MARKET SNAPSHOT: Indicators of Jacksonville Growth Means Watching the National Economy

Jacksonville, Fla.—The Jacksonville, Fla. market typically lags two quarters behind nationwide trends, points out Douglas Blair, senior associate-multifamily investments in the Jacksonville office of Colliers International.

“A lot of people say there’s an increase in rental rates—we won’t see that for a couple of quarters,” he tells MHN, adding, “if housing costs dip any more, or we get inflation, we won’t see that two-quarter national average change. If there’s an indicator that two months from now [rents nationwide] are going flat, we would remain flat.”

The metro-wide vacancy rate is currently 12.9 percent, down from over 16 percent in 2008, according to Colliers International’s first quarter 2011 Northeast Florida Research & Forecast Report. The market has seen a 1 percent increase in occupancy on an annual basis, which Blair notes is slow for this metro.

“What’s affecting that [is] the shadow market,” Blair says. “Florida, and Jacksonville, still has a high foreclosure rate, and there are a lot of homes sitting there on the market,” he tells MHN. “During the condo conversion craze, there were 3,000 units that went to conversion; we are seeing about 25 percent move back into the rental market but our growth is still low,” but he believes most of the shadow market effect stems from the single-family home foreclosures. “I know a few instances where homes were going for $900-$1,000; you see them out there for $150-$200 less a month than what they were and when you measure that against the [traditional] rental market, overall we saw $40-$45 loss per unit over the last two years. As long as someone doesn’t mind that type of maintenance and care [that comes with renting out a single-family home] they are coming down significantly.”

At the same time, the market has seen a slight increase in construction, with 264 units currently under construction, compared to the 120 units that were permitted in the last five quarters. According to Colliers’ report, Jacksonville, unlike some other Florida markets, only saw an average growth of approximately 500 units annually, including the 3,000-unit loss during the condo conversion craze. Fewer than 1,300 new units will result from the first quarter of 2010 to the fourth quarter of 2011.

As far as rental rates in the metro area, some markets have seen some significant improvement, but the overall market remained flat during the first quarter of 2011.

Average concessions, according to the report, are 7.4 percent, with some of the decrease due to lowering deposit requirements. Currently 45 percent of the total units surveyed are offering concessions.

“Overall, there’s really no change [in rental rates], and it’s so submarket-driven,” says Blair, pointing out that even C properties in Class A locations are performing relatively well, with the Intracoastal West area seemingly among the healthiest.

Meanwhile, he adds, the Arlington submarket seems to be somewhat less favorable, with many B and C Class properties, though there have been quite a few transactions.

For value-add buyers, says Blair, Jacksonville is a great place to be. “There’s a lot of properties that need to be resolved as far as issues in financing instability. That’s dominating the market.”

Transaction activity has picked up significantly from the past year. From the beginning of 2011 through today, Blair reports that 80 percent of the transactions, of which there have been 18, have been B and C distressed properties. Last year, he adds, the market saw only 12 deals trade all year.

Some notable transactions, according to Colliers’ report, include GE’s sale of its foreclosed portfolio, comprised of 1,239 Class C units, for $23.6 million, or $19,047 per door. Two of the communities are located in Arlington, one is in Westside and one is in Mandarin. Meanwhile, Waters Inlet, a 205-unit community in Arlington, sold for $2.8 million, or $13,659 a door, and Whispering Oaks, a 128-unit community in Southside, sold for $1.9 million, or $14,844 per door.

Positive indicators for the future of Jacksonville include the metro’s low tax burden and its business-friendly climate that include no corporate franchise tax, low property taxes and no local or state personal income taxes.

Additionally, points out Blair, Jacksonville’s port will be a strong indicator of future growth. “If we can get those jobs to increase, we will do fairly well,” says Blair.

On the flip side, the correction in home prices and mortgage rates have thus far hampered improvements to the rental market, according to the Colliers report.

“If housing costs rise, then it’s going to be good for the rental market. If they don’t rise, then the rental market will continue to suffer,” notes Blair.