JACKSONVILLE | MULTIFAMILY OUTLOOK | AUGUST 2017 (Download full PDF here)
OVERVIEW
Jacksonville continues to grow – with a job growth rate of 3.9% bolstered by “nearshoring,” Amazon and BMW, are creating 4,000 jobs and are opening new facilities in Jacksonville in 2017. A growing local economy is in line with growing rental rates, which are expected to rise along with new housing demand. Vacancies are expected to decrease as newly constructed units are slow to enter the local market. 70s and 80s vintage product remain popular with renters due to attractive rents. Regional private investors are the main active buyers in Jacksonville, targeting higher yields. We thus have the strategic opportunity to purchase multifamily properties in Jacksonville, as this market is often overlooked among larger metropolitan areas.
Figure 1: Jacksonville, Florida
Source: Carnival .
ECONOMIC INDICATORS
MACRO ECONOMY
According to the U.S. Census Bureau, the U.S. nationwide homeownership rate in the second quarter of 2017 remains near its lowest level of the past two decades at 63.7% , contributing to the increase in demand for apartments nationwide. Tighter credit standards have restricted the number of new single family homebuyers. As a result, the multifamily sector continues to experience sustained growth and tenant demand for multifamily housing is on the rise , according to the National Multifamily Housing Council.
JACKSONVILLE ECONOMY
According to the U.S. Census Bureau , Jacksonville’s 2016 population is 1,478,212, a 2.1% increase on the 2015 population of 1,449,481, ranking 40th in the United States . Jacksonville is ethnically comprised of approximately 60 percent White American, 30 percent African American, seven percent Hispanic American and three percent Asian American according to the U.S. Census Bureau .
In 2015, Jacksonville’s personal income was $64,094,915, ranking 43rd in the United States . Jacksonville’s 2015 per capita personal income of $44,219 grew 3.4% from 2014, according to the U.S. Bureau of Economic Analysis. Total GDP for Jacksonville’s metropolitan area from 2016 was $67.5 billion.
Jacksonville, with the largest deep-water port in the South Atlantic, is an important transportation hub that rivals New York as one of the top two vehicle handling ports in the nation. It is the hub of seven major highway shipping corridors with direct connections to other major cities in the U.S. such as Los Angeles, Houston, Miami, and New York .
In addition to its ports, Jacksonville also boasts three naval air stations within the city limits, providing a consistent base to the economy and providing in-migration from other States. The combination of deep-water ports, air and ground transportation centers provide Jacksonville a strong base economy upon which service-oriented sectors, such as finance, insurance, information technology, and healthcare are growing .
In particular, Jacksonville continues to benefit from the relocation of financial and information technology sectors jobs given the city’s lower cost base as compared to higher-cost, traditional financial centers. In light of the “post-crisis regulation and rock-bottom interest rates” which have diminished banks’ revenues and forced banks to look for cost-cutting measures , Jacksonville provides a cost-effective business environment characterized by low unionization rates and convenient access to airports.
Jacksonville remains an attractive city for expanding companies due to an abundance of workers due to in-migration, natural growth, a strong military presence, and the metropolitan’s educational institutions .
EMPLOYMENT
The employment rate in Jacksonville has been on an upward trend since 2010. As of June 2017, the unemployment rate in Jacksonville was 4.2%, down from 5.0% in June 2016, according to the Bureau of Labor Statistics . Jacksonville’s unemployment rate is in line with the Florida State unemployment rate of 4.1%, according to Bureau of Labor Statistics data .
Figure 3: Number of workers in Jacksonville vs. the unemployment rate
Source: Bureau of Labor Statistics .
According to the U.S. Bureau of Economic Analysis, personal income has grown by around five percent year on year in 2014 and 2015, while the total number of jobs has grown three percent year on year, during the same time period, as in Figure 4 below:
Due to Jacksonville’s competitive advantage in logistics and shipping, companies continue to move into and operate in Jacksonville. Amazon is in process of building new facilities in Jacksonville and is creating 4,000 jobs in 2017 alone. In addition to logistics, Jacksonville continues to benefit from the trend in “nearshoring” – the movement in highly skilled jobs from high cost centers to lower-cost areas such as Jacksonville.
MAJOR EMPLOYERS & INDUSTRIES
Jacksonville is home to six major industries: (1) finance (2) health care (3) logistics (4) aviation (5) advanced manufacturing (6) information technology , which continue to benefit from “nearshoring”, the trend whereby employers shift jobs from higher cost areas on the coasts to lower cost areas.
Jacksonville exceeds the national average in percentage of total employment in both business and financial operations and transportation and material moving. At the same time, the mean hourly wage for all occupations in Jacksonville is $21.70, $2.16 lower than the national average of $23.86, demonstrating the low-costs nature of labor costs in Jacksonville.
According to Berkadia, Jacksonville created 15,400 jobs in the past twelve months ending in January 2017, growing payrolls 2.3%. Education and health services grew 4.3%, adding 4,300 jobs. Baptist Health will continue hiring with the in the coming year “with its expansion plans on two campuses: the $35.7 million, eight story hospital tower and an emergency center and a medical office building” .
Additionally, 3,400 workers have been hired into the professional and business services, financial and information sectors, while the construction industry expanded by 1,000 workers in the year to 1Q 2017 . Furthermore, Amazon will hire 4,000 in 2017 to staff its 2.4 million-square-foot fulfillment center and Anheuser-Busch is building a 200,000-square-foot aluminum bottle manufacturing plant . Johnson & Johnson Vision Care is investing $300 million to expand its production facility , according to Berkadia.
Deutsche Bank and Johnson & Johnson Vision Care are recent additions to the list of top private employers, reflecting the growth in finance and medically oriented jobs in Jacksonville.
LOCAL MULTIFAMILY TRENDS
MEDIAN GROSS RENT
In January 2017, Forbes called Jacksonville the second best U.S. city to invest in housing due to Jacksonville’s 9% annual home price growth, 4.1% annual job growth and 5.1% population growth from 2012 to 2015 . Homes in Jacksonville are undervalued by 8% compared to the historic ration of price and local income.
With a stable economy, persistent job growth, and “the benefits of being part of Florida’s continued attraction for business, tourists and new residents, Jacksonville saw higher occupancy rates as well as higher rents” in 2016 according to a study of real estate market reports . In 2015, “56.2% of the housing units in Jacksonville were occupied by their owner” , thus 43.8% of the housing units are occupied by renters. The 2015 rate of homeownership is higher than 2014’s rate of 55.6%, though this rate is still lower than the national average of 63% .
In particular, Jacksonville continues to participate in the upward demand for multifamily housing. According to the Census ACS survey , median monthly gross residential rent in Jacksonville was $994 in 2015 and average gross rent was $1,009 in 2015.
Exhibit 7: Jacksonville Median Gross Rent keeps pace with the uptick in Florida Gross Rents
OCCUPANCY
Occupancy is 94.1% and asking rent is $966, a 3.5% increase from March 2016 for multifamily units, according to Berkadia . The occupancy rate dipped slightly in the past year due to an increase in the velocity of single-family home sales .
Developers delivered 1,708 units in the 12 months to March of 2017 . Further, new luxury apartment complexes Alaqua and The Carlton at Bartram Park were met with robust rental demand, achieving a 4.6% year-on-year rent growth. Exhibtit 9 below shows the new apartments constructed to during 1Q 2017, and their net absorption, or the rate at which the new apartments have been leased.
LOCAL RENTAL ECONOMICS
Exhibit 10 shows the rental submarket breakdown for the Jacksonville Metropolitan area. Rental rates increased in 1Q 2017 in every submarket except for the two of the most expensive submarkets, Ocean Beaches and Northwest Jacksonville, both of which experienced about a 2% average rent decrease. Even considering the slight decrease of these high-end neighborhoods, overall Jacksonville average rent still increased by 3.5% from 1Q 2016 to 1Q 2017.
CAP RATES
CBRE categorizes Jacksonville as a Tier III market for multifamily housing. Exhibit 11 below shows the cap rates for the first half of 2017 for both stabilized and value-add properties by classes “A”, “B”, “C” across Tier I, Tier II, and Tier III cities in the United States.
A cap rate refers to the percentage of net operating income represented by the purchase price of the apartment complex. In this way, one can think of the cap rate as the return an investor can expect to receive on a given apartment complex or the amount of money an investor can expect to receive as a proportion of the apartment complex’s purchase price.
Class B stabilized cap rates are at 5.50%-6.50%, while value add cap rates are 6.50%-7.00%. Class C stabilized cap rates are at 6.50%-7.50%, while value add are floating around 7.50%-8.25% . Jacksonville’s cap rates are favorable compared to other metropolitan areas, especially Tier I assets, which have cap rates between 4.00% – 4.50% for stabilized class B assets and 4.00% to 4.75% for class B value add assets . The lower cap rates seen in Tier l markets are due to the overbought nature of these markets. As a result, we are drawn to the yield opportunities in the Tier II and Tier III markets.
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