Housing Boom Creates Commercial Opportunities
Young workers, growing companies and favorable interest rates are driving demand for housing in Northeast Florida.
The resulting boom in the residential real estate market is fueling commercial development as well, centered around the strongest pockets of growth.
Multi-family housing is surging as recent college graduates lured by career opportunities at small businesses secure apartments in the St. Johns Town Center area, where retail development continues.
“Jacksonville has become a job mecca for newly graduated students from four-year universities and that’s a demographic well-suited for multi-family living,” said Paul Porter, a local developer and broker with Watson Commercial Realty.
As of the second quarter of 2014, the area’s multi-family occupancy rate was 94 percent and rents were increasing 3 percent to 5 percent annually, according to the Walchle-Lear Multi-Family Advisors Second Quarter Review. New-apartment starts have averaged 1,182 units per year.
Sales of apartment complexes have been the major driver behind commercial real estate activity in the Jacksonville market, with nearly 6,000 units selling for a total of close to $400 million, Porter said. Another 5,000 units are under contract or listed, he added.
Like young professionals, consumers who are rebuilding their credit following the fallout from the housing crash and recession are also living in apartments. “There’s definitely an upswing in those who have to rent rather than buy,” Porter said.
Continued economic expansion and improved consumer creditworthiness bodes well for future single-family-home sales because home ownership remains a popular goal. Favorable interest rates are helping the single-family market in the meantime.
The number of new residential building permits issued in the past 12 months, 6,000, was 20 percent higher than the permits issued in the previous 12 months, and 300 percent more than a few years ago, Porter said. Builders have been particularly busy in northern St. Johns County, southern Duval County and near Jacksonville International Airport.
“People are able to buy more house than they might be able to afford in a normal interest rate environment,” Porter said.
Home buyers can also get deals on properties in communities that were started but not finished before the economy tanked. Lots in such communities often are priced lower than they normally would be because developers wrote lots off of their books as “impaired,” as demand evaporated after the neighborhood’s infrastructure had been built out.
Prices have also been driven up in some cases because of a “bottleneck in the marketplace” that’s been caused by baby boomers delaying retirement and homeowners looking to recoup value that they lost during the recession holding onto their homes longer than they otherwise might have, University of North Florida Economist Paul Mason said.
Housing prices will rise as impaired lots come off the market, Porter said. “People are getting a lot more home for their money right now.”
So too, will prices climb as banks sell houses that were foreclosed upon. “If they had released all of the houses on the market at one time it would have destroyed prices,” Porter said.
Banks are also listing homes for less than what they know they can sell them for, so that they can drive up the price through competitive bidding, Porter said, noting that multiple offers for a property are common.
Porter has been particularly surprised by the growth around Jacksonville International Airport. “That’s become the new area for starter homes,” he said.
“I’m always shocked when I go by River City Marketplace at how packed that area is. The activity is unbelievable.”
Led by St. Johns Town Center and River City Marketplace, the Northeast Florida retail market has been strong overall.
As of the second quarter, the retail vacancy rate was 7.7 percent and eight buildings totaling 49,218 square feet were completed in the Jacksonville retail market, Porter said. Over the past four quarters, a total of 203,472 square feet of retail space has been built , he said.
Like home building, retail development has supported the creation of construction-related jobs. Much of the area’s job growth can also be attributed to hiring by retailers.
“If you look at traditional hiring patterns, when there are major influxes of new workers being hired it’s primarily driven by small businesses, not big,” Mason said.
Though lower-skilled positions are being created first, those workers will eventually need the services of professionals like accountants. “The direct effect will be coming from the small businesses but in this case it trickles up to the higher skill levels,” Mason said.
New jobs have not resulted in new office space yet. “The commercial real estate market is recovering to some extent but not as rapidly or as broadly,” Mason said.
Big businesses are not hiring. “If they’re not hiring you don’t need office space,” Mason said.
Downsizing in government employment has stifled the need for new office space as well. “The shrinkage of the government sector is slowing the growth of the employment sector and the real estate market,” Mason said.
The area’s office vacancy rates has risen to 12.4 percent and vacant space increased by 125,000 square feet in the second quarter, Porter said. Though it is not evident in looking at rents alone, rental rates are dropping through the use of “free rent” and other incentives to attract lessees, particularly to first-class office space that has not had such high vacancy rates in the past, he said.
“The office market here is still a disaster,” Porter said.“Bigger employers are still managing the expense side of their income statements.”
The industrial market is substantially stronger, Porter said, with a drop in the vacancy rate to 8.6 percent and a net absorption of approximately 339,000 square feet during the second quarter. Even though the industrial market is making a comeback, he said, this increase in space utilization has not been reflected by increases in rental rates.
Employment in key industries like health care, insurance and tourism will drive future job growth, Mason said.
Jacksonville’s reputation as a top place to start a business also will bring potential employers, which in turn could attract recent college graduates looking for jobs.
Jobs drive growth.
A strong job market supports Jacksonville’s residential building activity. Here are some key statistics:
- Jacksonville, as part of the 4th Congressional District, has 9,670 jobs associated with the maritime industry, placing it third among U.S. Congressional Districts, according to a study by PricewaterhouseCoopers, the Transportation Institute and the American Maritime Partnership.
- Jacksonville is s one of the top destinations for new college graduates, according to an analysis by Forbes magazine.
- Jacksonville is the fourth best market in the U.S. for finding jobs, according to Forbes.
- The Jacksonville MSA has gained more than 25,000 jobs in the past year and almost 60,000 since 2011, according to the Florida Department of Economic Opportunity.
- The unemployment rate was 5.9 percent, as of July 2014, according to the Florida
***Department of Economic Opportunity
Real Estate Roundup
The following analyses of Northeast Florida real estate markets are provided by Paul Porter of Watson Commercial Realty.
Single-family home-building is booming in Northern St. Johns County largely because of the growth of Nocatee in Ponte Vedra, which is not to be confused with Ponte Vedra Beach. Nocatee has moved up from being ranked the fifth fastest growing planned community in the United States to #3. Through the end of the year, Nocatee expects to sell an additional 500 homes, matching the pace of the 2,000 homes that have been sold in the past two years. In general, building permits in the northern St. Johns County area are numbering 55 – 60 per month, down slightly from last year, when Nocatee, by itself, added 1,300 homes.
Mandarin is still the #2 market for new-home construction, most notably with Durbin Crossing at Julington Creek averaging 25 new home sales per month. Builders and developers have scoured the Mandarin area for infill construction sites and some new projects have come on-line, like KB Homes’ Abby Glenn off Sunbeam Road. But, generally, the area has no available new development sites for single-family projects.
The area surrounding River City Marketplace, within a three- to four-mile radius, is the third most active residential market in greater Jacksonville. The homes being built in and around Yellow Bluff Road and Bainebridge Drive are starter homes/entry level.
St. Johns Town Center
The area surrounding the St. Johns Town Center has seen an explosion in multi-family, apartment complexes, with nearly 2,000 units being completed since January 2013.
This was one of the fastest growing areas in Jacksonville, but the lack of available land in the more desirable areas to live has decreased the number of building sites for single-family residential. The Clay County portion of the OakLeaf Plantation area has approximately 300 lots left and the Duval portion has only about 500 lots left. So, whereas historically, Orange Park and northern Clay County had been the third fastest growing market in the greater Jacksonville area, it has been replaced by the north side of Jacksonville as a core area for starter/entry level homes. Despite this slowdown in permits being issued in Clay County from last year to this year, 80 per month to 70 per month, OakLeaf Plantation is still the third fastest growing community in the market at 20 units per month, behind Nocatee and Durbin Crossing, at 25 homes per month.
U.S. 1 Corridor (South from Race Track Road)
Palencia and Las Colinas are the major developments within this area. Each sells 20 – 25 single-family homes per month through an array of builders. Ample, well-priced commercial sites are available to service the communities of Nocatee, Twin Creeks, Las Colinas, Bartram Springs and Durbin DRI.
World Golf Village
Existing subdivisions of Murabella (Dreamfinders), Samara Lakes (Standard Pacific), and Sevilla (DR Horton) in the World Golf Village area, west of I-95 are averaging sales of 30 – 35 units per month, making it one of the most active markets in greater Jacksonville. Additionally, major residential projects are in the development and permitting stage on the east side of I-95 at International Golf Parkway. Experienced developers Eastland Development of Jacksonville and Hines of Dallas, Texas, have purchased large tracts on the north side (Bannon Lakes) and south side (Southaven) of International Golf Parkway, respectively. Total home sites will exceed 1,500.
SR 16/St. Augustine West
Julia and Dennis Smith sold their 600-acre homestead and farm to the Dahl Group, which subsequently flipped the project to Lennar Homes. Lennar is expected to develop Encanta, an approximately 600-unit, age-restricted community on the south side of SR 16, just 1.5 miles west of I-95. Already developed and 50 percent sold out is Standard Pacific’s Whisper Ridge, just west of the SR 208/SR 16 split, with estate-size homes starting in the low-300’s.
This is the most disappointing area in terms of new construction and commercial activity. Most thought the new courthouse would bring development to the area but that has not been the case. Properties have languished with “for sale” signs and there is no inkling of activity in the downtown area except as a young persons’ entertainment zone, with the establishment of a number of clubs. However, Shad Khan is focused on development in and around the north bank of the St. Johns River with much interest being generated by his possible bid on the property known as the Shipyards. Toney Sleiman of Sleiman Enterprises just announced a total redevelopment of The Landing as well. Can Khan’s and Sleiman’s focus on the North Bank and downtown, along with the progress being made to locate the Adams Class Naval Museum in the Shipyards, breathe new life into the downtown market?
Source: Paul Porter, Watson Commercial Realty