STATE OF THE MARKET: Jacksonville Retail
Low Vacancy, Reasonable Rents Spur Strong Construction Activity
written by Sasha M Pardy

CoStar will select a different retail market each week to review. This retail review is intended to be a "snapshot in time" that will paint a picture of the health of the retail real estate market in that area. The first market selected for this series is Jacksonville, Florida and the "snapshot in time" was taken on Friday, March 16, 2007.

CoStar defines the Jacksonville retail market as encompassing the Florida counties of Duval, St. John’s, Nassau, and Clay. The market contains more than 72 million square feet in 4,072 retail buildings. The Jacksonville retail market is comprised of 14 submarkets, the largest being Southside with 13.3 million square feet, Riverside with 9.3 million square feet, Orange Park/ Clay County with 7.8 million square feet, and St. Johns County with 7.6 million square feet.

Vacancy / Time on Market
Jacksonville’s retail vacancy rate of 5% is very strong in comparison to other Florida metropolitan areas. A vacancy rate this low usually indicates an extremely tight retail market where tenants are competing for space; however, available Jacksonville retail space sits on the market for an average time frame of 9 months.

Geneva Henderson, executive vice president with the Jacksonville office of Lat Purser & Associates and one of Jacksonville’s top retail leasing representatives, said that the extended time on the market is a result of "tenants waiting to find the right location." She said that in prime markets, there is little to no availability, and many tenants don’t want to settle for a store in a neighborhood location. Henderson identified the Butler corridor of St. John’s Town Center as a hot market, it has "traffic, accessibility, and is a 360 degree market, people travel to shop at this regional location."

Submarkets with the lowest vacancy rates are St. Johns County with 2% and Riverside with 3%. One would expect that available retail space in these submarkets is snatched up quickly, however, this is not the case. In fact, retail space in Riverside remains available for an average of 12.4 months, one of the longest average time frames in Jacksonville. Submarkets with the highest vacancy rate include Downtown Northbank with 12% and Butler / Baymeadows with 11%. In Downtown Northbank, buildings contributing the greatest to this vacancy include the former Haydon Burns library on Ocean Street, Park Place Plaza on Monroe Street, and Pearl Plaza on Pearl Street.

Among Jacksonville shopping center types, Outlet Centers, Malls and Community Centers have the lowest overall vacancy rates with 0%, .6% and 4.8%, respectively. Strip Centers and Neighborhood Centers have vacancy hovering around 6%, which is still very strong.

Rental Rates
For purposes of this report, rental rates are defined as a weighted average on asking rental rates of direct vacant space, on a per-square-foot , triple-net (nnn), annual basis. The Jacksonville retail market’s average rental rate of $13.06 per-square-foot pales in comparison to other major Florida metropolitan areas, and has surprisingly remained very reasonable over the years despite low overall vacancy.

Submarkets with the highest average rental rates include Nassau County at $24.14 per-square-foot, Northwest Jacksonville at $22.50 per-square-foot, Arlington at $20.04 per-square-foot, and Northeast Jacksonville at $20.00 per-square-foot. Some shopping center properties with the highest rental rates include Regency Square Mall at $30.00 per-square-foot, Harbour Village Shopping Center and Shoppes at Deerfield Lake at $29.00 per-square-foot, Eagle Pass Promenade at $27.00 per-square-foot, and Roosevelt Square at $26.00 per-square-foot. Submarkets demanding the lowest rental rates include Riverside, Downtown Northbank, and Southside.

Jacksonville Power Centers are the shopping center type with the highest average rental rate at $16.18 per-square-foot. The three largest Power Centers in Jacksonville are the 400,000 square-foot Shoppes at Amelia Concourse, which was completed by Kimco last year in Yulee and includes Target, Home Depot and Petco as anchors; New Plan Excel’s 334,000 square-foot Regency Park on Atlantic Blvd, which was renovated last year and is anchored by American Signature Furniture and Baby Superstore; and the 304,000 square-foot Argyle Village Shopping Center, owned by Weingarten Realty Investors and anchored by Publix, Babies-R-Us, Bed Bath & Beyond, and TJ Maxx, among others.

New Construction
More than 1.7 million square feet of retail space has been delivered to the Jacksonville market since the beginning of 2006; and as of our snapshot last week, these properties had vacancy of 16%, which is very strong for newly-delivered space. The average rental rate of these new spaces is $19.67 per-square-foot, a strong indicator for slowly increasing retail rents in Jacksonville.

The largest retail deliveries since 2006 include 635,000 square-feet at Ramco Gershenson’s mammoth River City Marketplace in the Northeast Jacksonville submarket. River City Marketplace is anchored by Wal-Mart Supercenter, Lowes, Petsmart, Michaels, Circuit City, Old Navy and Office Max, among others. Other significant deliveries include the 400,000 square-foot Shoppes at Amelia Concourse in Yulee and Bakkar Development’s 90,000 square-foot Harbour Village Shopping Center in the Arlington submarket.

The Jacksonville retail market has more than 6 million square feet in its construction pipeline; 1.93 million square feet is under construction, while more than 4 million is in the proposed or planning stages of development. The average asking rental rate on buildings in the pipeline is $22.66 per-square-foot, which is 15% higher than the average asking rental rate on space delivered just last year. 60% of the space in retail properties under construction has already been pre-leased, a positive indication that developers of Jacksonville retail property will meet occupancy goals at delivery.

CoStar asked Henderson if she thought the Jacksonville market could support retail rents on new space that are 15% higher than buildings delivered last year and she said "If the new buildings delivered are in the proximity of other great national retailers, yes; but if the location is just a little neighborhood shopping center, than it could break the bank." Henderson said that the increase in rents on new space is a direct effect of the increased cost to build and the dirt to build on, and as a result "lease rates in a neighborhood location have ended up being around the same price as a regional location."

The largest retail development under construction is Sembler’s Oakleaf Town Center on Argyle Forest Blvd in the Riverside submarket. 206,000 square feet of this lifestyle center is under construction, while an additional 111,000 square feet is in the proposed stage. At final completion in 2008, Oakleaf should have a total of 800,000 square feet of space; tenants announced include Target, Kohl’s, Home Depot, and Chilis, among others. LJ Development’s addition of 250,000 square feet to Village Square at Fleming Island Plantation and Kimco’s 102,529 square-foot, Home Depot-anchored retail community center at Plantation Crossing are among other significant retail developments under construction in Jacksonville.

Sale Transactions
More than 2 million square feet of retail property has been sold over the past year in Jacksonville via 132 transactions, with total value exceeding $322 million and an average price-per-square-foot of $176.43. The average size of a Jacksonville retail property transacted is 15,419 square feet, while the average sale price is $2.6 million.

Brett Chetek, an associate at Marcus & Millichap’s Jacksonville office and one of the area’s top retail investment sale brokers told Costar "the returns for grocery-anchored plazas and other big box retail is still greater in Jacksonville than many other MSAs across the country. I am seeing more institutions and more experienced private buyers that are willing to pay more for Jacksonville retail property than they used to." When we told Brett that’s Jacksonville’s average price-per-square-foot has reached $176.43, he thought it was accurate and said "look back 4-5 years ago, the average price-per-square-foot was probably $100." Chetek also indicated that Jacksonville retail investment has become a more competitive environment for buyers, saying "listings are sitting on the market for no more than 45 days if it’s a properly underwritten investment."

Of the 132 retail sale transactions in Jacksonville over the past year, the Southside and Mandarin submarkets were home to the most sale transactions, with 23 and 18, respectively. St. John’s County and Orange Park/Clay County both saw more than 300,000 square feet transacted for more than $50 million in value. Submarkets demanding the highest prices for retail property include The Beaches, Butler/ Baymeadows, Riverside, San Marco, and Southside, all with an average price-per-square-foot higher than $200.00. Submarkets demanding the lowest prices include Downtown Northbank and Arlington.

The Lightstone Group’s purchase of the 249,258 square-foot Belz Factory Outlet World in St. Augustine was the largest Jacksonville retail transaction in the past year. With a sale price of $26.9 million, the outlet center sold for $108.00 per-square-foot. Other significant transactions include RAM Real Estate’s $13.2 million sale to RREEF of the 43,000 square-foot Shoppes at Palm Valley on Ponte Vedra Beach for a high $306.26 per-square-foot and the $10.75 million sale of the 67,000 square-foot Discovery Plaza in the Southside submarket.

Who’s Who
We queried our Costar records for commercial real estate brokers or associates completing retail lease or sale transactions in Jacksonville over the past year, following are the results of this query:

Top Lease Dealmakers: As ranked by the number of retail leases and total square feet brokered; Leed Silverfield of Silverfield Development Co., Roy Orenn of MarketMasters, Jim Laquidara - Independent, Rosely Kanner and Glenn Palmer of Colliers Dickinson, Rhonda Peterson of Peterson Properties, Tom Gonseth of Beemer & Associates, and Jonathan Daugherty of Ashman Properties.

Top Sale Dealmakers: As ranked by the total sales volume of retail transactions brokered; Cliff Taylor of CB Richard Ellis, Chuck White of Commercial Jacksonville, Brett Chetek and Craig Thomas of Marcus & Millichap, and Robert Selton of Colliers Dickinson.

Top Landlord Brokerages: Brokerage companies as ranked by total square feet of retail landlord representation assignments; Lat Purser & Associates, Colliers Dickinson, CB Richard Ellis, Strategic Sites Clifford Commercial, and Coldwell Banker Commercial.

We want your feedback. Did you find this retail market synopsis informative? Do you have comments, questions or want to share your opinions? Reach Sasha Pardy at spardy@CoStar.com.