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Seller’s Market for Jacksonville Retail Creates Opportunities for Investors

More than 20 new restaurants are coming to Jacksonville’s St. Johns Town Center area. Owned by Simon, the open-air mall originally opened its doors in 2005.

The Jacksonville and North Florida retail markets are seeing an increase and influx in new investment activity. Analysts are watching the volume, vacancy rate and new construction, and all signs point to a seller’s market, but compared with other Florida cities, the cap rate and the opportunities are still attractive to retail investors.

What sets Jacksonville apart from other cities in Florida and across the country is the area’s strong employment growth and the amount of developable land still available. The rate of employment in Jacksonville is growing at double the national average. In addition, the city continues to attract back-office facilities for major banks and for Amazon, and its seaport is busier than ever. Housing also continues to boom in areas like Northern St. Johns County.

Chad Atwood, Franklin Street

Chad Atwood, Franklin Street

According to third-quarter 2017 analyst reports, Jacksonville’s retail vacancy rate went down slightly from 4.6 percent in the previous quarter to 4.5 percent, or 93.5 million total square feet. Absorption totaled 710,101 square feet through the first three quarters of 2017, with about 590,000 square feet ready for occupancy or delivered, and 700,109 square feet under construction.

Retail Tenant Shift
Nationally, we saw stalled volume of sales during the downturn along with declining rents to combat growing occupancy, but the Jacksonville MSA has not traditionally been a low velocity market from a commercial real estate standpoint. Rents are starting to creep up but are still low when compared to other major cities in Florida. The Franklin Street team has seen a big shift over the past five years from retail to service-based tenants, including healthcare and medical, charter schools and churches, as landlords battle rising vacancies and e-commerce competition.

Justin Spiller, Franklin Street

Justin Spiller, Franklin Street

Overall, the Jacksonville market remained stable throughout 2017. The market has experienced little new development since 2012, but construction projects are starting to take shape in specific submarkets like Southside, with the growing St. Johns Town Center and surrounding area. Large commercial development is also underway in Nocatee, Julington Creek and the World Golf Village corridor in Northern St. Johns County.

Where Are the Deals?
Local retail property investors are having difficulty finding a “deal,” as there are no more distressed sale opportunities and the previous wave of underwater, over-leveraged owners is not as substantial as it was in past years. With a lack of available inventory, it’s a seller’s market and now is the right time for retail property owners to sell. Demand has increased and supply remains low, so this trend is maximizing values through market competition.

The low transaction volume indicates that sellers have been sitting on the sidelines. Many retail owners are now wondering if this a good time to sell. Some of them are taking advantage of the high demand by putting their properties on the market.

For example, one Franklin Street client recently marketed a retail center on Jacksonville’s Northside that sold immediately, resulting in a 15-day contract-to-closing scenario. Another client just received a similar full-price offer within two days of listing its retail plaza in the Fort Caroline area that is now set to close.

This market activity is being driven in part by national retailers that are looking to enter the Jacksonville market for the first time. The region’s first IKEA location opened recently. More than 20 new restaurants are coming to the St. Johns Town Center area at two new mixed-use developments: Town Center Promenade and The Strand & The Crossing at St. Johns Town Center. Many of these eateries are national or regional chains that are new to Jacksonville. We expect this trend to continue as Jacksonville keeps growing above the national average and as it consistently ranks as one of the nation’s most affordable places to live or visit.

Low Retail Property Inventory
Jacksonville’s shortage of retail investment properties on the market has created a challenge for those looking to invest in commercial real estate.

Currently, there is high market demand for older properties and investors are looking at these assets in a couple of different ways. Some investors view them as an opportunity to buy a property and have the benefit of higher cap rate rates than top assets, while others are looking at these properties, particularly those on great real estate, as an opportunity for redevelopment.

Redevelopment is very attractive for local investors that already own property in the market, know the region and live in the area. Those investors have the expectation that they can hold the property and receive cash flow from existing tenants as they confirm their redevelopment plans.

— By Chad Atwood, Director, and Justin Spiller, Associate Director of Franklin Street. This article originally appeared in the January 2018 issue of Southeast Real Estate Business.

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