While a virtual halt to construction has cleared the path toward recovery, the market, amid persistent weak demand, has taken only tiny steps in that direction. Indeed, progress, retarded by slow job growth in office-using sectors, appears to be at a standstill. With no new competitive general purpose, multi-tenant office space delivering over the two-year span 2010-2011, total net absorption was only 28,000 square feet. The two small buildings with a combined total of 61,000 square feet that completed construction during the first half of 2012 were accompanied by net absorption at just 32,000 square feet. The 46,000 that followed in July resulted in a year-to-date (seven-month) excess of demand over new supply on the order of only 15,000 square feet. Tenants are “playing musical submarkets,” states Jones Lang LaSalle in a second quarter report on the local market. They are “trading submarkets and even rotating buildings within a submarket, but truly new and robust demand is still lacking.”
Nearly motionless in the recent term, vacancy remains elevated. The rate for the second quarter was 20.6%, down 20 basis points for the period, down just half a percentage point over two years. July’s absorption took 10 additional basis points from the rate. Meanwhile, last year’s modest rental increases—1.8% for both the mean asking and effective rates—have been followed by a slowdown in 2012. At $18.30 psf and $14.29 psf, the asking and effective averages reported for the second quarter were up 0.2% each from the quarter before but were up only 0.1% year-to-date—gains of just two cents for each rate. July brought no change to the asking average along with a one-cent increase in the effective rate.
Construction remains subdued. As referenced, only two projects with a combined total of just 61,000 square feet will comprise the 2012 completion total. The 49,000-square-foot build-to-suit for U.S. General Services Administration (GSA) for the housing of immigration services completed in Flagler Center in Jacksonville’s Southside market area in February. Duke Realty Corporation and General Capital Group were co-developers. Construction began in October 2011. In addition, 12,000 square feet of office space at the 1534 Oak Street mixed-use building completed at that address in April following a June 2011 start. Insetta Family Properties developed the project. No competitive space remained under construction per the date of this report. Construction presently underway consists solely of the $19.3 million renovation by Elkins Constructors Inc. of the 253,000-square-foot Old Federal Courthouse government office building in downtown Jacksonville.
Including July’s positive contribution, Reis expects 88,000 square feet of net absorption for the second half of the year all told, alongside no new supply additions. Vacancy is forecast to end the year at 20.3% and to slip below 20.0% sometime in 2013. Rent growth in the vicinity of 1.0%, both asking and effective, is expected for 2012 all told. The year 2013 should be better.