The Jacksonville multifamily market continues to enjoy strong fundamentals at levels not seen since before the recession. In fact, the last 18 to 24 months have seen a major record-setting environment. Jacksonville saw new records being set across the board from all asset classes in all submarkets. Class A and value-add assets continue to see cap rate compression and consequently we have new benchmarks for highest price per unit and price per square foot.
In 2014, Jacksonville reached nearly $800 million in sales — accounting for more than 12,000 units (includes transactions exceeding $1 million). Based on the year-to-date transactional volume — $735 million with multiple large deals set to close by the end of the year — it’s safe to say that we will exceed last year’s amount. This is the highest sales volume for multifamily in Jacksonville in the last decade.
Brian Moulder, CBRE
The apartment market has experienced a steady improvement in fundamentals during the past 12 to 15 months. Effective rent increased 2.6 percent from $905 in the first quarter to $928 in the second quarter, which resulted in an annual growth rate of 5 percent. According to CBRE Econometric Advisors’ (CBRE EA) second quarter report, the forecast for the annual effective rent growth is 3.6 percent in 2016 and average 3 percent from 2017 to 2019. The southeast quadrant of Jacksonville is seeing rent growth as high as 8 percent.
The market’s occupancy rate increased from 93.6 percent in the first quarter to 94.7 percent in the second quarter, and was up from 93.4 percent a year ago. CBRE EA is projecting Jacksonville’s occupancy rate to be 94.9 percent in the second quarter of 2016, and average 94.3 percent from 2017 to 2019. Jacksonville’s occupancy rate has averaged 93.6 percent since the third quarter of 1995. Certain submarkets are consistently seeing occupancy in the mid to high 90 percent range.
CBRE EA’s short-term forecast calls for an overall increase in the number of workers through year-end 2016. The forecast for total net absorption is a positive 1,153 units, lagging supply during the same period. The market is only seeing a handful of deals that are either in construction or planning phases. Most of the units from the last development cycle have been absorbed and consequently we are not seeing any concessions in the market. There are a few properties in lease-up/stabilization and leasing velocity for these deals ranges in the 20 to 30 units per month with minimal or no concessions.
Downtown/Riverside assets, along with the Beaches submarkets, are seeing the strongest absorption. Southside, near the popular St. Johns Town Center, has seen the most development activity post-recession, although the deliveries have been spread out and absorption has outperformed expectations. CBRE has handled several pre-stabilized sales that have allowed for institutional capital to acquire multiple trophy assets, including The Four at Deerwood.
On the sales front, there remains a limited number of properties for acquisition and investors are aggressively competing for quality assets. Some of the more aggressive activity has come from foreign and first-time buyers that are diversifying their overall investment portfolios to include a multifamily component. Notably, CBRE observed an influx of new capital, primarily foreign, entering the North Florida market for the first time this year. Of the last 25 North Florida assets sold by CBRE in 2015, 19 were sold to first-time buyers in the market. Typically, the sponsors were U.S.-based, but the majority of equity flowed from overseas, including China, Israel, Saudi Arabia, Bahrain, Canada and Central and South America. This new capital is all driven by rent growth.
Job and population growth are two of the biggest factors impacting positive trends in Jacksonville. Forbes Magazine ranked Jacksonville as the second fastest growing city for tech jobs due to a 72.4 percent increase in tech employment and 17.4 percent STEM job growth — science, technology, engineering and mathematics — since 2001. Over the last five years, total employment in the Jacksonville area has grown at an average annual rate of 1.9 percent, while across the U.S. employment has grown at an average annual rate of 1.7 percent.
In the last four quarters, Jacksonville’s employment has grown at an average annual rate of 2.4 percent. CBRE EA predicts around 19,000 new jobs for 2015 and the forecast from 2016 to 2019 is very positive as well, calling for more than 19,000 jobs to be added annually. Healthcare, technology, financial services and construction services are leading the way on the job production front.
Population growth has been very solid over the past 10 years in terms of annual population percentage gains. According to the U.S. Census, Jacksonville had the biggest population gain of any Florida city in 2014 and is the nation’s 12th most populous city. The figures released by the U.S. Census Bureau show that Jacksonville’s population grew to more than 853,000 residents last year, an increase of 9,300 residents.
Overall, Jacksonville’s apartment market should have a very strong finish in 2015 and continue to see significant improvement in 2016. With improving fundamentals, positive job growth, demographic shifts to rental and a constricted 2016/2017 development pipeline, investor interest level in the Jacksonville apartment market should continue to increase significantly.
By Brian Moulder, Senior Vice President of Investment Properties, CBRE. This article originally appeared in the December 2015 issue of Southeast Real Estate Business.