As we hit the halfway point of 2018, it’s safe to say that the economy is firing on all cylinders in Northeast Florida. While not at the levels seen prior to the Great Recession, development and capital investment is at a ten-year high and yet tremendous opportunities for further growth are right on the horizon. Downtown Jacksonville is poised for large scale expansion with market making developments in the Shipyards and the District moving closer to reality. Beltway growth fueled by completion of I-295 improvements and Outer Beltway expansion has connected the five-county region like never before.
In the office market, growth of larger suburban users constrained by a lack of expansion space within existing parks has spurred construction of several large new buildings in 2018. Construction on VanTrust and Hines projects for Availity, Web.com, and McKesson are great indications of companies not only committed to Northeast Florida but also recognize the role that real estate plays in the recruitment and retention of key employees. While these expansions will create some vacancy in the market, they should also relieve some pressure on 2nd generation spaces to allow opportunities at more favorable rental rates than that of a built to suit construction approaching and in some cases exceeding full service rates of $30 per square foot.
The momentum in the broader economy is no better indicated than in the strength of the industrial market. Increasing disposable income and consumers expectations on product delivery have driven vacancy rates for distribution spaces below 3%, not even taking into account the supply of functionally obsolescent warehouse properties. Over two million square feet of distribution space is currently under construction or in the late planning stages, highlighted by projects in the Northside and Westside submarkets by Patillo Industrial, Webb International, Jackson-Shaw and Becknell Industrial. Rental rates for these projects are quoted in the $4.85 to $5.25 per square foot triple net.
Investment activity remained strong in the second quarter. Even though sales volume has decreased over the past three quarters, theJacksonville MSA still experienced an 11% increase over the second quarter of 2017. In addition, the investment volume over the past 12 months was nearly the highest on record for the area. Investment demand still outweighs the supply of quality properties for sale, but rising interest rates may temper investor appetite slightly. That being said, there is still sufficient capital looking for yield and Jacksonville is an attractive market comparative to other peer cities.
Despite all of the macroeconomic uncertainty in the world, we have yet to see any signs that would threaten to derail the momentum of theNortheast Florida economy. If the positive population and employment growth trends continue to and commercial construction stays relatively in check, all indications are that the market will continue the strong positive movement.