Jacksonville Is a Financial Hub
With Affordable Commercial Space

Jacksonville natives say they sometimes feel more Southern than Floridian. The same might be said of the commercial real-estate market in this riverfront city just south of the Georgia border, a growing but low-key financial hub that has so few hotel rooms that it had to bring in cruise ships to handle Super Bowl crowds last year.

Real-estate values look more like such affordable smaller cities as Nashville, Tenn., than high-flying Miami. Fourth-quarter average rents for apartment, office, retail and warehouse space were all among the lowest of Florida's major metro areas surveyed by Property & Portfolio Research Inc., a Boston-based research firm.

Average prices for office properties based on transactions valued at $5 million or greater in the larger Jacksonville area rose to $118 a square foot last year from $86 in 2004, well below the $175 fetched in Palm Beach but in line with the $126 in Nashville, according to Real Capital Analytics Inc. of New York. Average industrial-property sales were comparatively stronger, fetching $61 last year, midway between Orlando's $70 and Tampa's $58.

The SunTrust tower, bought last year by Kuhn Cos. and redeveloped as office condominiums, anchors the planned River Watch at City Centre project.

The Jacksonville area has played its lower-cost card well over the years. Median home prices have remained a relative bargain for Florida at $182,200 in the fourth quarter, below the national median of $213,000, less expensive than the $261,800 in Orlando and well below the $391,200 level in the Miami area, according to the National Association of Realtors. That affordability has helped push the area's population up to about 1.3 million and fuel above-average job growth. In recent years the area has attracted two new Fortune 500 corporate headquarters: Fidelity National Financial Inc. from California and CSX Corp. from Virginia.

"Jacksonville is an underappreciated market," says Kenneth T. Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at the University of California at Berkeley and president of Rosen Consulting Group LLC in Berkeley. Some larger national investors bypass Jacksonville because of its smaller size, he adds. "Of all the cities in Florida, it may be the most opportunistic place to be."

Some analysts are more pessimistic. A Moody's Investors Service report based on fourth-quarter data named Jacksonville's commercial real-estate market as one of the five weakest in the country. Patricia McDonnell, a senior analyst with Moody's, says the concern was largely related to the multifamily sector as an expected oversupply of new rental apartments is planned this year. In addition, she says the office market is struggling with high though improving vacancy rates.

Part of the problem may be traced to Jacksonville's size -- at more than 800 square miles, it's the largest city in terms of land in the contiguous U.S. Paul M. Mason, chairman of the University of North Florida's Department of Economics and Geography, says that tends to encourage pockets of commercial development on its fringes that sometimes outpace demand. But, he adds, "as long as the economy continues to grow, that space is going to continue to be used up."

The area continues to build on its historical strength as an insurance and banking center. Most recently, Washington Mutual Inc. has committed to adding 600 jobs to the region over the next five years, and Merrill Lynch & Co. is expected shortly to make a final decision on whether to expand its work force there by about 800 jobs, the companies say.

Jerry Mallot, executive director of the Cornerstone Regional Development Partnership, which promotes economic development in northeastern Florida, says downtown Jacksonville in particular has popped up on more investors' radar screens recently. Mr. Mallot estimates that about $1.5 billion in projects, many residential, are either under way or close to starting construction downtown. Investors have been encouraged by the transformation in recent years of the former industrial waterfront on the St. Johns River with the addition of a walkway along the river, a performing arts center and residential development, Mr. Mallot says.

Kuhn Cos. of Orlando, which has been instrumental in the revitalization of Orlando's downtown, has snapped up three office buildings in downtown Jacksonville since September. The company paid $37.5 million for the former SunTrust tower, or $98.25 a square foot, and purchased the former Barnett Bank building for $4.95 million, or about $33 a square foot, says Cameron Kuhn, chief executive of Kuhn Cos. Now, he says, "you can't touch anything in the central business district for under $80 a foot."

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