The glass is half full. The clouds of recession certainly seem to be clearing in the local Jacksonville office market. It isn’t uncommon to hear adjectives such as “encouraged, hopeful, positive” when people are describing the local economy, but it isn’t without skepticism. We have four primary categories we can look at when rating the local office market: absorption, vacancy, rental rate and construction activity. Much of the problem is they each tell a slightly different story. Let’s take a look at each.
1. Vacancy: The vacancy rate is a numerical value calculated as the percentage of unoccupied space. The office vacancy rate in Jacksonville remained at 13.5 percent at the end of the first quarter of 2013, compared to an average of 13.9 percent in 2012. This is an encouraging statistic. In past years the vacancy rate has increased because of businesses closing their doors and/or shrinking the amount of space they need. We anticipate a continued decrease but stabilization over the coming year. The graph below compares the vacancy rates by class over the last 14 years in Jacksonville.
2. Absorption: Absorption measures the net change in occupied space. In the first quarter of 2013 we experienced absorption of negative 2,099 square feet compared to positive 116,070 square feet in the fourth quarter of 2012 and positive 236,113 square feet in the third quarter of 2012 (see table below). We don’t believe the recent negative absorption should be looked at as the beginning of a trend. With the limited amount of new construction and increase in leasing activity we are seeing, we expect to see positive absorption in 2013.
3. Rental Rate: The average quoted asking rental rate for available office space across all classes was $17.09/sf at the end of the first quarter 2013 (see table above). This represented a 1.4 percent increase in quoted rental rates from the end of the fourth quarter 2012 when rents were reported at $16.85/sf. We expect rents will continue to increase through the end of the year, which is a healthy sign for the local market.
4. Construction Activity: During the first quarter of 2013 one building totaling 6,390 square feet was completed. This compares to five buildings totaling 73,423 square feet completed in the fourth quarter of 2012, one building totaling 13,000 square feet in third quarter of 2012 and 6,285 square feet in two buildings in the second quarter of 2012. The graph below depicts the square feet delivered per year (in millions) since 1982.
We are also seeing continued interest in office space in Jacksonville’s downtown core market. Our city’s economy relies heavily on government outlays and incentive programs when making business decisions. Mayor Alvin Brown has made it clear he is focused on downtown, which has contributed to the positivity recently associated with it.
Patrick Thornton, Principal at NAI Hallmark Partners, concludes, “A lot of our customers are inquiring about downtown office space; this has been non-existent since the early 2000’s. The downtown vibe, encouraged by One Spark, the construction of 220 Riverside, Mayor Alvin Brown’s ongoing support, the Riverwalk expansion, new restaurants, etc., its all coming together to create a positive urban atmosphere, he said. “There seems to be a 72-hour news cycle where every 2 to 3 days I hear something positive about downtown Jacksonville.”
Written by Patrick Thornton and Daniel Burkhardt