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Although Jacksonville's office market started off the year slowly, the slowing of corporate downsizing, a growing number of longer-term leases and projects like the Emerald Trail gather steam, local brokers say they're optimistic about the future.
Since the pandemic, office has received “a lot of bad press,” Cushman & Wakefield Senior Director of Capital Markets Group Karl Johnston said
Jacksonville has fared better than some other metros: While the pandemic heightened already occurring trends like corporate downsizing that led to vacant space, a lack of new inventory and presence of backfill tenants here kept Jacksonville’s market in better shape than others across the country.
Corporate downsizing has gone through cycles. At one point, the average square feet per employee was around 310, which has decreased to about 140 per employee. For example, Wells Fargo reduced its office space in the Wells Fargo Tower from six to two floors, Johnston said.
But he predicts that phenomenon is about 60% to 70% over.
“We have strong job growth, strong population growth, so the future of office, it’ll always be there,” he said.
Vacancy rates continue to sit around 20%, which is high, but new buildings aren't hitting the market, which should allow that number to fall.
Successful office assets in the market have fared well, maintaining 90% occupancy. Even with downsizing, Johnston told the Business Journal, there are backfill tenants in the market.
During the first quarter, Cushman & Wakefield saw a positive absorption of about 70,000 square feet, which Traci Jenks, who specializes in office properties, described as a “huge plus.”
Her optimism is rooted in Jacksonville’s growing workforce. She referenced the No. 2 job market rating the Wall Street Journal gave the city.
Jenks also pointed to projects like the Emerald Trail, which require construction companies suited for transportation development. She said she thinks companies will come to Jacksonville because of that project and several other transportation and infrastructure developments in the works.
The majority of office space is leased in the suburbs, and that has historically been the case. Johnston said about 70% of office deals are suburban.
All hope for downtown isn’t lost, though.
More people have been looking at active areas like the Southbank and Brooklyn, Jenks said.
“When all these projects that are happening downtown, especially Gateway Jax, then I think you’re going to see more employers wanting to be in the core of downtown because they want to be where the vibrancy is,” Jenks said.
As companies seek smaller spaces, they’re also more suited for downtown. Jenks said the big 50,000-square-foot spaces were the ones taking up suburban space where the smaller companies would look at the downtown area as they don’t require as much parking.
There’s also been indications of a reversal in the corporate downsizing trend — some larger corporate users that downsized realized they need their space back. Meanwhile, smaller tenants have begun expanding.
Trends of short-term one- to two-year lease renewals are phasing out as well.
“The good news is we’re seeing more people that are willing to consider things long term,” Jenks said. “They know more of what size they feel like they want to be in three to five years.”
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