This is an unprecedented time for Jacksonville’s office market as large amounts of new Class A office space come online and major capital markets transactions in Downtown are generating more office activity than the region has experienced in the past decade.
We sat down with JLL Executive Vice President Michael Loftin to find out what is driving all this new activity and why the market is showing no signs of slowing down.
What are the big-picture trends shaping the city’s office sector?
There has been a flurry of capital markets activity in Downtown Jacksonville in recent months. From the resurgence of the infill Brooklyn and Riverside areas neighboring the central business district to Vystar Credit Union’s purchase of SunTrust Tower for $59 million ($160/ SF) to the sale of BB&T Tower to Ash Properties for $23.3 million ($82/ SF); 2018 has seen more activity than we have experienced in the past decade.
Elements of Jacksonville closed on a $18.6 million land purchase to build the “The District”, a major mixed-use development along Jacksonville’s river front on the Southbank. Augustine Development Group also purchased five parcels of downtown land for a new residential, retail and hotel project. The Laura Street Trio project is progressing with construction, and Shad Khan’s Iguana Investments continues to pursue future mixed- use development on the Lot J parcel adjacent to TIAA Bank Stadium, while development negotiations on the Shipyards parcel continue. All of this recent activity is creating a renewed buzz around Downtown, a market that has been relatively quiet for the past 10 years.
Switching to the suburbs, as vacancy levels have drastically decreased over the past couple of years in the Deerwood Park office submarket, rates have risen nearly 20% in that time, giving rise to new build-to-suit projects along Gate Parkway with the Town Center I and II buildings (Availity and Web.com, respectively) and Hines Southside Quarter (McKesson). The South Duval region is experiencing a spike in rents with rates having gone up nearly 15 percent over the past couple years, the market benefits from being in close proximity to the rapidly growing residential and employment populations of St. Johns county.
Which submarkets have seen the most investor interest in the past quarters and why?
While Downtown Jacksonville lays claim to several of the most visible office investment deals of 2018, the Butler Corridor has seen significant activity with three large office deals involving new development having closed in the past few months. McKesson and Web.com have signed build-to-suit agreements for 125,000 square feet and 218,400 square feet in the Butler Corridor and are both expected to move in to their spaces in 2019. The 1 million-square-foot Flagler Center portfolio in southern Duval County traded hands for $136 million in early 2018, representing the largest office investment transaction in Jacksonville this year.
What is the status of leasing activity and asking rates in Jacksonville? (which are the most sought-after submarkets?)
Across the board, office rental rates are on the upswing. The areas surrounding Deerwood Park and Flagler Center have seen the most dramatic rise in rates with a near 20 percent increase over the last two years. The Southpoint submarket has also seen modest increases in asking rates benefitting from the significant rise in the neighboring Deerwood Park area, while Downtown rates have remained fairly flat this past year.
Downtown Jacksonville’s asking rates vary on a building-by-building basis, meaning that some have maintained their same rate, while others have increased with positive leasing activity over the past couple of years. Overall, downtown rates have been creeping up over the past couple of years, but certainly not at the same pace as the suburbs.
What do you think will be the main driver for office demand going forward?
As with most other markets, the general health of the economy is the largest determinant of office demand. Jacksonville is fortunate to have a diversified economy with ports and logistics, financial institutions and insurance companies serving as cornerstone industries while new and exciting sectors such as tech are growing within our market. The expansion and diversification of our economy will only continue to move Jacksonville’s office market forward.
About the Author:
Michael Loftin joined JLL in 2017 as Executive Vice President. His role includes both agency leasing for institutional office owners in various submarkets throughout Jacksonville, along with tenant representation work.
He is an active member of NAIOP (Commercial Real Estate Association) and has served on several of its committees, and was an active Board member of the Deerwood Park Property Owner’s Association for nearly six years. He holds a B.A. in Economics from the University of the South (Sewanee) and a Florida real estate sales license.