The Jacksonville industrial market finished 2020 on a high note. A boost in ecommerce demand from the pandemic has supported strong leasing appetite, owner-user purchases and increasing rental rates.
Colliers International outlines the market dynamics in a new report. New construction, which represents about 1.9% of the current industrial stock, has created what the report calls a “trickle-up” effect where industrial users are shedding dated space for quality new construction product. The trend has produced a combination of rising industrial vacancy—which hit 5.4% in the fourth quarter—and rising rents—which increased to $5.21 per square foot.
While other asset classes are closely monitoring the vacancy rate—typically because a rising rate leads to tempered if not negative rent growth—Colliers says that increased vacancy is actually a welcome relief in the Jacksonville industrial market. In 2018, the local vacancy rate reach lows of 2%, giving users limited options. Today, the increased rate of 5.4% still points to healthy market conditions, and new construction activity is well matched to demand.
Jacksonville has approximately 2.5 million square feet of new product under construction, a decrease from 2019 when the construction pipeline swelled to 6.3 million square feet. Most of the activity is wrapped up in a single project: VanTrust’s Imeson Industrial Park. Three quarter of development is taking place at the site in the form of large, single-tenant facilities. As land become limited, the construction activity will continue to decline or developers will begin to consider alternative development sites, like storage lots, that will be conducive to new construction.
These dynamics bode well for capital investment, however. The asset class has been the most popular in 2020, and several large deals closed at the end of the year. Most notably, Graham Commercial sold three properties in Jacksonville to Exeter for $77.4 million or $65 per square foot. The transaction was part of an $800 million, 52-property portfolio deal.
Jacksonville wasn’t the only market to see an end-of-the-year surge. Several major industrial deals closed in November and December
. KKR acquired two industrial distribution properties in Texas totaling approximately 1.8 million square feet for $171 million; Stockbridge formed a joint venture with the National Pension Service of Korea to acquire core logistics properties in the US; and Rexford Industrial Realty acquired an 18-asset industrial property portfolio for $154.6 million.
Colliers expects to see a similar trend in Jacksonville through 2021, with slightly rising vacancy alongside rising rents and strong leasing demand.