The Northeast Florida commercial real estate market closed another strong year on the back of solid fundamentals across all asset classes. In the fourth quarter, the Jacksonville market saw rising rental rates and decreasing vacancy rates for both the industrial and retail sectors, with the office sector stagnating ever so slightly. The industrial sector continues to be the best performing asset class which is leading to speculative construction, albeit not in large volume. In addition, the overall market experienced a small decline in sales transaction volume in Q4 vs. Q3, but it represented nearly a 100% increase year over year from the fourth quarter of 2016. This momentum is continuing, as we have seen strong investor demand in the initial weeks of 2018.
A large part of this positive momentum is attributed to the passage of the Tax Cuts and Jobs Act (“TCJA”) in December. After months of Congressional wrangling, the TCJA was passed and the majority of the legislation will be beneficial to commercial real estate. Most notable victories were the preservation of 1031 exchanges, carried interest tax rate treated as capital gains, deductibility of business interest expense for real estate and the move towards lower tax rates for corporation and pass-through businesses. While it is not abundantly clear which businesses will qualify for pass-through businesses will enjoy a 21% tax rate, this provision will significantly impact businesses considering the decision of leasing versus owning.
We remain extremely optimistic about the Jacksonville commercial real estate market. The tailwinds of tax reform and overall health of the US economy should continue to benefit commercial real estate, especially in states without state income tax (Florida is one of them).
If you are considering making a real estate decision in 2018, please contact us to discuss how we can help you leverage those opportunities in the new year!