Financial Services Sector is Driving the Growth of Jacksonville’s Office Market
With economic conditions improving across the country and business confidence significantly increasing, the Jacksonville office market is gaining momentum and seeing positive space absorption for the fifth consecutive quarter in a row.
Jacksonville’s tax-friendly environment, competitive business relocation incentives and strong labor pool have historically been a magnet for Fortune 1000 companies looking to establish back-office locations, but over the last few years, the city has evolved into a regional hub for the headquarters of domestic and international financial services companies.
Most recently, Georgia-based Ameris Bank announced that it would move its headquarters this January from Moultrie, Ga., to the 26th floor of Riverplace Tower in downtown Jacksonville. Among the reasons why Jacksonville was an attractive location for its headquarters is the ability to tap into the city’s growing skilled workforce and the opportunity to increase the bank’s footprint and brand exposure in this market.
Jacksonville is also becoming a hotspot for global financial firms like German global banking and financial services company Deutsche Bank and Australia’s Macquarie Group. Deutsche Bank has been building its presence in Jacksonville since 2008, employing about 1,700 people, and continues to import jobs from the Northeast to Jacksonville as it grows its business operations. Leasing 200,000 square feet at Meridian Business Park and an additional 150,000-square-foot building near its campus at Meridian Business Park, the global financial services firm has now become one of the largest bank tenants in Jacksonville’s office market.
Following Deutsche Bank’s lead, Macquarie Group recently announced that it intends to open an office in downtown Jacksonville that will focus on global banking shared-services expected to create more than 100 jobs. The Macquarie Group plans to open the office by the end of the first quarter of next year.
In addition to Jacksonville growing into a global hub for financial services firms, there’s also been a wave of existing companies like Fidelity Investments that are in expansion mode as a result of a strengthening economy and brighter business outlook. Entering the Jacksonville office market nearly nine years ago, the Boston-based investment firm recently announced plans to add 300 jobs and lease an additional 45,000 square feet of office space at the firm’s current location in Deerwood North in Jacksonville’s St. Johns Town Center area, an emerging business hub.
An increase in company expansions is leading to positive absorption of office space in the Jacksonville market, with more than 497,890 square feet of space absorbed so far this year, according to JLL’s Office Insight quarterly report. We expect this trend to continue as multiple new-to-market and existing tenants such as McKesson Corp., SS&G and Ally Financial Inc. are touring the market for space and expected to make lease decisions between the rest of this year and 2016. The robust leasing activity is due in large part to the number of financial services firms that are interested in growing their footprints in the Jacksonville area.
Vacancy rates across the board are at an all-time low and expected to continue declining into 2016, with a lack of new construction on the horizon. Unlike other large cities in Florida, where urbanization is causing office rents to skyrocket in urban cores, Jacksonville’s strongest rent growth is happening in its suburban markets, such as the Butler Boulevard corridor and Baymeadows corridor. Take Butler Boulevard, where rents have increased more than 10 percent in the last year and the current total direct vacancy rate for Class A buildings stand at under 7 percent, according to JLL’s quarterly report.
We anticipate that over the next year the dynamics of Jacksonville’s office market will begin to shift as the availability of office space in the suburban markets continues to shrink. We can expect to see a rise in office space demand in the central business district if two large deals under negotiation in the suburbs close by the end of the year. Once those deals are inked, it would leave only one block of office space over 100,000 square feet available for rent within the suburban markets.
Downtown Jacksonville, which experienced only 1.4 percent rental rate growth over the last year, has in its inventory large contiguous blocks of space that would appeal to new-to-market tenants, as well as existing tenants that have outgrown their current business address. Furthermore, new multifamily buildings such as 220 Riverside, a 294-unit urban apartment complex atop 18,000 square feet of destination retail, will also play a role in changing the market dynamics because it’s adding to the housing inventory available in downtown. Already 80 percent leased, the new rental building is driving working professionals to move downtown and is already attracting companies like design firm Gresham, Smith and Partners to the area.
Overall, the outlook is bright for the Jacksonville office market over the coming year as a result of record low vacancies across the market, rising demand from large users and stronger economic conditions. While Jacksonville has lagged behind other office markets, it is beginning to emerge as an important office hub as more professional services firms continue to relocate and expand here. We expect that momentum to carry into 2016, making the year ahead promising for Jacksonville.
By Kaycee Gardner, Vice President of Brokerage, JLL. The article originally appeared in the December 2015 issue of Southeast Real Estate Business.