Home Construction Lays Foundation for Retail Demand

High-end retailer Nordstrom has signed a lease to anchor the addition to St. John’s with a 124,000-square-foot store set to open in the fall of 2014, and another 30,000 square feet is planned for smaller stores.

In other areas of the metro, retailer H&M has opened its first Jacksonville location at the Avenues mall. Winn-Dixie is planning six new stores, and retailers Family Dollar and Dollar General are poised to open a combined six new stores as well. These retailers moving into the region will help attract smaller tenants to nearby locations, filling in dark space and enabling owners to lift rents.

After third quarter 2012, employment was down 500 positions although employers created 5,300 jobs during the third quarter. Employment over the quarter was broad-based, as 10 of the 11 sectors realized gains. Employment growth was led by the construction sector where employers hired over 1,900 workers. Hiring in leisure and hospitality followed, and payrolls expanded by 1,200 jobs during the quarter. Since the end of 2011, the education and health services and financial activities sectors have generated 94 percent of job gains, at 1,000 and 700 positions, respectively. Meanwhile, government agencies accounted for a quarter of job losses.

Additionally, retail sales rose 5.9 percent, compared with the previous 12 months when sales increased 8.6 percent.

The first phase of Parkway Shops in the Northside submarket is under construction and will be completed in mid-2013, anchored by Dick’s Sporting Goods and Marshalls. When all phases are complete, the center will add 350,000 square feet of space to the submarket.

There is more than 4.5 million square feet of retail space planned for the metro. Developers have more than 1 million square feet of space planned for the Northside submarket, including the remaining phases of the Parkway Shops, two mixed-use projects, and an expansion of the Rivercity Marketplace.

In coming months, construction will remain limited in the metro. Developers added 200,000 square feet of retail space in 2012, down from the five-year average of 735,000 square feet per year. Last year, developers added 66,000 square feet of space to inventory.

Vacancy peaked at 11.5 percent during the fourth quarter of 2010 and slipped to 10.9 percent by the end of 2011 as demand inched higher and construction slowed to a crawl. Though vacancy slightly fluctuated through 2012, it closed 2012 around 11 percent. Community center vacancy has remained relatively stable at 10.1 percent for the past three quarters, while neighborhood center vacancy declined 10 basis points to 15.3 percent over the same period. Although the majority of submarkets realized an uptick, vacancy in Westside submarket neighborhood and community centers dropped 130 basis points to 8.9 percent. Small lease signings, coupled with a 31,400-square-foot deal at the Anchor Plaza by Baileys Powerhouse Gym, contributed to the decrease. The majority of space that came online in late 2012 was preleased or build-to-suit and contributed to positive absorption.

Investment activity in the Jacksonville market will accelerate in the coming months as uncertainty among buyers wanes. Interest in the multi-tenant arena has picked up, and local investors continue to seek value-add plays, while grocery-anchored centers are attracting institutional-grade buyers. Single-tenant assets are in high demand among investors, and generally trade with cap rates 75 to 100 basis points higher than larger Florida markets. High-quality, triple-net assets will sell quickly when listed, drawing significant buyer interest.

— Kirk Felici, First Vice President and Regional Manager of the Miami office of Marcus & Millichap Real Estate Investment Services