Is there an overabundance of commercial office space in Jacksonville?
It depends on who you ask.
Four months ago, the FDIC -- the Federal Deposit Insurance Corp., which
insures customer deposits at the nation's banks -- said Jacksonville was at risk
of overbuilding commercial office space.
But local commercial real estate professionals say from an outsider's point
of view it may appear there is too much commercial office space. They say the
out-of-town observers are out of touch with the growth of the local economy that
supports the construction of new commercial office space.
"In another three years, we will be back where we are now in terms of high
vacancy rates," said Lou Nutter, a commercial real estate broker at CB Richard
Ellis, a commercial real estate company with offices in Jacksonville.
"Jacksonville has continued to have a steady growth pattern and has not
experienced high peaks or big dips in the demand for office space."
Local real estate brokers say relocating and start-up companies need more
space to expand and thus will fill the existing vacancy in the market.
Currently, the city's vacancy rate is about 15 percent; 9 percent downtown
and about 19 percent in the suburban market.
Although a 15 percent vacancy rate is considered relatively high compared
with other cities, in a market like Jacksonville where jobs continue to be
created, it is not viewed as excessive.
"It is good to have some caution," said Nutter of the FDIC's warning.
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Giorgio Azzalin (center), developer of the Jaxoffices Professional Park in
Mandarin, looks over plans with president David Bard (left) and associate Susan
Scott of Bard Commercial Properties, Inc.
-- Don Burk/Staff--------------------------------------------------
He said it is common for the real estate market to see high vacancy rates,
such as those experienced in Jacksonville's suburban markets because companies
who need space demand availability.
Based on the cyclical nature of the real estate market, another building
frenzy will ensue in about 18 months, Nutter said.
Commercial real estate developers are constructing buildings with the
intention of securing tenants.
In September, the FDIC's Regional Outlook quarterly report issued a caution
that Jacksonville's commercial office market could be at risk of being overbuilt
if the economy weakens.
The report, which was a snapshot of construction activity in 1999 that
continued into last year, said Jacksonville had the seventh-most-active office
construction market of the 50 biggest metropolitan areas in the nation.
FDIC officials said builders added three times as much office space to the
market as was absorbed by new tenants.
The report was the second of its kind to be released by the FDIC, with the
first released in 1998. There are no plans for an updated report.
The Jacksonville area was among several cities identified as being at risk of
overbuilding commercial office space.
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Construction also continues on The Councourse III, the third building of a
Belfort Road office park in the Southpoint area.
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"These are some of the fastest-growing local economies in the country, and it
makes them vulnerable to overbuilding," said Richard Brown, chief of the
economic and market trend section of the division of insurance of the FDIC. "We
are not saying there is an overbuilding, but we are encouraging developers to
look down the road, in case the economy begins to slow.
"Clearly, it is the responsibility of the private sector to manage the risk."
The building boom that has taken place over the past two years is now easing,
not because of concerns of an economic slowdown that could diminish the demand
for office space, but instead because the construction is coming to an end.
One local commercial real estate broker sums up the situation.
"We have to have the space to show prospective clients," said Phillip
Parsons, a commercial real estate broker at Walter Dickinson Inc. of
Jacksonville. "We have banks who have outgrown their existing facilities. I
don't see anything out of the ordinary. It is a strong market. I have a client
that is looking for 7,500 square feet of ground-floor space toa day-care
center in the Southpoint area, and we have been looking for two months and we
have not found anything yet to fit their needs."
Building with a purpose
The Concourse, an office park located in Southpoint, was built with the
expectation of attracting tenants, which is the rationale used by developers who
build most office buildings.
The first two buildings are now occupied.
And now a third building is under construction, and prospects are favorable
that tenants will be secured for that building, according to Alex Coley, a
partner at Hallmark Partners Inc., a Jacksonville-based commercial real estate
development firm.
"It has really been a boom for us," Coley said. "The market has been strong."
What has taken place at The Concourse is a microcosm of what is taking place
in the commercial office space market.
The newer technologically enhanced buildings that have large parking lots in
suburban locations are becoming more functional for growing companies who are
eyeing Jacksonville as a place to relocate a headquarters, regional or district
office.
"Jacksonville has a vibrant economic base in itself, and recent interest in
Jacksonville helps that," Coley said. "It has been an in-migration destination,
and now, because it is a Super Bowl city, more companies are considering
Jacksonville."
There was 515,200 square feet of office space under construction in
Jacksonville at the fourth quarter of 2000, compared with 947,991 square feet of
space during the same quarter of 1999, according to statistics from CB Richard
Ellis. That represents a 46 percent decrease in the amount of office space under
construction.
"There is some slowdown in construction to help prevent a major build-up of
excess space," said Lynn Reaser, an economic analyst at Banc of America Capital
Management in St. Louis.
Reaser, who formerly worked as chief economist at Barnett Bank in
Jacksonville for four years, said the companies that drive Jacksonville's
economy will not have to cut jobs as much as other industries across the nation,
therefore, there will continue to be a demand for office space.
