-using employment remained positive, up 10,700 jobs year-over-year to 192,200,” it said.
E-commerce drives ‘white-hot’ market
Industrial warehouse space in Jacksonville is leased about as quickly as it is available and there is little sign of slowing.
Vacancy rates continued to drop as rental rates rose by double-digit percentages.
CBRE Inc. says about 8.3 million square feet of space was leased during 2021. Active market tenants at year-end totaled more than 6.6 million square feet of space.
Depending on how it is measured, reports show that up to 6 million square feet of space was under construction.
E-commerce and third-party logistics tenants led the demand. Rents are rising because of demand and the costs of materials for new construction.
Cushman & Wakefield said North Jacksonville and West Jacksonville dominated leasing activity in warehouses and distribution.
“Following the massive increase in migration to Florida post-COVID, demand for e-commerce, grocery delivery, and other logistics-based services has skyrocketed,” reported JLL.
It said Jacksonville’s developable land sites, proximity to JaxPort and relative affordability positions the area well.
“Jacksonville’s industrial market remains white hot,” says Colliers. “But the breakneck pace of the updraft cannot last forever.”
Low inventory and occupants unwilling to pay higher rents could hamper growth.
Return to in-person shopping sees vacancies shrink
Franklin Street reports that the Jacksonville retail market is thriving as consumers eagerly returned to in-person shopping over 2021.
“North Florida residents seem to be enjoying a healthy consumer confidence for spending these days, especially in the dining and entertainment sectors.”
Franklin Street said the market continues to attract new-to-market tenants while existing retailers seek to expand.
It said service-based retail, fitness centers, boutique shops and discount retail are active.
Some big-box retailers are looking for new locations, but at a smaller square footage.
“Tenants with proven pandemic- and internet-proof strategies will have an advantage,” Franklin Street said.
Development projects include the Laura Street Trio and Forsyth Garage, the pending Jacksonville Shipyards, and Beachwalk and Parkway Place at Durbin.
Colliers said more retail space was absorbed in 2021 than any 12-month period since the Great Recession.
“Vacancy is testing all-time lows and market rents continue to set new records,” it said.
Population growth means more growth as “retail follows rooftops.”
Colliers said some developers are pursuing multitenant shopping centers.
“The bulk of the development activity we are seeing continues to be on smaller infill sites that often carry a redevelopment component,” it said, especially with car washes, gas and convenience uses.
The Shopping Center Group reports that 2021 closed out with another strong quarter for retail in North Florida.
Town Center was active, and St. Johns County retail continues to grow to keep up with residential demand.
TSCG said that at St. Johns Town Center, the new RH Gallery rooftop wine bar “has cemented Jacksonville as a key market for upscale, destination retail.”
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