The Port of Jacksonville is about to undergo a transformation thanks, in part, to the widening of the Panama Canal, now in progress, which will allow ships from Asia to come directly to the East Coast. At the same time, Japanese shipping giant Mitsui O.S.K. Lines Ltd. is building a terminal at the port that is expected to be completed by late 2008.
These are some of the developments that will shift the focus in Jacksonville somewhat away from trade with Puerto Rico, which has been the port's main trading partner, to Asian countries. At the same time, port officials are trying to get federal funds to dredge a section of the St. John's River, which is Jacksonville's shipping channel, in order to accommodate the larger ships these changes will bring.
The prospect of all these developments at the port is attracting industrial developers to Jacksonville. Among them are the Chicago-based Alter Group, one of the largest developers in the country, which celebrated its Southeast division's 20th anniversary last September.
Based in Atlanta, the southeast division will soon begin development of the Pecan Park Logistics Center, a 1 msf industrial park with two 500,000sf bulk distribution buildings near the Port of Jacksonville.
Land for the park is under contract and is expected to close in the first quarter of this year.
In Jacksonville, industrial facilities are getting bigger, said Todd Yates, Alter's senior vice president of national development. Until the last year or two, new industrial buildings averaged 150,000sf, whereas today, they are more likely to be 500,000sf to 1 msf, he said.
At the same time, the absorption of industrial space has increased in Jacksonville, according to CB Richard Ellis. CBRE reports that in 2007, the industrial market in this MSA absorbed 4 msf compared to 2 msf in 2006.
Jacksonville is also benefitting from high rental rates in other Florida markets, said Yates. In South Florida rents are as high as $8 psf to $9 psf for bulk industrial space, and in Orlando, they are $5 psf to $6 psf, if one can find it, he said. In comparison, Jacksonville industrial rents run from $4.25 psf to $4.50 psf, Yates said.
"For international trade, you have to be in South Florida, but distribution is all about store location, and lots of companies which can't pay $8 or $9 per square have moved (their distribution warehouses) to Central Florida along the I-4 corridor," said Yates. But the recent boom in Orlando has limited the amount of industrial land that is left there, causing rates to rise by as much as 50% during the last three or four years, he said.
In South Florida, the Alter Group is predominately an office developer.
It is working on two projects in the region, which include the Cypress Creek Concourse, a 52-acre park in the Cypress Creek submarket of Fort Lauderdale, and the Everglades Corporate Center in Sunrise, on the edge of the Everglades.
At the Cypress Creek Concouse, the Alter Group recently built two approximately 100,000sf office buildings that are occupied by Kaplan University, and the company is planning to build a third 100,000sf office building, possibly starting this summer.
"I have all the respect in the world for the Alter Group," said Tom Capocefalo, managing director of the South Florida office of Studley Inc. "They have the economic wherewithal to build, and it is probably difficult to get large blocks of contiguous space in the Cypress Creek market, especially in newer buildings," he said. The fact that the building will not be very big also helps, said Capocefalo.
At the 40-acre Everglades Corporate Center, the Alter Group is in a joint venture with the Louisville-based Poe Companies. A mixed-use development, the project will include a residential component along with office, retail and hotels. The initial phase of Everglades Corporate Center - which will have a 225,000sf office building, retail space and two hotels, a Courtyard Marriott and a Residence Inn - is scheduled to break ground in the spring of 2008. A second, 225,000sf office building will be built in Phase Two of the project. Although the Alter Group won't build the retail portion, it will be the master developer for five restaurant/retail sites.
Yates said that his company, which manages commercial space in addition to building it, likes South Florida because the market fundamentals are strong. The lack of available land and other barriers to entry make the region attractive, he said.
South Florida is a better market for commercial real estate than Atlanta, but finding developable land is difficult, said Yates. Over the last two or three years, some office and industrial land has been used for commercial condos (the Alter Group only builds rental commercial space), while a number of other office and industrial sites were rezoned for residential development, he said. All the land available today in South Florida has issues, especially environmental issues, or it requires going through the Development of Regional Impact (DRI) process, he said.
High land prices and time-consuming government approval processes are also hurdles to overcome in South Florida. "We bought the first piece of land in Fort Lauderdale 10 years ago on Commercial Boulevard for $3.27 per square foot, and entitlement for the company's first office park in South Florida took six months," he said. "Today, we are paying north of $20 per square foot, and the entitlement process in the region can take over two years," because of the sheer volume of development, said Yates.
The Alter Group also has projects in Orlando, where it is preparing to develop additional office space at the Quadrangle Concourse, an office park in Orlando adjacent to the University of Central Florida. So far, said Yates, the company has built a little more than 800,000sf in six buildings at the park in the last eight years. "We are able to build another 250,000 square feet and are getting ready to start an 100,000 square foot office building in early summer," he said.
Yates said that he is actively looking for more land in Orlando as well as Jacksonville, South Florida and Tampa. In Atlanta, office and industrial markets haven't recovered from the 2001-2002 recession, and rents haven't grown in eight to nine years because developers overbuilt, he said.
Florida is preferable to many other places, said Yates, because rents have grown over the last two to three years by 5% to 10% without any leasing concessions. There are a handful of good markets in the Southeast, outside of Florida, including Charlotte, "but you don't see rent growth there like you do in Florida," said Yates. The only market in the South that compares to Florida is Washington, D.C., he added.
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Revised: February 10, 2010 .
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