The Jacksonville and North Florida retail market is seeing an increase and influx in new investment activity. Analysts are watching the volume, vacancy rate and new construction and all signs point to a seller’s market, but compared with other Florida cities, the cap rate and the opportunities are still attractive to retail investors.
What sets Jacksonville apart from other cities in Florida and across the country is the area’s strong employment growth and the amount of developable land still available. Besides the rate of employment in Jacksonville growing at double the national average, the city continues to attract back-office facilities for major banks and for Amazon, and its seaport is busier than ever. Housing also continues to boom in areas like Northern St. Johns County.
According to third quarter 2017 analyst reports, Jacksonville’s retail vacancy rate went down slightly from 4.6 percent in the previous quarter to 4.5 percent or 93.5 million total square feet. Year-to-date absorption totaled 710,101 square feet with about 590,000 square feet ready for occupancy/delivered and 700,109 square feet under construction.
Retail Tenant Shift
Nationally, where we saw stalled volume of sales during the downturn along with declining rents to combat growing occupancy, the Jacksonville MSA has not traditionally been a low velocity market from a commercial real estate standpoint. Rents are starting to creep up but are still low when contrasted to other major cities in Florida. Our team has seen a big shift in the past five years from retail to service-based tenants (healthcare/medical – urgent care centers, charter schools and churches) as landlords battled rising vacancies and e-commerce competition.
Overall, the Jacksonville market has stayed stable in 2017. The market had experienced little new development since 2012, but construction projects are starting to take shape in specific submarkets like Southside (the enormous and growing St. Johns Town Center and surrounding area). Large commercial development is also underway in Nocatee, Julington Creek and the World Golf Village corridor in Northern St. Johns County.
Where Are the Deals?
Local retail property investors are having difficulty finding a “deal,” as there are no more distressed sale opportunities and the previous wave of underwater, over-leveraged owners is not as substantial as they were in past years. With a lack of available inventory, it’s a seller’s market and now is the right time for retail property owners to sell. Demand has increased and supply remains low, so this trend is maximizing values through market competition.
The low transaction volume indicates that sellers have been sitting on the sidelines. Many seller/owner clients are now calling us to determine if this a good time to sell. Some of them are taking advantage of the high demand by putting their properties on the market.
For example, one Franklin Street client recently marketed a retail center on Jacksonville’s Northside which sold immediately resulting in a 15-day contract to closing scenario. Another client just received a similar full-price offer within two days of listing their retail plaza in the Ft. Caroline area, which is now set to close.
This market activity is being driven in part by national retailers that are looking to enter the Jacksonville market for the first time. The region’s first IKEA location opened recently. More than 20 new restaurants are coming to the St. Johns Town Center area at two new mixed-use developments: Town Center Promenade and The Strand & The Crossing at St. Johns Town Center. Many of these eateries are national or regional chains that are new to Jacksonville. We expect this trend to continue as Jacksonville keeps growing above the national average and as it consistently ranks as one of the nation’s most affordable places to live or visit.
Low Retail Property Inventory
Jacksonville’s shortage of retail investment properties on the market has created a challenge for those looking to invest in commercial real estate. If you’re uncertain about a commercial transaction opportunity, seek out an investment advisor who intimately knows the market or the type of property you’re considering. Currently, there is high market demand for older properties as investors are looking at these assets in a couple of different ways. Some investors view them as an opportunity to buy a property and have a benefit of higher cap rate than top properties.
Others are looking at these properties, particularly properties on great real estate, as an opportunity for redevelopment. Redevelopment is very attractive for local investors that already owned property in the market, know the market and live in the market. Those investors have the expectation that they can hold the property and receive cash flow from existing tenants as they confirm their redevelopment plans.
About the Authors:
Chad Atwood serves as Director of Retail Investment Sales for Franklin Street specializing in the sale of net-leased retail properties throughout North Florida and the Southeast U.S. He has over 15 years of commercial real estate experience in representing and navigating clients through all aspects of the investment process. He also has expertise in asset underwriting, market positioning, portfolio management, cash-flow analysis, acquisitions and dispositions.
As Associate Director for Franklin Street, Justin E. Spiller, Esq., specializes in the acquisition and disposition of both multi-tenant and single-tenant net lease retail properties throughout North Florida and the Southeast. Mr. Spiller’s exceptional academic background coupled with his diverse professional experience, makes him uniquely qualified to assess, adhere to and implement his clients’ investment goals.
