Northeast Florida economy exceeds expectations 'due to a sturdy consumer'

State numbers show that Northeast Florida's 3% unemployment rate, accompanied by a projected 2.1% population growth along with job gains and income increases, positioned the economy in 2024 for a healthy 2025.

Commercial real estate companies and developers are banking on that while watching in the new year for headwinds that include the effects of tariffs, interest rates, inflation, political and workforce (specifically work-from-home) policies and the unexpected or unpredictable, such as hurricanes.

"The U.S economy continues to exceed expectations," said CBRE in its year-end market report. "Much of this is due to a sturdy consumer who is enjoying increased household wealth, real income growth, and a resilient labor market."

But while economic growth along with Federal Reserve interest rates cuts "would be rocket fuel for commercial real estate," the capital markets are skeptical of how low rates will fall in 2025. Still, stronger debt markets and balanced space fundamentals could lead into a "noticeable uptick in investment."

As 2024 ended, area commercial real estate firms summarized their views in their year-end Jacksonville area market reports. Here are summaries based on research by Avison Young, CBRE, Colliers, Cushman & Wakefield, JLL and NAI Hallmark.

Logistics strength leads to ongoing demand in region

As consumers continued buying food, clothing, housing, appliances and other wants and needs, companies built and leased warehouses and distribution centers to store it on its way through its logistics journey as of the fourth quarter of 2024.

"Industrial space continues to be in high demand in Jacksonville as it remains a leading logistics hub," reported NAI Hallmark.

"The sector boasts a healthy construction pipeline and witnessed the highest net deliveries of any other asset type in Q4," it said.

Rent continued to moderate from its 2023 peak, but remained healthy, NAI Hallmark said.

CBRE reported that tenant demand proceeded at a slower pace compared with the fourth quarter of 2023 as tenants took longer as they evaluated their space needs, the economy and the pace of interest rate reductions,

CBRE said major leases that included FreezPak Logistics (272,400 square feet), Amazon (181,000 square feet), Niagara Bottling (115,400 square feet) and Modern Cabinetry (67,588 square feet) overcame the Fanatics departure from almost 550,000 square feet in West Jacksonville.

Small to midsize tenants were more active in 2024, as shown by the average lease size of 30,279 square feet, down from an average 60,625 square feet in 2023.

CBRE forecasts an industrial vacancy rate of 8% by year-end 2025 before dropping to 5.9% by the fourth quarter of 2026.

"With over 7.5 million sq. ft. of tenants in the market as of December 2024, new speculative construction deliveries are necessary to accommodate tenants looking to open new distribution centers in Jacksonville," CBRE said.

Colliers reported that the Jacksonville industrial market remained strong throughout 2024.

"Leasing activity matched new supply and reached 4.8 million square feet. Leasing activity was intensified by a significant increase in activity on the tenant side, compared to last year," Colliers said.

National and international prospects are active.

"In fact, due to the threat of tariffs, there has been an uptick of tenants from overseas touring for space in the market," Colliers reported.

Colliers wrote that Jacksonville continues to attract new companies despite tight market conditions, "drawn by the city's competitive costs and high quality of life."

It found that along with positive sentiment post-election and Federal Reserve interest rates cuts, Jacksonville is positioned well for sustained industrial market strength in 2025.

Colliers reported that 4.8 million square feet of space was delivered in 2024 with another 6.9 million square feet under construction.

More than 80% of new space is in the Oceanway area of North Jacksonville, in West Jacksonville and in St. Johns County.

Warehouses and distribution centers dominate new construction, although almost 900,000 square feet of refrigerated and cold-storage space is in development.

"Jacksonville's appeal to developers stems from several factors, including long wait times and limited rail access at the nearby Port of Savannah, and the availability of ample land ready for development," Colliers wrote.

The real estate companies measure space, rents and completion differently, but agree overall in trends.

Cushman & Wakefield attributed the increase in vacancy to the construction of new warehouse distribution space coupled with a slowing of leasing.

It found that almost 75% of the 3.2 million square feet of space completed last year was delivered vacant – meaning it was not leased.

Cushman & Wakefield found that large spaces remained the main contributor to vacancy, with spaces topping 200,000 square feet making up 48% of the vacant space on the market.

Nearly 3.4 million square feet of industrial space remained under construction at year-end, down 12.7%. It found that 2.7 million square feet of that is speculative.

Cushman & Wakefield found that total leasing during 2024 was down 51% over the year, "driven by a slowdown in big box leasing."

It reported that 15 deals topping 100,000 square feet were inked in 2024 compared with 24 in 2023.

Rents rose 2% over the year, it found, but rates could stagnate as owners lower rents as more buildings are completed.

Population growth means strength in retail

Developers continue building retail space and demand continues strong, although new construction slowed in the fourth quarter of 2024 as interest rates affected the market.

"There is a more positive sentiment leading into the new year with several large retail developments permitting for 2025," reported Colliers.

It said notable plans include the recently announced The Village at Seven Pines and another proposed grocery-anchored center in Durbin in St. Johns County.

"These projects signal continued interest in strategic retail expansion and optimism for what 2025 will bring, despite current economic hurdles," Colliers wrote.

It said retail vacancy remains low at 4.3%, suggesting "sustained strong demand for space."

"The current high-interest rate environment presents significant challenges to the financial feasibility of assets that require borrowing," Colliers said.

Colliers said that at the end of 2024, Jacksonville's retail market fundamentals remained relatively consistent.

"Jacksonville has become one of the nation's fastest-growing markets for population growth the past few years, which drives higher demand for retail concepts," it wrote.

Base rents continue to rise.

NAI Hallmark reported that retail rent growth in Jacksonville continued to outpace the national average in the fourth quarter of 2024.

"The difficult capital markets environment over the last few years has slowed construction, leading to a lower supply of retail space," NAI Hallmark wrote.

"The construction pipeline is healthier than years past, but we can still expect demand to outpace supply for some time as people flock to Jacksonville."

Remote, hybrid work keeping cubicles empty

As of the fourth quarter of 2024, Jacksonville area office landlords were facing – and bracing for – the continuation of remote working.

"Lower demand for office space due to hybrid work has led many tenants to downsize and seek shorter term leases," reported NAI Hallmark.

"Going into 2025, a 'return to office' movement around the nation has sparked some optimism that companies will return fully to office, but it is unlikely that the sector will return to its pre-Covid performance any time soon," it said.

Office vacancy remains on the rise, reaching the 27% range Downtown, and up to 24% overall. Rates range lower on the Southside.

"Total vacancy has remained consistently above 23% over the past year with companies taking longer to make decisions on their space needs," reported CBRE.

More office space was vacated than leased, CBRE found, led by the 76,652 square feet of space that Wells Fargo vacated. The bank downsized Downtown and took its name off the tower it anchored.

Colliers attributed the slowdown in leasing in the October-December quarter to the holiday season "coupled with general hesitation regarding the election results within the business and investment community."

Colliers found that the more desirable areas for office leasing were concentrated along Butler Boulevard in Southpoint.

Cushman & Wakefield reported that older Class B space accounted for almost 55% of 2024 leasing, while only making up about 48% of inventory, "illustrating the shift to lower quality space as companies seek cost savings."

Cushman & Wakefield said suburban submarkets "far outpaced" Downtown central business district leasing again, accounting for 84% of new deals in 2024. The Deerwood Park submarket led the year's activity with 329,800 square feet of space signed, up almost 51%.

Meanwhile, new office development was focused on small to midsize projects, particularly in the medical sector, Colliers found.

The majority of construction was concentrated in the Beaches, Orange Park/Clay County and St. Johns County, with projects averaging about 21,000 square feet, Colliers reported.

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Commercial real estate expert insights

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