Matt Kesterson, Franklin Street Real Estate Services
With an unemployment rate at 5.8 percent in September, it’s clear that the metro market has bounced back from the recession, boosting demand for housing. GE announced that same month they would be opening a new plant, adding 500 jobs. Additionally, Forbes ranks the city sixth nationally in its list of best cities for tech jobs, just ahead of Silicon Valley.
Unlike other regions of the state that attract retirees and foreigners, Jacksonville is drawing young professionals and recent college graduates who are well-matched to small-scale multifamily projects. These single, well-educated and childless individuals tend to be renters. And because of their sophisticated tastes, they are driving the creation of live-work-play communities that resemble well-established submarkets like Brickell in Miami and along Magnolia Avenue in Orlando.
Residents who want to be close to entertainment districts are moving into the Southside submarket, which is close to downtown and the St. John’s River, and into Tapestry Park and Mandarin, both of which are on or near the river and have an urban-core feel.
Concessions are all but null and void in the multifamily market. The influx of young people and the corresponding mix of new construction and redevelopment have pushed up the occupancy rate on Class A-quality apartments to 93 to 95 percent. Lower-quality, older apartment complexes are benefiting too as renters squeezed out of the top tier trade down.
Just as important, rents are slowly and steadily rising by about $25 per month. That is undoing the damage of the recession from 2008 to 2012, when rents fell about $75 per month in total.
Rising with demand and revenues are 5,000 newly constructed units that are due to come on the market this year and in 2015. That’s not a lot compared to what’s in the works in Miami and Tampa Bay, which may be a good thing. The restrained pace suggests that it will be some time before we see in Jacksonville the type of overbuilding that marks the peak of a real estate cycle.
The properties are a mix of new developments near the intersection of Kernan and Beach boulevards, where walk-ups of two to three stories are planned; four redevelopments along roads leading to the beach totaling about 1,100 units; and tear-downs of old, small shopping centers for projects of 100 to 200 units.
The properties on the beach side of the St. John’s River tend to have fewer units of one or two bedrooms, and reach no more than five floors. They offer few amenities, such as covered parking — now an expectation in Jacksonville — and a pool.
Prospective buyers can be found in strong numbers. Out-of-town REITs are seeking Class A-quality properties, and private investor groups from Florida are bidding on older projects. All like the fact that insurance rates are holding steady at about $380 per unit depending on proximity to the coast, that operating costs have leveled off and that fuel prices have dropped in recent months.
However, buyers are encountering resistance from sellers. Having survived the recession to now experience rising revenues, property owners show little interest in offers. They would rather make up for the lost recession years than cash in right away.
As in other Florida markets, owners find that even if they were to sell, they would have few opportunities to reinvest or execute a 1031 exchange. And those that recently refinanced through CMBS brokers are often prohibited by contract from selling for several years.
The lack of turnover will likely spur more development, given that raw land and redevelopment opportunities abound. We could see more projects like the Blue Cross Blue Shield campus in the Tinsel Town neighborhood of Southside. The large-scale office development is spurring development of retail and thousands of apartments in what is becoming an edge city. Those units will be occupied by those who work in the area or like the amenities and convenient roadways.
Looking ahead, there’s no sign of Jacksonville apartment owners pricing themselves out of the market. Speculators and foreign investors, which have driven up property prices in other Florida coastal markets, have not gone as far north as Jacksonville. And the pace of building has been slow enough that developers are not being squeezed by construction costs. In a city where the one crazy weekend a year is the Florida-Georgia football game, a calm multifamily market reigns.
— By Matt Kesterson, Senior Director, Franklin Street Real Estate Services. This article originally appeared in the December 2014 issue of Southeast Real Estate Business.