Warehouse vacancies expected to rise, could reach 20%

Jacksonville Business Journal - by Mark Szakonyi Staff Writer
JACKSONVILLE — The story isn’t what is in Northeast Florida warehouses, but what increasingly isn’t in them.
The international trade slump reflected by the decreased freight coming through the Port of Jacksonville’s new Asian terminal means warehouse vacancy is expected to continue to increase. And with an overabundance of space even before the recession hit, construction of new warehouse space in the coming year will be meager.
“Everybody is trying to feel out where the opportunities are going to be,” said Bill Spinner, president of  Spinner Construction Inc. “I have people calling me saying, ‘Hey I have a great investment property for you.’ Are you kidding me? I’m going to wait to see what happens.”
He said the market needs to reabsorb some of the empty space before general warehouse construction ramps up again. The vacancy rate for Northeast Florida warehouses has jumped to about 9 percent from 8.4 percent in the last quarter of 2008, according to  CoStar Group Inc. statistics.
The warehousing downturn is good news for one group: tenants. Rates can be renegotiated and many warehouse owners are throwing in some extras as incentives to stay.
 W&O Supply Inc. President Jack Guidry said not only has he been getting better rates at his warehouse space in Jacksonville, but also at the company’s warehouses in San Diego and Mobile, Ala. The average rate per square foot, which includes rent, insurance and other costs, is about $4.24, compared with $4.41 per square foot in the last quarter of 2008.
“What is more interesting is the creative financing projects we’re seeing,” he said.
Guidry received a few free months of rent and had his premiums lowered. Warehouse owners are also more willing to knock down or add walls to suit tenants’ needs.
 Patillo Construction Co. Vice President Peter Anderson said he doesn’t expect the vacancy rate to begin decreasing for another two years. When the market does hit bottom, it’s not going to be a steady climb back to its previous health, either.
“It’s going to bounce around awhile,” he said.
In other words, new warehousing construction will be more of a ripple than a wave. The construction market has adjusted to the decreased demand with about 762,000 square feet of space under construction, compared with the 1.7 million square feet of space being built in the last three months of 2008.
The brakes went on fast, especially considering about twice as much warehouse space was being built in the first quarter of 2008 than in the fourth quarter.
Anderson said he wouldn’t be surprised if the area’s vacancy rate hits as high as 20 percent before the tide turns. The driver for commercial space has been the residential construction boom, and it’s not coming back to give the warehousing sector the needed boost even when the economy improves.
“We’re not forecasting that consumers are going to consume at the level that they have been consuming” even when the recession wanes, Anderson said.
In the meantime, he said his company is focusing on keeping tenants by maintaining the warehouses and providing upgrades at no extra cost. Anderson expects the port to deliver on its promise of increased freight coming through the area, but acknowledges that, like ports in Savannah, Ga., and Charleston, S.C., Jacksonville has too much warehouse capacity.
The completion of the Panama Canal widening in 2014, which is expected to increase traffic to East Coast ports, will open the floodgates for freight to come through area warehouses,  Schafer Development Co. Inc. Managing Member Steve Schafer said.
But for now, the company, which owns about 300 acres of undeveloped land in Northeast Florida, is planning to buy several hundred acres of land this year. The company doesn’t plan to raise roofs unless it’s for specialty-type warehouses, such as the turbine facility it’s building.
Aside from cheaper land prices, the process of permitting and getting environmental approval is faster now that agencies are not clogged with requests, Schafer said.
“Jacksonville is on top when it comes to completing the development and permitting process,” he said.


Webmaster:     webmaster@iric.com