By Scott Henley
Northeast Florida’s commercial real estate market continues to strengthen, with some submarkets surging more than others.
Optimistic tenants are exercising options to expand on their rights of first refusal as their businesses grow and landlords are locking in higher rental rates as they scale back concessions.
Rental rates for Class A office space now exceed $20 per square foot on average, after languishing below that benchmark for several years. The Southside submarket has been particularly strong, given its inventory of corporate housing and convenient location relative to most of Jacksonville.
Professional services tenants such as engineering, software and accounting firms have had an impact on the expansion. Healthcare companies are expanding as well.
Looking ahead, an influx of space could undermine support for higher rates if large finance companies keep shedding space as they cut back staffing due to declining volumes of mortgage refinancings and problem loans. Some local companies are hesitant to expand their spaces or to extend their leases because of concern over uncertainty in macroeconomic conditions and regulatory policies. This hesitancy stymies additional increases in rental rates.
Underperforming submarkets, like the Baymeadows area, slow the region’s progress as a whole as well. The Baymeadows submarket continues to favor tenants, particularly those with strong credits.
Baymeadows landlords still must make significant concessions and keep rental rates low to fill space. Downtown landlords face similar pressures as they compete with the suburban office market.
At an average of $22 per square foot all-inclusive, Northeast Florida office space rental rates will remain too low to support the building of speculative space until demand for space increases. Rental rates need to be closer to $28 per square foot all-inclusive for investors to justify building speculative space.
A lack of speculative space could deter Fortune 500 companies from relocating headquarters to Jacksonville, particularly if they are also considering competing Florida communities such as Orlando and Tampa. But attracting corporate headquarters would help boost Northeast Florida’s office rental rates, thereby further strengthening the region’s commercial real estate market.
By Scott Henley
Scott Henley serves as a Vice President of Newmark Grubb Phoenix Realty Group and has approximately eleven years of commercial real estate experience in the greater Jacksonville area. In his role, he primarily focuses on tenant and landlord representation for both office and industrial clients. www.phoenixrealty.net
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